(This is an unedited transcript. For accurate quotes and presentations, please refer to the full-event video.)
SARAH DASH: We’re going to go ahead and get started. The Alliance is a non-partisan organization, as many of you know. We’re dedicated to advancing knowledge and understanding of health policy and our mission is to foster informed policy through non-partisan education. Over the last year the Alliance has hosted close to a dozen panels about issues related to prescription drug prices and through each event, in case it wasn’t clear before, it is becoming increasingly clear that the prescription drug market and prescription drug coverage are convoluted and the mechanisms of the institutions involved are often opaque. And at the center of this system remain many patients who struggle to afford the medications that they need.
There are a number of congressional proposals related to this topic. Today we’re going to focus particularly on the Medicare Part D program. There are numerous proposals, they are evolving, so we are going to do our best today to give you the lay of the land as it currently stands. I know you’re used to hearing me say it; the Alliance does not advocate for any policy or regulatory solutions. We are also agnostic as to the correct spelling of “donut”; we’ll be getting into that later. So we want to orient you to the different components of the proposals, so whatever happens with the legislative process and the politics, which are sort of out there and we’ll leave for others to deal with today. But whatever happens, the concepts remain the same, so hopefully we’ll give you more of a grounding that you need for going forward.
I’d like to thank Arnold Ventures for supporting today’s briefing, and I’d like to invite Mark Miller, who is Executive Vice President of Healthcare, to make some welcome remarks to you all. Thanks, Mark.
MARK MILLER: I’ll be brief. Just so know, Arnold Ventures is a philanthropy, take on complex problems, education, criminal justice, healthcare, that type of thing. We sponsor research, develop policy, we do education things like this through the alliance.
A few years ago when we really got involved in drugs, I would have tried to motivate this conversation by saying we’re going to spend seven and a half trillion dollars on drugs over the next decade, 30 percent of people can’t fill a script because it costs too much. American voters, whether they’re Republican or Democrat are highly activated on this issue, want a change and would like to see a change. Today, I think it’s actually easier to motivate it. In both the House and the Senate, you have passed legislation curbing anti-competitive activities like pay-for-delay, so there’s standing legislation separately in the houses on that. In both the House and the Senate, there is legislation pending on reforming Medicare Part D’s risk structure, which will be discussed today. There’s legislation in both the House and Senate, limiting price increases in Part D, which will be discussed today, and then in the House you have legislation on negotiation, which is out there. So I think, actually, you and the Congress are a historic moment and I think there’s a lot that can happen here today that will inform that. And so I’d like to thank Sarah for putting this together, I appreciate it.
SARAH DASH: Thanks, Mark. Great, well thank you. We have a terrific panel today. Before I introduce them, let me just briefly cover a couple of housekeeping notes. First of all, it’s like 150 degrees in here. They are turning the heat down, just so you know. Please stick with us. And thank you for bearing with us. You can join today’s conversation on Twitter at the hashtag #allhealthlive. This is an on-the-record briefing. And in your packed of handouts, you’ll find a blue evaluation form — you’re used to me saying this by now, but please fill it out before you leave and hand it to the registration desk. And you have a green question card on your chair, so be thinking of questions throughout the presentations and then we’ll give you a chance to ask your questions during the discussion session either through the cards or we’ll have mics.
With that, let me introduce our terrific panelists and you can find their full bios in your folder. First I am very pleased to introduced Leigh Purvis, who is the Director of Health Services Research in AARP’s Public Policy Institute. Leigh leads the Institute’s work on prescription drug pricing, biologic drugs, and prescription drug coverage. She’s the co-author of the Public Policy Institute’s annual RX Price Watch Report, a prescription drug price tracker tool heavily used by older Americans.
Next, we have Tara O’Neill Hayes. Tara is Deputy Director of Healthcare Policy at the American Action Forum, where she focuses on health insurances costs and coverage, Medicare and Medicaid, drug pricing and reimbursement, and the budgetary impacts of healthcare programs. Prior to joining the American Action Forum, Tara was a legislative assistant in the U.S. House of Representatives for various members and from her home state of South Carolina.
Next, we’ll hear from Tricia Neuman. Tricia is Senior Vice President and Director of the Medicare Policy Project at the Kaiser Family Foundation. She’s a highly regarded Medicare expert, currently working on issues related to health reform proposals, including Medicare for All, and other proposals to expand access to public coverage and prescription drug cost. She’s also a guest lecturer at Harvard’s Kennedy School of Government, Johns Hopkins, and Georgetown.
Finally, and last but certainly not least, we are pleased to have with us Chris Sloan. Chris is an Associate Principle at Avalere, where he advises a number of clients, including pharmaceutical manufacturers, health plans, providers, and patient groups on key policy issues, facing the healthcare industry. His expertise includes prescription drug pricing, economic and population impact of policy, ACA, generic drugs, and biosimilars. So wealth of expertise here, and we know in the room as well, so we’re excited to have all of you get us started. So Leigh, why don’t you kick it off?
LEIGH PURVIS: Thanks. I’m going to try to do a little bit of level setting for those of you who perhaps are not immersed in Part D every day, and also give you a better idea of where beneficiaries stand, in looking at this program.
So Medicare Part D has actually been around for quite a while. It was created by the MMA, but actually implemented in 2006. It is voluntary. Beneficiaries have the option of enrolling. However, you may also know that there is a late enrollment penalty. So for Medicare beneficiaries who do not have coverage for prescription drugs, if they choose not to enroll in Medicare Part D, they will be forced to pay a late enrollment penalty. Another important part of the program is Extra Help, which provides a lot of financial assistance for people who have low incomes and low assets. There are a lot of beneficiaries that are qualified for Extra Help and it’s incredibly important, given the costs associated with the program.
So how does Part D pay for prescription drugs? Medicare itself pays for a subsidy that covers about 75 percent of the expected cost. It comes in two forms. One is a direct subsidy that can help reduce premiums, the other is reinsurance. And that is for spending that occurs in catastrophic coverage, when someone’s prescription drug costs exceed a certain threshold. The enrollees are responsible for the remaining costs through premiums and they also pay cost sharing that can differ, but is required by the plan. One thing that is important to note kind of for the following conversation is that Medicare is not allowed to negotiate with drug manufacturers. Medicare Part D plans can negotiate, however, there are a lot of Medicare Part D plans on the market and there’s an economy of scale at play here. Medicare representing all beneficiaries would have a lot more negotiating clout in an individual plan.
So how does coverage work? There are basically two types of plans out there: One is a stand-alone prescription drug plan and they just cover prescription drug benefits. Those are PDPs. There are also Medicare Advantage plans that include prescription drug coverage, those are shorthand MAPDs. The plans do have certain requirements that they have to meet, but there is a lot of variation in terms of what premiums are charged, what type of cost-sharing is required and which drugs are covered and how. The benefit itself is also complicated. There are a number of different phases, the deductible, initial coverage phase, coverage gap phase, and catastrophic coverage. Those benefits move with spending. I get the easy part of the day, which is explaining what the benefit used to look like. So in 2006, this is the Medicare Part D benefit. You can see there’s a deductible within the initial coverage phase. The enrollee is responsible for 25 percent, plan pays 75 percent. And then there was a coverage gap, when the enrollee was responsible for 100 percent of their cost, until their out-of-pocket costs reached a certain threshold, which in 2006 was $3600. After that time, they entered what is known as catastrophic coverage and it’s important to note, this is not a hard cap on cost. You’ll see that the enrollee is still responsible for five percent of their cost. So you can have enrollees who are technically in catastrophic coverage, who are still paying a fair amount of money for their prescription drugs.
The question here: Is Part D a success? Absolutely. From the beneficiary perspective, Part D is great. The reality is, there is now prescription drug coverage for Medicare enrollees that did not exist before. And you can see that kind of in the enrollment numbers. As of now, about 75 percent of eligible Medicare beneficiaries are enrolled in Medicare Part D. they are also extremely happy with that coverage. The vast majority of them have very high satisfaction both with Medicare Part D program and with the plans that they are enrolled in. What’s interesting about that is, you know, they may be a little bit too satisfied with that coverage. A lot of the Part D was premised on the idea that enrollees would switch plans and that would increase competition because plans would be competing for their coverage. However, most of the numbers that we’ve seen so far indicate less than 15 percent of enrollees are actually changing plans, which means that competition that we were expecting, really is not taking place. And from the beneficiary side, what’s important to keep in mind is by not switching, a lot of them are actually paying a lot more for their Part D coverage than they potentially could from a plan that would offer similar coverage but potentially with lower premium, lower cost sharing. So it’s not to their benefit to stay with those plans year after year.
