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Discount Drug Program May Factor in Medicare Changes

By Kerry Young, CQ Roll Call

November 6, 2015 -- Congressional advisers are looking to keep Medicare's drug spending in check, with the nation's single largest purchaser of health care already spending more than $100 billion a year on medications.

The Medicare Payment Advisory Commission (MedPAC) is in the early stage of crafting its next set of annual recommendations to Congress, due for release next year. Its focus includes a close examination of the effects of the government's 340B discount program.

"We are quite concerned about the recent escalation of pharmaceutical costs and its impact on the Treasury and on beneficiaries," Francis J. Crosson, the chairman of MedPAC, said at a recent meeting as he outlined the panel's top goals for the months ahead. "We believe that improvement in pharmaceutical affordability in the United States is needed."

MedPAC's 2016 reports likely will help shape the growing debate about how Americans pay for medicines. Democratic and Republican presidential candidates have criticized the rising costs of certain medicines in recent weeks. And many Democrats are pushing for a major overhaul of Medicare's biggest drug purchasing program, the insurer-run Part D plans that may buy more than $90 billion worth of medicines this year. At least three separate sets of House-Senate companions bills, including one from Democratic presidential candidate Sen. Bernie Sanders, I-Vt., seek direct Medicare negotiations on the prices of Part D drugs.

At a Thursday meeting, MedPAC members and staff addressed much less radical options. Still, the possible changes could reduce financial gains that insurers and certain hospitals have booked through Medicare payments for drugs.

In addition to Part D, Medicare spent more than $20 billion last year on drugs administered in physicians' office and covered by the programs Part B rules.

About $3.8 billion of these Part B drugs were administered last year by hospitals that qualify for the 340B discount program, a marked increase from the $500 million spent on such drugs in 2004, according to MedPAC.

The rate of growth of the 340B program has spurred concerns about the incentive it can create for doctors to prescribe more medicines for patients, and more expensive medicines when cheaper ones would work. Hospitals using the discount had an estimated $1 billion last year in savings from Part B drugs given to Medicare patents, MedPAC said. Medicare does not share in these savings.

The 340B program was created in the 1990s with the intention of preserving a path for discounted medicines to flow to hospitals that serve many people living in poverty. The program allows hospitals to retain savings, with the expectation that they will be used to bolster the services offered to the local community. But, there are no specific requirements on how savings are applied.

The 340B savings have not been particularly well targeted, said Katherine Baicker, a Harvard health policy researcher and MedPAC member.

"It makes it clear to me that something needs to be done," she said.

MedPAC members on Thursday didn't attempt to reach a firm consensus on changes needed for the 340B program. Among the options discussed was reducing by 10 percent the average sales price used to set payments for Part B drugs when a hospital gets the 340B discount. The savings could then be shared between Medicare and the people enrolled in it who received these treatments.

Medicare doesn't directly negotiate with drug makers on prices. For Part B drugs, it weighs reported data on the costs of these drugs and then uses estimated average sales prices for drugs and adds a roughly 4 percent premium on top of that. With Part D, Medicare relies on insurers to use their bargaining strategies to lower drug prices.

Program Changes

MedPAC members on Thursday also discussed whether changes may be needed to the risk-management programs for Part D insurers. There are concerns that these substantial safety-net protections may be dulling the incentive to negotiate the best deals.

In Congress, Democrats continue to press to have Medicare leverage its clout as a major purchaser of drugs to drive bigger discounts on Part D medicines. At least three sets of companions bills have been introduced, without attracting a single Republican backer.

Bills from Rep. Peter Welch, D-Vt., and Sen. Amy Klobuchar, D-Minn., would direct the Department of Health and Human Services (HHS) to negotiate prices with drugmakers for the Part D plans, although the department wouldn't be authorized to establish lists of approved drugs, known as formularies. There would be no restriction against the operators of Part D plans from getting a discount to the drug negotiated by HHS.

Welch has drawn 19 Democratic cosponsors for his bill (HR 3061). Klobuchar has the backing of six Democrats and independents Sanders and Angus King of Maine for her bill (S 31).

Bills from Sanders, an independent from Vermont, and Rep Elijah Cummings, D-Md., also would authorize HHS to negotiate directly with drugmakers on prices for medicines sold in Part D plans. And, there would be no authorization for HHS to establish a formulary. Sanders bill (S 2023) has one Democratic cosponsor. Cummings has five Democratic backers for his bill (HR 3513).

Rep. Jan Schakowsky and Sen. Richard J. Durbin, both Illinois Democrats, take a different tack. They would create Medicare-operated drug plans. HHS would negotiate directly prices with drug companies and a formulary would be created, with the help of the Agency for Healthcare Research and Quality. Schakowsky has eight Democratic cosponsors for her bill. (HR 3261). Durbin's bill has five Democratic cosponsors and the backing of independent King on the bill (S 1884).

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