Tackling Prescription Drug Costs: An Examination of Proposed Medicare Part D Reform Proposals and Alternatives

1. Tackling Prescription Drug Costs:An Examination of Proposed Medicare Part D Reform Proposals and Alternatives July 19, 2018 John Rother, President & CEO National Coalition on Health Care

2. Who We Are

3. Increases in Reimbursement for Brand-Name Drugs in Part D HHS Office of Inspector General - 06-04-2018Report (OEI-03-15-00080) • WHAT WE FOUND • Total reimbursement for all brand name drugs in Part D increased 77 percent from 2011 to 2015, despite a 17 percent decrease in the number of prescriptions for these drugs. • After accounting for manufacturer rebates, reimbursement for brand name drugs in Part D still increased 62 percent from 2011 to 2015. • Part D unit costs for brand name drugs rose nearly 6 times faster than inflation from 2011 to 2015. • The percentage of beneficiaries responsible for out of pocket costs of at least $2,000 per year for brand name drugs nearly doubled across the 5-year span.

5. Presenters Jack Hoadley, Research Professor Emeritus, Health Policy Institute, McCourt School of Public Policy Georgetown University Len Nichols, Director, Center for Health Policy Research and Ethics, George Mason University Joe Baker, President, Medicare Rights Center

6. Drug Costs and Part D Policy Issues Jack Hoadley, Ph.D. Research Professor Emeritus Health Policy Institute, Georgetown University National Coalition on Health Care July 19, 2018

7. Disclaimer • All comments I make are my own and are not to be viewed as the positions of MedPAC 7

8. Part D Basics • Benefit for outpatient drugs first offered in 2006 • Based on a model of competing private plans • Average beneficiary has a choice of 23 PDPs and 17 MA-PD plans in 2018 • 44 million Part D enrollees (70% of all Medicare beneficiaries) • Nearly 30% of Part D enrollees qualify for the Low-Income Subsidy 8

9. Part D Basics, continued • Average monthly premium for PDPs is $43.16, but premiums vary widely • Standard benefit structure: • Deductible ($405 in 2018) • Initial coverage period with 25% coinsurance (to $3750 in spending) • “Donut hole” phased out in 2019 • Catastrophic coverage after $8418 in drug spending ($5000 out of pocket): 5% coinsurance 9

10. Part D Policy Options from MedPAC • Part D recommendations in the June 2016 report • Viewed as a whole package • Some items require statutory change; others can be changed through regulation or guidance by the Secretary • Additional recommendation in the March 2018 report 10

11. MedPAC Recommendation #1 • The Congress should change Part D to: • Transition Medicare’s individual reinsurance subsidy from 80% to 20%, while maintaining Medicare’s overall 74.5% subsidy of basic benefits, • Exclude manufacturer’s discounts in the coverage gap from enrollees’ true out-of-pocket spending, and • Eliminate enrollee cost sharing above the out-of-pocket threshold. 11

12. Reinsurance in Catastrophic Phase Coverage Gap Deductible 25 % co-insurance Catastrophic Coverage Total Spending $360 $3,310 $7,515 $ + 80% ≈ 95% 15% Combination of Mfr. Discount, Plan & Beneficiary Payment Beneficiary Pays CMS Pays (reinsurance) Plan Pays 12

13. Part D Reimbursements, 2007-2016 15% 13

14. Components of Plan Bids, 2007-2018 15% 14

15. Spending in the Gap and Catastrophic Phases, 2015 15% 15

16. Out-of-Pocket Spending for Specialty Drugs, 2016 Median on-formulary out-of-pocket costs in 2016: Hepatitis C $6,516 Up to catastrophic coverage phase $6,608 In catastrophic coverage phase $7,153 Multiple Sclerosis $5,979 $6,235 $6,448 Rheumatoid Arthritis $4,413 $4,864 $4,872 Cancer $7,227 $8,503 $11,538 NOTE: Analysis includes 20 national and near-national stand-alone prescription drug plans in Baltimore, MD (zip code 21201) and reflects pricing at a Rite Aid pharmacy in this zip code. SOURCE: Georgetown/Kaiser Family Foundation analysis of 2016 Medicare Plan Finder data. 16

17. MedPAC Recommendation #2 • The Congress should change Part D’s low-income subsidy to: • Modify copayments for Medicare beneficiaries with incomes at or below 135 percent of poverty to encourage the use of generic drugs, preferred multi-source brands, or biosimilars when available in selected therapeutic classes, • Direct the Secretary to reduce or eliminate cost sharing for generic drugs, preferred multi-source brands, or biosimilars, and • Direct the Secretary to determine appropriate therapeutic classifications for the purposes of implementing this policy and review the therapeutic classes at least every three years 17