Something else to keep in mind is, even though everything looks rosy for the beneficiary perspective, the reason that we’re here today is that there are definitely some signs of challenges ahead. Part of that challenge are the spending numbers. I’m sure you all have seen all of these at this point. Part D spending has accelerated dramatically since the program was implemented in 2006. A large part of that is spending in that catastrophic portion of the program, where we’re seeing people who are effectively blowing through the benefit. And what’s important to keep in mind about that catastrophic portion of the program, is that Medicare is responsible for 80 percent of the costs there. So we’re seeing more and more beneficiaries taking high cost drugs, or having high prescription drug spending, and that’s leading to more and more spending in that catastrophic portion of the program. You can see the trustees are projecting that the re-insurance payments will account for nearly 80 percent of those subsidy payments that I mentioned at the beginning, by 2027. So that’s a drastic change in how the spending is being spread out through the benefit. I think the important thing to keep in mind is what is driving that increased spending in catastrophic, is prescription drug prices. Part D covers prescription drugs. What we were seeing is the result of what we were seeing in the underlying prescription drug market in terms of high and growing prescription drug prices.
Something else to keep in mind, especially from the beneficiary perspective, is that a lot of you are probably seeing announcements that the basic premium is declining. It’s been holding steady. The important thing to keep in mind is that is an average and when you look at where people are actually enrolled, what plans actually have high enrollment, the average is actually closer to $40 per month and even that average masks a great deal of variation. When you look at the popular plans, you can see that there are premiums that range from yes, around $30, but there are some plans that have premiums that exceed $100. So what beneficiaries are actually experiencing is very different from the averages you’ve been seeing. The other thing to keep in mind, is premiums have been growing pretty quickly. A lot of these popular plans have premiums that have doubled or even tripled since 2006.
We’re also seeing a market change in cost-sharing under Part D. A lot of Part D plans are using co-insurance, which is where you’re charged a percentage of the drug’s price, as opposed to a flat co-pay. And sometimes you’ll see plans that have co-insurance for all tiers within their formularies. So every single drug is subject to co-insurance. Medicare Part D does limit how much cost sharing you can charge to run $100 for a co-pay and 50 percent co-insurance. So if you think about some of the prices we’re seeing out there, that can add up to a lot of money very quickly, and we’re seeing more and more plans using those maximums. As I mentioned earlier, enrollees are responsible for some cost-sharing, even when they’re in catastrophic coverage. About one million enrollees who don’t receive the low income subsidy, reached catastrophic, which is twice the number than entered in 2007. Again, going back to that five percent cost-sharing, if you’re on a high priced drug, there are some beneficiaries who have seen cost-sharing that exceeded $10,000 for their Part D drugs alone. That’s before you’re talking about premiums, or other healthcare costs; which when you consider the fact that the median income for a Medicare beneficiary is just over $26,000, obviously is not financially sustainable.
In terms of the future, I do think that the numbers we’re seeing under the Medicare Part D program and part of the reason we’re here today, is that the current trends are simply not sustainable. The other thing to keep in mind is this is not something that affects Medicare beneficiaries. It’s affecting everyone in this room. Medicare is a taxpayer funded program. This is an important issue for absolutely everyone. From AARP’s perspective, we are very mindful of the beneficiary impact, and what we’re looking at, going back to the relatively low and fixed incomes in comparison to increasing premiums and increasing cost-sharing is simply not something that can work for the long term. And again, from our perspective again, Part D, great program, very happy it’s here, but the reality is, we’re reaching a point where the access and affordability that came with that program may not be able to continue until we changed. Thank you very much.
SARAH DASH: Thanks, Leigh. Tara?
TARA O’NEILL HAYES: So I’m going to skip through the first couple of my slides because Leigh has already gone over that. What the benefit structure used to look like, and then the ACA started closing the coverage gap in 2010 by requiring primarily manufacturers for brand-name drugs and biosimilars to start paying a rebate in the coverage gap. That was 50 percent of the cost were going to be covered by — or are covered by drug manufacturers. One other thing that the ACA did was include a provision to temporarily slow the growth rate of the catastrophic coverage threshold. So you can see in the chart here, the dotted line is what that threshold would have been if this provision was not included. The red, solid line is what it actually was. That ends — that temporary slow down ends next year, so you see the lines converge again in 2020. But one thing I want you to take away from this, is that that change was part of, yes, we have new drugs that have come to market, and yes, we have had price increases, and the drugs themselves are becoming more expensive, but also this is another factor that has contributed to more people reaching the catastrophic phase and they are doing so after a less spending then otherwise would have been required. And then with the manufacturer rebates provided and the coverage gap, those also count towards the beneficiary’s out-of-pocket costs in terms of what’s determining when a beneficiary reaches the catastrophic phase. So those two things also contributed to more costs occurring in the catastrophic phase.
And in this chart, you can see the impact of that. This is — the black at the bottom of the chart is the direct premium subsidy provided by the government, and then the darker gray at the top is the reinsurance subsidy provided by the government. So you can see, after the ACA, the components of the subsidy has significantly shifted. It’s basically been flipped on its head. The premium subsidy is much smaller and the reinsurance subsidy is increasing dramatically.
Then last year, Congress passed the BBA, which included another change to the Part D benefit design, increasing the drug manufacturer coverage gap rebates from 50 percent to 70 percent. And they took that extra 20 percent that the manufacturers are paying, and instead of reduced the amount that beneficiaries would have had to pay, they reduced the plan liability. So that means that plans in the coverage gap are now responsible for only five percent of the cost for brand-name drugs or biosimilars. They are still responsible for 75 percent of cost, I guess, that’s next year, technically — we’re still closing the coverage gap, so next year they’ll be responsible for 75 percent for generic drugs, but they’ve only got the five percent here for brand-names and biosimilars.
A couple things to take away from this: One, reducing plan liability. Plan liability is essentially what your premiums are going to be. And so by reducing plan liability, you’re able to reduce premiums. And in fact, next year, the average premium, as Leigh mentioned, is going to be $30. That’s equal to what it was in 2008; 12 years ago. As costs increase, there’s two ways that those costs get paid: Premium and out-of-pocket costs. And so if premiums are what they were in 2008, obviously out-of-pocket costs have had to rise significantly, which is why we’re all sitting here today, it’s why we’re having so many hearings, it’s why you hear the outrage. Those out-of-pocket costs are really high because those premiums have been kind of kept artificially low.
Another consequence with this 75 percent liability for generics versus five percent for brand-names and biosimilars, is that it only in an plan’s financial interest for the beneficiary to take a generic drug in the coverage gap, if that generic is more than 15 times less expensive than the brand-name drug, which is obviously not something that we want to be encouraging. We need people to take generic drugs in order to help hold down costs for the market at large. And to encourage generic manufacturers to develop generics, right? So we don’t want that incentive in the system.
And then lastly, because the mandatory rebates in the coverage gap are in that fixed amount of spending, so the light blue part that you see here, there is a fixed amount of dollars that are subject to the mandatory rebate. That means there’s a maximum amount of rebate that will have to be paid by a manufacturer. And so in 2020, that maximum rebate is $3,698 and that rebate will paid by a drug that costs $9,303 or more. So the same rebate will be paid by a $9,300 drug, versus a $100,000 drug. That’s making it much more punitive to lower cost drugs, which I don’t think is really what we’re going for here.
So what AF did in proposing a restructuring of the benefit, we sought to eliminate or at least significantly reduce some of these perverse incentives. So to go over some of the highlights, one of the most important things is moving that mandatory rebate from the coverage gap into the catastrophic phase. And let me just explain why we set it at 9 percent. I know that’s a funky number. So we hired Milliman, an actuarial firm, to do analysis, and they found that nine percent in catastrophic would be budget neutral for the industry over the ten year window — they looked at 2020 to 2029, for the industry as a whole, relative to that 70 percent in the coverage gap. Then 20 percent, that is what MedPack had proposed years ago and it was — everyone had kind of seemed to agree was appropriate, reducing the government reinsurance liability to 20 percent. And so then the plans are left with that remaining 71 percent.
So a couple things that changing this does: one, by moving the rebate into the catastrophic phase, it ensures that the amount of the rebate increases as the price of the drug increases, which has two benefits: one, it puts pressure on launch prices and also provides a disincentive for raising prices. With the insurers having significantly more liability, both in the initial coverage phase and in catastrophic coverage, they should have more incentive to help control costs. And then finally, the out-of-pocket cap for beneficiaries provides real financial protection for beneficiaries, that is much needed.
