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

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

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

15. Spending in the Gap and Catastrophic Phases, 2015
15% 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
2010
2013
LIS
60%
71%
81%
Non-LIS
62%
76%
85%
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,
Antihyperlipidemics: difference of 7-8 percentage points
Diabetic therapy: difference of percentage points
Antipsychotics: difference of 4-9 percentage points
15% 18 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, … ( ) 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

26. Competition/ Affordability Innovation
Patent
Exclusivity
Pricing freedom
Protection from Re-importation
Hatch –Waxman
NIH FUNDED RESEARCH
ACA

27. Drug Spend as percentage of NHE

32. So What 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. Medicare Rights Center
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
Source:

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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