18. Generic Dispensing Rate by LIS Status, 2007-2013 • NOTE: Generic dispensing rate is the proportion of Part D prescriptions dispensed that are generic prescriptions. • SOURCE: MedPAC analysis • Generic dispensing rate difference for selected classes, 2007-2012 • Antihyperlipidemics: difference of 7-8 percentage points • Diabetic therapy: difference of 14-15 percentage points • Antipsychotics: difference of 4-9 percentage points 15% 18

19. MedPAC Recommendation #3 • The Secretary should change Part D to: • Remove antidepressants and immunosuppressants for transplant rejection from the classes of clinical concern, • Streamline the process for formulary changes, • Require prescribers to provide standardized supporting justifications with more clinical rigor when applying for exceptions, and • Permit plan sponsors to use selected tools to manage specialty drug benefits while maintaining appropriate access to needed medications 19

20. Estimated Spending Impact • June 2016 Part D recommendations • CBO estimates that the combination of recommendations #1, #2, and #3 would lead to one-year program savings of more than $2 billion relative to baseline spending, and more than $10 billion in savings over five years. • Separate estimates for each recommendation are not available. 20

21. MedPAC Recommendation in 2018 • The Congress should change Part D’s coverage-gap discount program to: • require manufacturers of biosimilar products to pay the coverage-gap discount by including biosimilars in the definition of “applicable drugs” and • exclude biosimilar manufacturers’ discounts in the coverage gap from enrollees’ true out-of-pocket spend. • Bipartisan Budget Act of 2018 • Directed biosimilar manufacturers, as of 2019, to provide a discount on products in the coverage gap. • BUT: the discount amount would continue to count as though it were the enrollees’ own OOP spending. 21

22. Bipartisan Budget Act of 2018 • Close coverage gap in 2019 instead of 2020 • Increase manufacturer discount in coverage gap from 50% to 70% • Thus plan share in gap drops from 25% to 5% • Beneficiary share remains at 25% • Beneficiary share continues to count as “true out of pocket” spending 22

23. President’s FY19 Budget & Blueprint • Add out-of-pocket limit to Part D • Reduce reinsurance from 80% to 20% • Change TrOOP calculation • Change formulary standards from 2 per class to 1 per class • Expand use of UM in protected classes • Eliminate cost sharing for generics for LIS enrollees • Share rebates at point of sale • Move Part B drugs to Part D 23

24. Making Prescription Drugs More Affordable Len M. Nichols, Ph.D. NCHC Briefing Washington, DC July 19, 2018

25. The Bargain We Have Struck • In the Beginning, … (1928-1940) penicillin was not patented • Modernity => incentives are necessary • SO, we grant “fixed term” monopolies to spur innovation • Patents = 20 years (formerly 17) • Exclusivities, Data and Marketing, range from 180 days to 12 years • And THEN we HOPE competition ensues to drive price down and increase access, eventually

27. Drug Spend as percentage of NHE

32. SoWhat CAN We Do? • Recognize there is no silver bullet, all choices have tradeoffs • Short run improvements • Speed approval process for generics and bio-similars (BP) • STOP pay for delay, obvious collusion • Clarify off-label use communication/promotion rules • Transparencies (pricing (BP), growth, R&D, and advertising, PBM margins) • Empower/promote performance-based pricing (BP demos*) • Out-of-pocket limits will raise premiums, may still be worth it ??? • Binding arbitration may be useful for unique part B (and D?) drugs • Longer run enhancements of competitive forces • Shorten / condition length of exclusivity grants • Empower Medicare to negotiate (this is NOT price setting)***

33. Tackling Prescription Drug Costs: An Examination of Proposed Medicare Part D Reforms Joe Baker President Medicare Rights Center

34. Medicare Rights Center The Medicare Rights Center is a national not-for- profit consumer service organization that works to ensure access to affordable health care for older adults and people with disabilities through Counseling and advocacy Educational programs Public policy initiatives

35. People with Medicare

36. Heard on the Helpline The most common challenges in 2016: • Inability to afford prescription drugs • Medicare Part B enrollment rules and pitfalls • Medicare Advantage health service denials and coverage rules

37. People with Medicare Struggle to Afford their Prescription Drugs

38. Proposed Changes: Impacts on People with Medicare • Recent changes to the Part D “Donut Hole” must be preserved: • Congress must maintain the BBA of 2018’s Part D reforms that close the Medicare Part D donut hole one year earlier and provide beneficiaries in the coverage gap with a higher discount on their prescription drugs. • Other proposals have important trade-offs that must be fully examined: • Moving drugs from Part B to Part D • Loosening formulary standards • Point-of-Sale rebates

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