Then we have the Senate Finance proposal. It’s similar in concept to our plan, obviously the numbers are different, and I won’t run through all of them, you can see them yourself. But two significant differences: the prescription liability they set at 20 percent in catastrophic for manufacturers, which is of course more than double the nine percent that Milliman had found to be budget neutral. So that means it’s going to double the impact for pharmaceutical manufacturers, if this were adopted. And then one thing that I really like that they did is they hold plan’s liability for 60 percent in catastrophic for both brands and generics. So now plans have the same incentives throughout — or the same liability throughout the benefit for brands versus generics, so you’ve eliminated that disparity where a plan might actually prefer that a patient take a brand-name drug.
Lastly, we have H.R. 3, or Speaker Pelosi’s Plan, as it’s often referred to. It sets a significantly lower out-of-pocket cap and the also significantly increases the manufacturer liability. So it’s now gone from 20 percent in the finance proposal to 30 percent in catastrophic here. But then also 10 percent for all spending in the initial coverage phase. So above the deductible. So our analysis has found that the hit to manufacturers is 3.6 times greater than what we proposed in ours. So it’s obviously going to have significant presence there. And then they also maintain this disparity in insurer liability between generics and the brand-name drugs.
Next, I’m going to quickly run through a couple of these slides. This is just showing the maximum rebate under each of the plans that would be paid for a drug based on the given price. And it shows also the percentage of the rebate as a percentage of the drug’s price. And so you can see, they all have reversed this so it’s not more punitive to lower cost drugs anymore, it does, under each of them, increase as the price of the drug increases.
This is an example, I’m also going to skip past, of just liability for a $30,000 drug, so you can see the differences. And then this is the last one I want to spend just a minute on. So I did some analysis of the plans and let me just provide some caveats here. So this is based on the 2017 data on the CMS drug spending dashboard. I made some assumptions about how utilization and prices would change from 2017 to 2022 and based on those assumptions, I calculated the number of drugs for which the average spending per beneficiary in a year — for just that drug alone, if they took no other drugs, just that drug, would trigger the rebate requirement. So that is obviously a much lower price point under the Pelosi plan, because they would have to start paying rebates after the deducible. So $485 is what we estimate the deductible will be in 2022. And then I looked at the minimum amount of rebates that would be required just from those drugs alone. That’s obviously a lower bound of all of the rebates that will be paid. So these are just the drugs that their cost alone requires a rebate. This is how much we estimate would be collected under each of the plans. So you can see the impact under H.R. 3, Pelosi’s Plan, is significantly higher than any of the others.
Then there is also a chart just showing the out-of-pocket costs based on various levels of drug spending. Again, you can look at that on your own. I’ll close by saying, all of these plans seek to put downward pressure on drug prices. They seek to increase the incentives at the plans, the insurers, to control costs, but there are significant differences across the plans and those have significant impacts, obviously, and in my opinion, the greater the mandatory rebate, the more of a market distortion you are going to have. So there’s a lot to consider there. But I will leave it there and I look forward to your questions. Thank you.
TRICIA NEUMAN : That was a lot. That was great. Hi, everybody, I’m Tricia Neuman, I’m from the Kaiser Family Foundation. For those of you who are not familiar with the Kaiser Family Foundation, we are a non-profit, non-grant making organization. We are not affiliated with Kaiser Permanente. So what are we? That was a lot of “not’s”. We are a source of information and analysis that feels important for informing the debate and we produce information on a broad range of health policy issues and our mission is to inform you and that’s what we do.
What I’m going to do this afternoon, is present a little bit of polling information that might be of interest to you and then I’m going to talk about the other proposals, since Tara did such a complete job talking about benefit redesign.
Mark mentioned earlier that there is actually a fair amount of agreement or some sources of agreement in that there’s now the provisions that have made it through H.R. 3, which have worked their way through three committees. Now the Elijah Cummings Lower Drug Costs Now Act, named because he was such a strong advocate for something about drug prices, because he understood the extent to which it was a concern for his constituents and others. That has now passed the Labor Committee, the Ways And Means Committee and the Energy in Commerce committees. There are also provisions that have passed the Senate Finance Committee and also President Trump’s Administration has put forward proposals that would also deal with prescription drug pricing. And believe it or not, there are common elements across these three — the House, the Senate, and the Administration, that could form the basis of a compromise and a negotiation if there was the political will to do that.
Speaking of political will, we do polling. And we have run several options by the public, and what you can see here is there is strong support — really strong support across Democrats, Independents, and Republicans on almost any proposal you put in front of them to do something about prescription drug costs. This is because this is a pocketbook issue people understand, that either they or someone they know is really upset about what they are paying out-of-pocket for their drug cost. And if your next question is, “Well, what about people on Medicare, because they have Part D?” Interestingly enough, you would see very similar results for older people. However, the strong level of support can soften when people hear some of the arguments that the industry has put forward in opposition to proposals, like allowing the Secretary to negotiate drug prices. What you could see here is support remains strong when they hear that people will save money, that the Federal Government will pay less, but that support weakens and opposition increases when they hear, “Well, this could lead to less R&D, research and development, and it could lead to less access for prescription drugs.” So that is something to keep in mind, because these are clearly the arguments that are being used.
Looking across the House, Senate, and Trump Administration, I’m not going to talk about the top row, because again, Tara did a great job of that. I’m going to focus a little bit on the second two rows, which are having the Secretary negotiate drug prices and inflation-based limits on drug prices. I will say there’s another title that was added to the bill on the House side, which was Strengthening Protections for Low Income Beneficiaries. That is a provision in H.R. 3 now, as passed by two committees — actually, three committees, though it’s not in the Senate Finance proposal and it’s not in the Trump Administration, and that would expand eligibility for low income benefits.
So let’s go to this issue of government negotiations. For those of you who haven’t been around so long that you have gray hairs spewing somewhere, this issue of government negotiations have been around since there was debate about the drug benefit. And particularly once the new drug law was enacted, there was a phrase that was put in the statutory language that’s called the non-interference clause. And the non-interference clause basically says, “Thou shalt not negotiate with drug companies, Madam Secretary.” And that’s really the law of the land. And the thing is, there’s so many members of Congress who don’t understand that and have campaigned on this and say, it just makes no sense, why shouldn’t the government negotiate to bring lower prices to people? Well, interestingly enough, they’ve asked CBO about this. And every time they’ve asked CBO, hey, wouldn’t it be great if the secretary were to negotiate drug prices? CBO has said, “No, not so much. We don’t actually think it will do anything.” And that was quite frustrating to members of Congress who were sure that that would actually do something. So over the years, this has been something that has come back kind of over and over again, and this year for the first time after seeing the language in H.R. 3, CBO has said, hmm, maybe this could do something. And really, it’s because all along, CBO was saying, you need teeth. You need a penalty. You need a motivation to get both the Secretary and drug companies to come to the table in order for a CBO to believe it will actually do something. And in H.R. 3, there’s teeth and CBO has said, yes, there will be real savings. So that is a significant change both in the drafting of the legislation and CBO’s response.
So how would the Secretary negotiate drug prices under H.R. 3? What does that look like? So if you look at the bill that’s been modified by the committees, they modify the non-interference clause, they don’t actually repeal it. They give the Secretary the authority to negotiate for at least 25 drugs and now that has been upped — over time it will be 35 drugs. Drugs for which there’s no market competition or — yeah. This is based on drugs with the highest Medicare Part D spending. So these are single source drugs. Unique drugs with high spending. There’s also now a new provision that was put in as the committees were considering the bill, that would add to the roster of drugs that could be negotiated. Newly approved drugs with prices at or above median household income, that may also be subject to negotiation. There’s a maximum price that’s set. The maximum price is not to exceed 120 percent of the average price, enough to six countries — Australia, Canada, France, German, Japan, and UK. That too is very important for getting a score. And this idea of international pricing is not one that the House put on the table, this is an idea that President Trump put on the table with respect to Part B drugs. It is a controversial idea for sure. His argument was, why should other countries be freeloading on the United States. But the idea is to, well, why don’t we leverage their lower prices internally. A unique feature of the House bill is that would apply also to private insurance and that was a big deal as this was being talked about because there’s always been interest in doing this for Part D, but now this would apply to group plans and individual plans. And as I mentioned, there are penalties for non-compliance.
