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Trump Administration’s Prescription Drug Plan Signals New Proposed Rules

These changes in regulations could affect ASCs

BY ALEX TAIRA | MAY 2019

The US now spends more per person on prescription medication than any other country, with more than $340 billion in total retail prescription drug spending per year. According to a October 2018 poll conducted by the Kaiser Family Foundation (KFF), healthcare was the most important issue area among registered voters, and healthcare costs, including prescription drugs, was listed as the most important issue within healthcare. A follow-up KFF poll conducted in March 2019 found that 79 percent of respondents viewed the costs of prescription drugs as unreasonable and showed broad bipartisan support for a number of drug-related reforms. This malcontent has not gone unnoticed by politicians: in a February 2019 hearing, members of the Senate Finance Committee grilled pharmaceutical executives about their pricing practices, asserting that manufacturers often provide better prices and wider access to patients in other countries.

The Trump administration released its American Patients First blueprint, a broad plan to lower the cost of prescription drugs and reduce patient out-of-pocket expenses, in May 2018. This would signal several new proposed regulations and guidance released in the past year, with more to come in 2019 and 2020. Although ASCs might administer and prescribe fewer drugs than other sites of services, the industry still needs to pay careful attention to the shifting regulatory landscape. For one, some changes targeting Part B drugs (physician administered) might directly affect ASC operation. And in a larger sense, ASCs can and should be advocates for patients having affordable, appropriate access to necessary medication.

Issues surrounding prescription drugs are often difficult to address; both the drug manufacturers and private insurance plans—the largest single payer for prescription drugs—can be powerful, organized opponents of change. With that in mind, a common path for addressing prescription drug issues has been proposing changes to Medicare Part D, which has grown in the past 15 years to comprise one third of all prescription drug spending. Medicare Part D provides coverage for self-administered prescription drugs to more than 43 million Medicare beneficiaries, either through standalone prescription drug plans (PDPs) or via their Medicare Part C (commonly called Medicare Advantage) plan. Although this benefit is now seen as an essential part of the Medicare program it is a relatively recent added benefit, coming out of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. Although most view Part D as a successful addition to the Medicare program, the increase in overall expenditures on drugs has become a major policy concern. Estimates released by the Centers for Medicare & Medicaid Services (CMS) Actuary predict spending on prescription drugs could grow at an increased rate in coming years, with an average growth rate twice as high as recent years.

In response to these concerns the Trump administration released the aforementioned American Patients First blueprint, a broad plan that seeks to lower drug prices and reduce out-of-pocket costs for patients. The blueprint describes some actions that the administration has taken so far, mostly via proposed budgets and rule finalization, to address four key strategies for reform: improved competition, better negotiation, incentives for lower list prices, and lowering out of pocket costs.

In October 2018, following the mandate set forth by of the blueprint, CMS released a drastic and controversial proposal: a new International Pricing Index (IPI) model that would reform how Medicare pays for physician administered drugs under Part B. It is notable that the proposal tackles physician-administered drugs under Part B, which spends relatively less overall than the Part D benefit. However, based on analysis done by the Department of Health and Human Services (HHS) prices paid by American providers to drug manufacturers are on average 1.8 times the price paid by other countries. This higher price is passed on to the Medicare program—and ultimately American taxpayers—via physician reimbursement under Part B.

The IPI model would disrupt the current supply chain by which manufactures market and sell directly to provider by inserting a new class of “Model Vendors.” These vendors would assume responsibility for negotiating prices with manufactures and then purchasing and distributing drugs to providers. With these third-party negotiators in place, CMS would begin a gradual change to provider reimbursement for administered drugs, moving away from an average sale price-based model and toward a target price based on international prices. CMS proposed that providers composing roughly half of Part B spending would be tasked with participating in the model via randomly selected geographic regions. The proposed rule asserted a possible final rule date sometime in 2019 with implementation beginning as early as 2020. Needless to say, a number of industry stakeholders including hospitals, provider groups and policy experts from both sides of the aisle expressed vocal concern with the proposal, and it remains to be seen whether a final rule will come this summer.

Despite the administration’s efforts, a number of drug manufacturers proceeded with planned increases in drug prices, effective January 1, 2019. Perhaps in response to this, HHS has been active in the first half of 2019 in the realm of prescription drug reform. In January, CMS announced a new Part D Payment Modernization Model that would give Medicare PDPs the chance at performance-based payments in return for taking on some patient risk. Later that same month a new HHS proposed rule would give manufactures the ability to offer discounts directly to consumers, rather than the current system where discount savings might be realized mostly by middlemen like pharmacy benefit managers (PBMs). And finally, in May 2019, a final rule would require manufacturers to disclose drug prices in direct-to-consumer TV advertisements.

Many of these proposals have significant opposition from different sectors of the healthcare industry, not to mention the political circle. Many of the proposals of the Trump administration that have come via proposed budgets and rulemaking are unlikely to see full implementation. Although the rising costs of prescription drugs and corresponding rise in overall expenditures remains a pressing concern for both parties, strategies to combat this rise are disparate. Certain solutions, such as the IPI model, seek to strengthen negotiating power with manufacturers, while others look at reducing Part D expenditures in the face of growing Medicare enrollment in years to come. Given the lively 2020 election cycle, however, it is likely that we will see yet more proposals both from candidates, and an administration that has made this issue a priority, in the coming months.