CBO had a very interesting score and I want to just highlight a few provisions. One is they said, $345 billion in savings for this provision alone. That’s not all the other provisions that are in H.R. 3. They also said that they expect lower prices would lead to higher use of prescription drugs in the United States, because people pay less, they’ll use more. That higher use of prescription drugs will mean improved health outcomes and lower utilization and spending for other Medicare services, which is sort of drawing the connection between adherence and service use and spending. But they also said that the policy would lead to higher drug prices in other countries, lower revenues for drug manufacturers and when they were asked to say what does it mean in terms of R&D, remember that was a big issue that I mentioned earlier. They said, well, 8 to 15 fewer drugs, they project, would come to market over the next ten years out of a base about 300 new drugs that they would predict would come to market, so that’s roughly five percent. They didn’t say what type of drugs they’d be. They didn’t say whether these are innovative, ground-breaking drugs that are going to make sure we all don’t get Alzheimer’s, or me-too drugs that may or not be essential. They have not yet estimated the rest of it.
Let’s go quickly now to inflation, really just to make that point that all the bills do something about inflation. Why? Because people are annoyed that drug prices are increasing faster than inflation. We just put out this report that shows for list prices, how much more drugs are rising. This was just 2016 to 2017 for drugs that people need. So this is of concern. All the proposals attempt to address this. They do this in different ways. Some apply to both B and D, some apply just to Part D, some apply to brands, some are more broad in brands and generics. They differ, but the point is, this is a feature you can imagine how this would be subject to some kind of compromise if there’s the political will to compromise.
Finally, why is everybody talking about this? I think we’re all saying the same thing. The public really thinks that the cost of prescription drugs is unreasonable. Mark mentioned earlier, 29 percent of adults are not taking their prescriptions due to cost. This is a real issue. Whether or not it gets solved this year is a question that’s more than I can answer, but it’s not something that’s going to go away in terms of what’s on the public’s mind.
CHRIS SLOAN: Great. Hello everybody. So my name is Chris Sloan, I’m with Avalere Health. So I’m going to talk to you a little bit today about the manufacturing health plan perspective in all of this. We’ve heard a lot about the policies, we’ve heard a lot about the reasons for the policies, I’m going to talk a little bit about what manufacturers and health plans are telling me and telling Avalere. We are a non-partisan consulting shop, a health policy shop, here in D.C. We don’t lobby, but we do work with clients and tell them what’s going on and help them figure out the impacts for them.
I think this is a good, interesting perspective slide on what’s going on. See if you can look at the adjective that’s added into one of these titles and see which part of the industry really hates Speaker Pelosi’s plan. I think there are two main points from this. One is that the various pieces of the healthcare industry have very different opinions about the drug pricing and the Part D reforms that we’ve talked about so far. You have pharmaceutical manufacturers who are largely opposed to most of it, although not all of it, and we’ll talk about that. And then you have health plans who are sort of consciously supportive of the idea and supporting some pieces of the proposals, but also have some caveats and things they’d like to avoid. The other thing to point out here is that both of these industries are not modelists. You have some drug manufacturers who will get hit worse than others in some of these reforms, and you have some health plans that will be hit worse than others in some of these reforms. So it’s not just sort of one model that’s industry perspective on some of these reforms.
Let’s start with drug companies and what they support. I think the way to think about this at a high level is drug companies are going to support reforms that reduce costs for patients within reason to them. They would like things to reduce the cost that patients are paying for their drugs in Part D — we’ve talked about all this — without taking a massive hit on the finances side. This chart is some data that we ran at Avalere. It shows about 800,000 beneficiaries in 2017, reached the catastrophic threshold and went through it in Medicare Part D. Obviously, there’s no out-of-pocket cap, so you just keep spending once they get there. But for about 20 percent of people, they hit that cap within the first three months of the year and their annual out-of-pocket spending ranges somewhere between $8,000 a year just on drugs, down to maybe $5,000 just on drugs. But it’s a pretty massive expense. And so an out-of-pocket cap is something that drug manufacturers have supported for a long time as a way to at least limit out-of-pocket expenses for patients, particularly those taking higher cost drugs and specialty indications. They are also very in favor of rebate pass through. Obviously the rule that was proposed by the Trump Administration to require that any sort of rebates or pricing concessions, given by a drug company, were passed down to the patient point of sale; when you go to the pharmacy, you get access to that. Right now, Part D, when you pay your cost sharing, you pay your co-insurance, you are paying it basically on list price so you don’t get the benefit of any rebates. So manufacturers were very supportive of that. There are still some conversations going on even though the rule has been pulled. But those are the kind of things that they support.
The kind of things they oppose are everything else. So what we have — we have kind of a continuum here of sort of most opposition to least opposition. The Part D benefit design obviously is going to incorporate an out-of-pocket cap, right? That’s something that the industry supports. And frankly, is willing to pay something to make that happen. They are willing to give some concessions. They’ve been pretty clear about that. They would prefer something that looks like a lot more like the Senate Finance package which is only 20 percent in catastrophic, as opposed to Pelosi plan that’s 30 in catastrophic and 10 throughout the benefit. There are some debates right now among pharmaceutical manufacturers. Those who make cheaper products or a broad range of products are more supportive of the rebates only being put in the above the out-of-pocket cap, because a lot of their drugs don’t get there, so it doesn’t matter. The companies that really focus on innovative specialty medicines, particular in oncology and some of those other spaces, are the ones who will get hit a lot more by a rebate in catastrophic, so they would prefer that be spread throughout the benefit if it’s going to happen. So all parts of the industry get hit. But the Part D benefit redesign is something that I think we think manufacturers are willing to work with.
Then you start getting into some of the other things. So there’s the price increase transparency pieces that we’ve seen in some of these pieces of legislation. Industry has been very opposed to this as it’s been popping up in the States. They are also opposed to this at the Federal level, both from not wanting to report proprietary information. There’s also competitive information concerns about if we report what rebates we’re giving to so-and-so, does that mean that I’m going to have to give them to this other plan? And things like that. Inflation-based rebates in public programs. This exists in Medicaid, we’ve talked about it here — this is something that’s show up in basically all the proposals in the House and Senate. Manufacturers opposed that. Obviously they’ve opposed that when it’s gone into effect in the Medicaid programs. This is likely to have a bigger effect on their pricing decisions over time, compared to the Medicaid rebate. They care more about Part D, they make more money in Part D. This is likely to have a bigger influence. It would also likely influence potentially higher starting prices for launch of new drugs as a way to get around this. But this is something that they oppose.
And then we get into the thing that is really sort of the existential threat to the industry, which is international reference pricing and price negotiation. Particularly price negotiation, based on an international reference. So that is the Pelosi Plan, as we were talking about. That is the international price index that the Trump Administration has sort of floated as a potential idea. But this is a massive cut to revenues. The CBO projects that this could be somewhere between $500 billion and a trillion less in pharmaceutical revenue over the course of the ten year budget score, and that’s assuming the policy doesn’t go into effect right away, it takes some time. As Tricia mentioned, eight to 15 drugs fewer projected by the CBO could be developed. I think it’s important to note with that, that drugs take a long time to develop. If this was a 20 year score, that number would likely be higher. You’ve got kind of a six year window right now within a ten year budget window of the score, given the lead time on drug development somewhere around eight years. You’ll expect some compounding effects over the next decade. But industry is very opposed to this, as you’d see. It’s a massive impact on the revenues, international prices are substantially lower. And I think this is important to note, the various proposals have proposed different baskets of countries from Europe to Canada to Japan or Korea and some other countries. The effect is almost always the same. A very large reduction in prices. Other countries have much better negotiating power. They have the ability to keep manufacturers out of their country, particularly when you start getting into things like, when there’s drugs that effectively treat the same thing. You can get preferred — as a matter-of-fact, we have access to the entire country in some of these negotiating authorities and that leads to much lower prices.
So let’s get out of the manufacturer perspective. If we go to health plans, health plans are sort of just happy that this isn’t focused on them. Right? For those of you who have followed healthcare for a while, you know, the sort of attention of who is bad in healthcare tends to come in waves. The health plans have had their days, providers have their days, drug manufacturers are very much having their days right now. So health plans are sort of broadly supportive of the idea that — they say that drug pricing is too expensive, drug prices are too much, the price increases they think are too aggressive, and that they support the government doing something to rein those price increases in. Health plans in Medicare Part D, while that fits very nicely, they do have specific concerns with the reforms, one of which is that plans compete in Part D by price. Part D beneficiaries buy based on price in most circumstances. We’ve talked about how beneficiaries are pretty sticky once they are in a plan, they tend to stay in a plan. But oftentimes when they are picking a plan, they pick a cheaper plan. And so plans have been — this is why they opposed the rebate pass through rule, because that was going to lead to substantial price increases, but very focused on ensuring premiums do not go up as a result of this. Congressional budget, tentative sort of preliminary estimate of the Senate finance bill, estimated that premiums would go down by about five billion over ten. Congressional Budget Office has long — and MedPack as well — have long had an explicit assumption that they think plans can be doing more to bring down prices if you give them more liability. That’s been a MedPack talking point for a while of switching the liability. Plans disagree with this, they think that some of these things would lead to higher premiums if they are not going to be able to do it. But that is sort of their main pushback on Part D reforms, is ensuring that the additional liability on them does not lead to them having to increase premiums 20 percent and then be viewed as the bad guys. That’s their main focus.
They also are supportive of applying the prices to commercial market. They would love to have cheaper drug prices in the commercial market and to go to employer groups and say, look, I cut your premiums by 15 percent because I’m getting access to all these cheap drugs from the Medicare negotiation. There are some concerns there on the PBM side of large PBMs where a lot of lives have had more negotiating leverage over drug manufacturers than smaller PBMs or smaller plans. And then if everything is being negotiated by the government, some of that disparity evens out a little bit. But for the most part, supportive of applying lower prices at the commercial market.
Then there are a few, I think, somewhat technical changes in some of these bills that are just worth flagging, for those of you who are very in the weeds. One is that the benefit redesign is expected to apply to the low income subsidy in some of these low income individuals and historically, plans have not paid anything, or almost nothing for this population. If they have to start paying for it, that’s an increase in liability, which potentially could lead to higher premiums, so they are sort of questioning that. And then for those of you who are really into (indiscernible) there is the EGWP, the Employer Group Waiver Plans, which are basically employer plans to purchase that benefit that have also history had very low premiums and some of the changes here with an out-of-pocket cap would likely lead to higher premiums. So that’s kind of the wrap up. We have manufacturers largely opposed to most things here, but willing to work on the patient specific benefits. We have health plans largely in support of an idea of direct price reform and Part D reform, bringing down drug prices, but concerned about some of the specific provisions that may impact premiums. So thank you very much.
SARAH DASH: Thank you. I learn something new at every Alliance briefing, so today I learned “egg whip” is the correct way to pronounce that acronym. Thank you. Great. Well, thank you to all of you panelists for your great presentations. We have time for Q&A now, so if you want to write questions on the green piece of paper, someone will bring it up or somebody can come around with the mic. I’m going to try to organize the questions in sort of the big buckets that you all did such a great job talking about. One being the Part D redesign ideas. Two, the inflation caps, and thirdly, the negotiation and international reference pricing. And of course, related topics.
Let’s kind of start with the Part D redesign. Tara, on your slide, you did a really nice job laying out some of the differences between the proposals. At first glance it doesn’t seem like — it seems like they all pretty much agree in concept. There are some differences in sort of the percentages that are paid by essentially the plans and the manufacturers. The patient liability differs by a range between $2,000 and $3,100 in these proposals, right? And the Medicare percentage that gets paid is roughly the same across all the proposals, 20 percent. Say a little bit more about the Milliman study and the budget neutrality. What does that mean? And can you say a little more about the consequences? Then I want to open it up to the rest of the panel to comment on what we might see as we look at some of the differences in the Part D redesign proposals.
TARA O’NEILL HAYES: Sure, I know, I blew past that real quickly given the time constraints. So we hired Milliman, again, an actuarial firm, to do a score basically of this proposal and determine for us what would be basically to keep the pharmaceutical industry as a whole neutral. Budget neutral. As in they would pay the same amount of rebates under our proposal as what they are expected to pay in the same ten-year window under current law. And so that’s how they came up with nine percent. As Chris very well-articulated, there are significant differences within industry. Right? Holding the industry as a whole harmless is not the same as holding each individual company harmless. So there are definitely winners and losers throughout and across the industry. Winners being the makers of more lower cost drugs; losers being the ones of more expensive drugs. Very quickly, and you can see through the charts in my slides, if you go back, the amount of rebate that has to be paid for a more expensive drug is going to climb pretty substantially, even at only nine percent. And so then under finance at 20 percent, Pelosi’s bill, H.R. 3 at 30 percent, those rebates being paid add up very quickly as the price of the drug increases. And so there are going to be significant differences across the industry.
There was a second piece of your question that I forgot.
SARAH DASH: That was the main piece of the question. Actually, I don’t want to blow over the fact that while these proposals are similar, they do something really interesting. You all did a great job of not saying “donut hole” by the way. Everyone called it the “coverage gap.”
TARA O’NEILL HAYES: That’s because we were afraid of how to spell it.
SARAH DASH: I don’t know. We’ll vote later. Maybe Tricia or Leigh, you can comment on this. The significance of eliminating that and kind of creating one initial coverage phase with a catastrophic coverage limit. Can you say a little bit more about that and maybe if you want to take us on a walk down memory lane, kind of why was this coverage gap put there in the first place? Say a little more about that.
TRICIA NEUMAN: There’s this coverage gap that you saw in Leigh’s slide where there’s a benefit, there’s a deductible, there’s an initial coverage period and then there was this coverage gap, or donut hole, it was called, where once you reach a certain amount of spending, people in Part D plans had to pay 100 percent of their costs. Then if they spend a certain amount, then they would come back and get some additional protections on the high end. That was done for a really simple reason. Congress decided, we’re not gonna just fund the benefit in terms of what people need, we’re going to fit a benefit into $400 billion over ten years. And they ran out of money because they were — they wanted to have catastrophic protection and they wanted to provide low income benefits. And when you do all that, you find out $400 billion doesn’t go as far as you think you might want it to go. So that was really the main issue and that has been a huge concern that was addressed by the ACA, which put into place provisions that gradually closed the donut hole.
I wanted to make two additional points related to benefit design that I don’t think we had a chance to really hammer so far. One is, under current law, if Congress does nothing, and this was in Tara’s slides, the out-of-pocket threshold is going up by $1,250. That’s next year. So those of you who work in Congressional offices are going to find constituents being pretty surprised when all of a sudden they have to spend more in order to get catastrophic protection. That’s the “do nothing” outcome and I don’t think it’s something — I know from the reporters I’ve talked to, it’s not something that they’re focused on, and so it’s probably not something that real people out there are focused on. So bear that in mind and that’s actually an issue that affects both drug companies, because they’re paying the discount up until that point, and people. So fewer people — people will pay more until they get to the new catastrophic threshold and then they will keep paying. So fewer people will get above it, but more people will have higher costs. So that’s one thing.
The other thing that we didn’t get to mention so much about the benefit design is there are these new low income protections for people. That’s in the House bill, but not in the Senate bill and not in the Trump Administration proposals. And they are pretty significant. There would be zero co-pay for generic drugs, there would be an increase in eligibility standards, so that people with incomes all the way up to 200 percent of poverty would get either full or partial benefits. That’s a lot of people who get a lot of help, because 200 percent of poverty is almost median income for people on Medicare. And the asset test would go away. In Part D, there’s an asset test for people to get any kind of low income protections. Unlike the ACA, which didn’t have like, what are your savings in order to get Medicaid. So this is a way of saying, like, okay, if you’re getting premium and cost sharing assistance, you can get additional help without us looking to see if you’ve got $35,000 in the bank that you’re saving for your nursing home expenses.
SARAH DASH: And Tricia, what is the low-income subsidy threshold now? You mentioned that it would go up to 200 percent?
TRICIA NEUMAN: Right. There are full benefits that go up to 135 percent of poverty and then partial benefits that go up to 150 percent of poverty. So that’s premium and cost-sharing assistance that are much better for people that get full benefits, then partial benefits. And 150 percent of poverty is probably around $18,000 for an elderly woman, to give you a sense of what that looks like.
SARAH DASH: Thanks. Did you have anything to add, Leigh?
LEIGH PURVIS: Going back, I think, to kind of the benefit design and talking a little bit more about the coverage gap, that’s something that AARP has been concerned about pretty much since Part D was implemented, because there is a lot of research that indicates that that coverage gap, when people were entering it, they would stop taking necessary prescription drugs, and that is obviously not an outcome that anyone wants. And unfortunately, it can lead to much higher healthcare spending, because you know, today’s high blood pressure is a stroke tomorrow. So making sure that people have access to the drugs is really important, and that’s why seeing these changes in the benefit have been really important to us, be it the ACA and BBA. It’s been really beneficial for people who are struggling within that part of the benefit.
I think the other thing that’s important to mention, and we’ve kind of all discussed it, at least in the potential changes that are out there, is that we are talking about a hard cap under Part D, which is a huge improvement. I mentioned that there are some people that are facing cost sharing that exceeds $10,000 per year. The idea that everyone can have a sense that they will spend $2,000 and that will be the end of their prescription drug spending under Part D is incredibly important and a top priority for us. The other thing to keep in mind is that in this wonderful world of prescription drugs, there is something that we call “the squeezing of the balloons.” So something that AARP has been very cognizant of, is yes, an out-of-pocket cap is incredibility important, but it needs to be done in a way that that both protects the Medicare program and protects and makes sure that premiums do not become unaffordable, because the reality is that we’re not doing much if we’re pushing Part D coverage to the point where it’s unaffordable for the beneficiaries who need it. And that’s why I’ve been very pleased to see some of the efforts that are out there in terms of moving those incentives and who pays what and when, because they have been very clearly cognizant of the fact that the program and the beneficiaries need to be kind of primary, and the decisions that are being made.
SARAH DASH: Great, thanks. And just to pick up quickly on something you said, and then there’s a couple of related questions. You mentioned today’s high blood pressure medication, blood pressure. I did think it was interesting in the CBO preliminary score that they actually scored some savings for adherence to medications based on lower prices. And sort of based on savings to the rest of the healthcare system. So just kind of a comment there. There were a couple questions. We just talked about the low income subsidy and I know we have an audience question, so let me just kind of get to these. But I just want to ask — one person asked if any of the changes would impact people who qualify for Medicare based on SSDI, or the disability pathway, differently than sort of the senior population. So if someone could perhaps clarify that. Then there was another question around the protected classes and could you talk a little bit about — that’s something we haven’t mentioned yet, so could you talk a little bit about any impact on the protected classes in these proposals?
TRICIA NEUMAN: People who qualify for Medicare based on their disability, the SSDI population, are treated like everybody else under this bill. If you are covered by Medicare, you’re covered by Medicare. There’s no separate provision for people who are under 65, disabled. The protected classes, there was a lot of discussion about changing the protected classes. There was interest among the plans in trying to give themselves more flexibility to not have protected classes and work with the pharmacy benefit managers to maybe exclude some drugs so they could do a better job leveraging lower prices. That’s not in the bill.
TARA O’NEILL HAYES: And I’ll just say, that was something that CMS also proposed in a rule earlier this year, to allow some additional exceptions to the protected classes. And for those who aren’t aware, the protected classes are six classes of drugs in Medicare Part D that every plan has to cover all of the drugs in those classes. And so it really limits their ability to negotiate discounts on those drugs, because the primary way you negotiate discount, how you get leverage in this negotiation, is to threaten to not cover that drug. You know, give us a good deal or we’re not going to cover it. Well, here, you don’t have that option. And so you see significantly less rebates in these classes. So CMS is proposing additional exceptions here, was trying to give plans additional leverage to try and get some discounts for those drugs. There was of course a lot of outrage from the patient advocacy groups, you know, worrying that they won’t have access to their drug, which is a legitimate concern. And CMS pulled back, they decided not to move forward with that exception. But I think that really highlights this difficulty that we’re having. People want lower prices, but they’re not willing to accept the trade-off of what that might mean in order to get that. You might need to limit access or restrict it or provide utilization management tools. All of these things that we use to talk about — you can get the lower price, or you can get less access, it’s hard to get both.
TRICIA NEUMAN: I will say that drug plans do have tools that they use. Right? They don’t all cover all drugs, except for in the protected classes, and they do have utilization management tools. So that’s a big challenge for consumers, because they actually might think that all plans are alike. They are really not alike. Consumers tend to look at premiums, which is why the plans are so focused on keeping their premiums low. But there are other big differences across plans and unless you are really pretty wonky as a consumer, and you do a lot of work, it’s pretty hard to detect some of these differences in terms of whether your drug is covered, what tier it’s on, whether or not you do have to jump through some hoops in order to get your drug covered. Those are all features of plans today that are used to control utilization. And so the question is, how much more will the public tolerate in the interest of cost containment?
SARAH DASH: Thanks. There was a question in the audience I wanted to go to. Thanks.
AUDIENCE MEMBER: Hi, I’m Jamie from the Senate Health Committee. So my question was about one of the claims you’ll hear manufacturers make. That the price negotiation won’t impact the flowing of venture capital into the development of drugs. Has their been any scoring or analysis from CBO or elsewhere on the voracity, I guess, of that claim?
SARAH DASH: Thanks. So someone want to –?
CHRIS SLOAN: Yeah, I can take that. I mean, the short answer is, no, there hasn’t been scoring on that. The genesis of that concern is that most — it’s going to get wonky fast, I apologize. Most drug development now is sort of done through licensing, out licensing or in licensing, and so it is larger companies that end up commercializing drugs, or pretty rarely bringing it from molecule discovery to animal trials and to human trials. Usually they are picking up a promising candidate either as it’s finished it’s animal trials and toxicology results, or they are picking up in phase one or phase two. The worry there is that those groups which tend to — those small companies that tend to work on the molecules, start the initial process, won’t get the venture capital funding to sort of do that. It’s a question that I don’t think there’s an answer to right now. It’s something that’s really hard to predict. It also is really reliant, I think when we talk about negotiation on the House side, of just how many drugs are negotiated, right? If it’s ten drugs, it maybe doesn’t have an effect. If it’s every drug in the country, then potentially there’s a pretty large effect. You can just look at the revenue coming out of industry of various proposals and realize there will be some impact, but there’s not a scenario where you take a trillion dollars out of pharma and it has no impact on R&D. But there is a question of just the magnitude of that affect and I don’t think there are any really good numbers right now on that.
SARAH DASH: I think this is a good segue maybe, to talk about the negotiation ideas that are on the table. We did have a question on a card. Another question about negotiation and asking without the negotiation component is there adequate price control in the questioner’s language? Will premiums continue to increase? Can you guys talk a little bit about that? We can sort of share a little bit more detail around what the CBO has said both on H.R. 3 and the finance provision so far?
CHRIS SLOAN: Sure, I’ll go. It just kind of comes down the line until there’s no one to look to on the left. I’ll just start kicking it to the audience. A couple of ways to think about it in terms of premiums and growth, I think some of — there are pieces of things that impact premium spend and growth over time in the markets. One of which is utilization, right? Which is likely to increase when drugs are cheaper. CBO has said that. Another one is the price of the drugs and the trend of the price of the drugs over time. That’s thing, just basically existing products increasing in price. That’s the type of thing that’s likely to — with these bills — stop or be significantly reduced in the inflation caps, negotiation, bringing them down and sort of keeping them down. But then there is also the existence of new products. And utilization of higher cost products as medicine becomes more specialized, more tailored to you, we start to see the gene therapies, we start to see some other really expensive, very tailored medicines. So I don’t think we can look at this and say, oh, something like this will just flatten premiums out over the next ten years or that sort of growth in utilization of drugs or spend as a percentage will stop right away, but I do think that you can think of this as bringing down the baseline pretty dramatically with something like negotiation and then slowing the growth of a premium and out-of-pocket spending for patients.
LEIGH PURVIS: I think in the absence of change, I mean, that’s why we’re here, right? We’re looking at the trends, we’re looking at what’s coming in the future, we’re looking at what’s in the research pipeline, the types of drugs that are out there, the price and the price behavior we’re seeing and the reality is something does have to change. And I do think that’s again, why we’re having this discussion in the first place. It’s incredibly important to keep in mind, you know, if you look at, for example, I don’t know if anyone takes a look at MedPack reports in detail, but they are pretty depressing these days when they are talking about Part D. So it’s very clear that everyone is seeing the warning signs and they are trying to put their flags up and say, something needs to change. So I think doing nothing is not an option, both from a program perspective, and from the beneficiary perspective, because affordability really is going to become a challenge.
TRICIA NEUMAN: On this issue of why negotiations — do you all remember when the Hepatitis C drug came out, Sovaldi, and it was $1,000 a pill? It was $84,000 for treatment. And members of Congress were like, what can I do about this? These other proposals are kind of touching it around the edges, but the frustration is really expensive drugs could come to market and there would be absolutely no way for the government to do something to negotiate a lower price. And I think we have to be careful about price of the drug versus premium. There are ways to keep down premiums and actually the way the benefit design is structured right now with the government picking up so much of the cost in re-insurance, premiums have been pretty low. But costs for really expensive drugs are the issue that really has folk’s attention on negotiations. And it wouldn’t be all the drugs, because it doesn’t make sense. Why would the Secretary negotiate drugs for a cheap generic? That’s kind of silly, right? I mean, for anybody that likes that policy, I don’t mean to say it’s silly, but — sorry about that. But really, there are a couple of issues here. One is the Secretary needs to focus attention — use limited resources to focus on drugs that are driver’s of spending. Right? And that means not going after drugs that are cheap. And so that probably wouldn’t happen and then there’s this issue of what do you do when something really expensive comes along to protect Medicare and to protect consumers? And in this case, also to protect people and employer plans.
TARA O’NEILL HAYES: I just wanted to add one more thing. I think probably the question was about the effectiveness of government negotiation, and in this bill, in H.R. 3, it will be highly effective. The tax in the bill that everyone is talking about, starts at 65 percent, it increases to 95 percent. If you actually read and understand how that’s being calculated, it’s actually at 95 percent and 1900 percent tax because it’s a tax inclusive rate. And so if you had a $100 drug, you would be paying $190 in tax. So I think that’s important to understand. It will be effective. If your drug is selected for negotiation, you cannot pay a 1900 percent tax, so you will comply.
SARAH DASH: I think that takes care of this question about very expensive drugs. I will quickly put in a plug that the Alliance, on December 4th will have a very targeted briefing focusing around cell and gene therapy and kind of what’s coming on the market and the innovations coming down the pipeline and some of the question around how all of that stuff is going to get covered and paid for.
I want to ask a couple thoughts on cards. We talked a little bit about some of the proposed changes in Part D and how they might impact other markets. So the commercial market. This person asked about employer sponsored market, individual market, Medicaid. I know we’re kind of focused on Medicare Part D right here, but talk a little bit about what’s in the proposals specifically related to the commercial market and then what some of the other impacts will be that sort of indirect. Tara, do you want to start?
TARA O’NEILL HAYES: Sure. So the negotiated prices that would be achieved under H.R. 3, if that were to become law, would be available to not just those drugs selected in Medicare Parts B and D, because it does cover both of those programs, it also would make those prices available to the commercial market. And so just that component, you know, however many drugs are selected, those prices would be available to everyone in the individual market and the employer market and very quickly you’re getting most of the American population that has insurance. So that would have a significant impact across the entire industry. Do you want to speak about any of the other –?
TRICIA NEUMAN: The inflation provision does not apply to the individual and group market. So in fact that has been a concern that I’ve heard (indiscernible) employers and unions, which is, well, this is only applying to Medicare, what will that mean to us if we don’t have similar inflation protection?
CHRIS SLOAN: And I think one thing also to Leigh’s balloon metaphor earlier, there is a question of sort of, if you start squeezing prices in Part D, does that start to come out into commercial? And so one of the likely effects, and CBO talked about this, of an inflation cap, is that launch prices are a little bit higher than they currently are in the future, just as you try to sort of set your price high enough so you don’t have to change it over time. So I think there’s some questions there, because there are some things that help plans in commercial market have a lot of authority over, and can kind of prevent that. But there are some areas where brand new innovative therapies that typically aren’t able to get rebates right off the bat until there’s some competition or until there’s some market saturation. There needs to be some higher costs felt in the commercial market.
TARA O’NEILL HAYES: Sorry, I just wanted to add one more thing on the inflation penalties. Even though those only apply in Part B or Part D, I think to assess the impact for a given drug, consider are most of the people taking that drug in Medicare or are they in the commercial market? If you have a small population in Medicare and most of your population taking the drug is in the commercial market, you might not care so much about the inflation penalty. You’ll pay it for that 100 or 1,000 people in Medicare and still be able to get your higher price for your tens of thousands maybe in the commercial market. I don’t know what a drug like that might be, but it’s possible. And so the reverse, obviously, if you have a lot of people in Medicare and you would be hit by that penalty, there’s only one list price. And so if you’re keeping your price down to not hit the inflation penalty in Medicare, the list price is the same in the commercial market. You might reduce your rebates and so have your net price increase, so that’s kind of — that’s another conversation we haven’t really talked about, is rebates, list price, net price. So there are still going to be ways to manipulate it. But I think where your population is, how they’re covered, will change how effective that is for that drug.
SARAH DASH: Thanks. And by the way, on the rebate, we’ve had some — we heard a lot about that over the last year and we’ve had some more detailed briefings on that as well, if people are interested. I am curious, do you guys think that’s something that might come back into play? Or are we done with the rebate proposal?
CHRIS SLOAN: The problem with it is that it costs $200 billion. I mean, that’s sort of a big problem. So I think that’s a big problem. So I think it’s something that industry would still love to happen. Manufacturers still love to happen. It does allow their customers to benefit from there pricing concessions as opposed to just going into premiums and bringing everyone’s premiums down. But I think the cost of it is just so prohibitive that it’s unlikely. I don’t know if you all disagree, I think it’s unlikely that it pops back up as this debate.
TRICIA NEUMAN: I don’t disagree at all.
SARAH DASH: Great. We have about 15 minutes left for questions. I just want to encourage you. We have a lot of great ones up here and I encourage you to ask any questions if you have them. There was one question just in general around sort of more the idea of value-based payment and comparative effectiveness and there are some provisions in the various proposals that would sort of bring in this idea of using clinical comparative effectiveness or cost effectiveness research when sort of thinking about — as one aspect of thinking about the price of a drug. So wondering — and this question in particular talks about Germany and perhaps other countries allowing the price to increase if there’s sort of a high value and sort of — is that something we should do here? Any comments, thoughts on that?
LEIGH PURVIS: I would say that anything is preferable to what the market will bear when it comes to looking at drug prices. And I do think that that’s a very simple question that a lot of people can wrap their heads around. Is this drug better than the drugs that are already on the market? And it does underlie trying to get this this value-based purchasing, you know, outcomes-based contracts that we’ve all been talking about. I do think here in this country, we are pretty far removed from being able to make those types of comparisons on a broad scale. We simply don’t have the research we need. We could, but we don’t. So I think though that that again is something that a lot of people can get their heads around and then of course the underlying question for that is, is the drug price appropriate in the first place, because you don’t want to be building on a broken system. And that’s where we get people starting to ask the question about whether or not that price is justified.
TARA O’NEILL HAYES: And I will say, I think comparative effectiveness research would be a wonderful thing for us to have across, not just in drug prices, but across healthcare. I know for many people particularly on the right, they very quickly turn that conversation into something similar to death panels and the government is now deciding on what care you should get. And so politically, that is something that a lot of people aren’t comfortable going down that road. But it kind of — I don’t agree with that position that that’s necessarily, you know, what would happen. I think using cost-effective medicine and treatments is appropriate and probably would significantly help with this healthcare cost problem that everyone talks about but won’t do anything to actually address. On the value-based payment issue, again, I think that’s something that can be good in theory. Where I struggle with it, and I think a lot of people, is how do you define value? Value is very different to probably everyone in this room. The value of a life-saving drug to your 98-year-old grandma might be pretty low. If you’re in pain, maybe you’re just — I have seen 98 years, I’m okay, I don’t need the $30,000, $100,000, $200,000 expense. I’ve had my time, I’m good. For your 14-year-old sister, or for your 32-year-old husband, you know, for other people, that’s going to be very different. And so that’s where I think it’s very hard to determine what is valuable. How do you put a price on that, especially when it’s — you can’t say, okay, well, you value it at this much, and so that’s your price. And you value it less, so that — you know, you get a lower price. You can’t do that. So it’s challenging.
TRICIA NEUMAN: In fact, I think there was language that was put in the bill as it was moving it’s way through the House that prohibited the use of quality adjusted life years in determining whether or not a drug would be covered, and how much it would be paid for that drug. There’s a lot of sensitivity and there’s a lot — it’s a very politically dicey issue for reasons Tara just mentioned. People are very concerned about somebody else deciding what’s a quality of additional — what’s the value of an additional month or a year or some period of time? So it wasn’t as if there was a provision that was taken out, there was a provision put in that said thou shalt not use this because it was so politically concerning to some.
CHRIS SLOAN: To Leigh’s point, I think comparative effectiveness research in the States is not at a point where we can use it widescale. I think in order for it to be at that point, you will have to require it. It is risky to run a comparative effectiveness trial of your drug and someone else’s because if your drug looks worse, suddenly that’s out there. And so it is one of those things that seems like there would have to be — these things are increasing, there’s more of it and more of it and health plans are demanding it. But for it to be as widespread as you have in like, Germany or the UK or something where they use it in coverage decisions, there needs to be some sort of mandate that it exists. Because there are risks to running trials like that.
LEIGH PURVIS: Just to build on that, I will flag that those other countries are requiring manufacturers to provide that information as part of their coverage assessments, which would be a great source for us as well.
SARAH DASH: I will add, there is also a lot of conversation about not just comparing one drug to another, but a medicine therapy to a non-medicine therapy or that kind of thing, as well as the voice of patients and sort of defining value. I couldn’t agree more, we’ve heard over and over in Alliance briefings that value means different things to different people and how we define that is kind of an evolving question.
There is a handful of additional questions that I want to get to. Again, there are folks with mics if you guys have some questions. I want to ask — we’ve talked about a lot of ideas here, a lot of things. Are there any things that we haven’t specifically talked about? One person asked about the idea of prescription drug importation and would this disrupt the Part D or the broader market? Would it disrupt it in a positive way to bend the cost curve downward or not? Specific thoughts about that? Or other kind of important components of this — I’ll try to keep it to the Medicare Part D world — that we haven’t talked about yet? Leigh, go ahead.
LEIGH PURVIS: I will say, I mean, most of the importation work we’ve been seeing obviously has been at the State level. But I think a lot of people aren’t quite making the connection between basing our prices on international prices or international reference pricing, and importation effectively being the same thing. Except, importation is a lot more complicated because you’re actually dealing with the physical product and importation is just saying, yeah, we’re going to take your price and not worry about the whole supply chain thing. So it effectively is the same idea. It’s building off of the work that other countries are doing in terms of trying to get to a better price.
TARA O’NEILL HAYES: I will say, on importation, I don’t think it will be effective, and let me tell you why. So there’s a couple pieces here that are critical to make this happen. One, the manufacturers would have to provide enough extra supply to foreign countries that there are drugs not used by the citizens in those countries to send back here. They would not have an incentive to do that. They control their supply, very likely they would limit that supply. With a limited supply, the people of those foreign countries would likely not allow any of the drugs in their very limited supply to leave and be provided to us Americans who can’t solve our own problems and not to their citizens, right? And so just kind of economically, I don’t think it will work, it won’t be effective. Also, from data that I’ve seen, we have access to significantly more drugs than people in other countries. Those countries where they significantly control costs, they pay for that in limited access to drugs. They don’t get new medicines as quickly, if ever. And so the drugs that we most want to import, the ones with a really high price, are least likely to even be available in the first place in those other countries that you would import them from. So again, how are you going to do that? They are not available there. So I don’t think it would be effective. I don’t think it will work.
CHRIS SLOAN: I will just say this is one of my rant topics because I get asked this so often. I very much agree. I think the logistics of importation from Canada, which is what’s allowed now, or will be allowed under guidance. The Canadians are not going to allow it. It is difficult to set up your own mini FDA in your state. And to Leigh’s point, you get the same benefits with reference pricing if you’re looking to lower prices without sort of the issue of having another country block importation into your country. There is one interesting piece of the importation guidance though that would allow manufacturers to import their own product from other countries, and there has been some conversation about whether that is an easier way to bring in an authorized generic as a manufacturer, and cut your list price in response to political blow-back or things that we’ve seen. We’ve seen a variety of examples of manufacturers who have been called on price. Launching an authorized generic, we saw with Sovaldi, we’ve seen with some other epi pen, others. But maybe a faster, easier way to have that happen in the United States would be to import your own product from another country and that’s something that I think is worth watching, because manufacturers are looking at that with a little bit of interest. Of that sort of second part of the guidance.
SARAH DASH: And Chris, I have to ask you to define “authorized generic” for those who haven’t been following it as closely.
CHRIS SLOAN: So authorized generic is when a brand company effectively releases the — another version of it’s exact same products. Same molecule, comes off the same line, sometimes you can set a contract with a distributer or some other entity, but basically it is often used as a way to lower your list price without destroying all your commercial contracts. Commercial contracts are usually based — rebates off of your list price. Patients pay their cost sharing based off of list, oftentimes manufacturers as way to lower their patient’s cost sharing will release an authorized generic to try to get that covered on formulary and then patients are paying less, even though net price is about the same as the rebated brand and the authorized generic.
SARAH DASH: In the remaining couple of minutes we have left, I just want to ask each of you to maybe comment on — I know its impossible to pick just one thing — but are there are couple things that you are going to be watching in particular as this debate goes forward? And I’ll ask you to keep it to the policy aspect of it, because we know the politics are what they are, but can you, policy wise, are there a couple of things that stand out for you that you’re going to be watching as the debate continues?
TRICIA NEUMAN: Yeah, I mean, we’ve very focused on the beneficiary side, so that’s something that we watch very carefully. The House and the Senate both have acknowledged that the lack of an out-of-pocket cap in Medicare is a huge issue. Whether it’s in a finance or H.R. 3 established a hard cap that would provide meaningful help to people. If there is any place where one can imagine a possible agreement, it seems like it could be right there, I know that there are distributional issues, there are questions about who pays what around the edges, but when we think about what this is really all about, which is consumers and helping people, that would provide enormous help to people in Part D and that’s something we’ll be watching very closely. The people who are affected by this are people who have cancer, Hepatitis C, MS, all these very serious diseases for which their specialty drugs are quite expensive and unaffordable. So boy, there’s lots to be done, but that seems like something that’s relatively easy that would make a big difference.
CHRIS SLOAN: You all mentioned it, but I’m really watching the catastrophic cliff for 2020. It’s not in the bill fixes right now. It is the thing that would have a direct impact on patients immediately, right? Like, a lot of these things wouldn’t go into effect for a while. In January. And we’re getting pretty close and it is a lot of money for high spend beneficiaries in Part D that I think is not getting enough attention as part of this. Of fixing a very sort of near term January 2020 issue. So that’s something I’m watching to see if it — if it starts popping up in more discussions on the Hill.
LEIGH PURVIS: Similar to Tricia, I think what we’re really focusing on, since it is such a top priority for us, is that out-of-pocket cap under Medicare Part D that really is something that’s important to us and we know it’s also important to our members. What we’ll be keeping an eye on is how they do it. We want to make sure, again, the program and the beneficiaries are protected. And something else that we haven’t really raised in the discussion today, but is important to us is meaningful manufacturer liability within what changes take place. Because the reality is, their behavior is what is driving what we’re seeing under Medicare Part D. And the idea of giving them some sort of windfall for their bad behavior is not something that we would like to see. So again, kind of important, obviously, to get that out-of-pocket cap and we want to make sure it’s done well.
TARA O’NEILL HAYES: So for me, I’m going to not choose a specific policy thing, but rather the larger discussion on the CBO score and the overall impact on innovation. And I think it’s a very important conversation to have. And people can — as Chris said earlier, there haven’t really been a lot of studies. We don’t know exactly what the impact is going to be. If revenues are reduced by X, there will definitely be this many fewer drugs. It is impossible to know. But yet, we know there will be some impact and so I think having that conversation — because we’re not really talking about, are we okay with that? Are we okay with having fewer new drugs if that means that at least all the drugs that are out there currently, we can pay for. You know, that might be a tradeoff that we as a society are happy to make. Maybe it’s not. But that conversation isn’t really being had and then specifically with the CBO score — so for H.R. 3, we have a partial score, and it’s really unclear, you know, they talk about potentially eight to 15 fewer new drugs, but also a potential impact of lost revenue of 500 billion to a trillion dollars. It’s very difficult for me to believe that that will really only impact eight to 15 drugs. As Chris said, we’re looking at a ten year window and most of the drugs in the next ten years we’ve already started developing, so maybe you don’t lose a lot in the first ten years, it’s really after that. And like you said, it will have a compounding effect. But we know that the average cost to develop a drug is almost three billion dollars. Five hundred billion dollars in lost revenue is the cost of 174 drugs. A trillion dollars in lost revenue is the cost of 348 drugs. Do you necessarily lose dollar for dollar? No. No, I don’t believe that at all. But I do think that it will be much more than just eight to 15 drugs that are lost.
SARAH DASH: Well, thank you. Lots of questions still to answer. You all have clarified a lot of issues today on Medicare Part D. I want to thank all of our panelists, I want to thank Arnold Ventures again. Thank all of you for joining us this afternoon. Please do fill out your blue evaluation form, leave it with someone on the team or on your chair, and we’ll come around and pick it up. Please join me in a round of applause for our panel.