(480) 923-0802

Our Take: CMS takes next steps toward lowering drug prices and improving access for Medicare and Medicaid enrollees

Feb 20, 2023

Editor’s Note: Darwin is launching two new national syndicated research projects: the IDN Engagement Study and the Oncology Engagement Study. Contact me at jm@darwinresearch.com if you are interested in learning more.

The CMS Innovation Center will test three payment models designed to lower drug costs for Medicare and Medicaid beneficiaries and improve access to certain therapies, in response to an executive order President Joe Biden signed in October. 

CMS announced the proposed pilot programs on Tuesday:

The Medicare High-Value Drug List Model, under which Part D plans would be encouraged to offer a low, fixed copay for approximately 150 generic drugs used to treat common chronic health conditions such as high blood pressure and high cholesterol. The copay would be capped at $2 per month per drug and would be consistent across all phases of the Part D drug benefit (the annual deductible, initial coverage, the coverage gap, and catastrophic coverage).   

The Cell and Gene Therapy Access Model, under which state Medicaid agencies would assign CMS to coordinate and administer multi-state, outcomes-based agreements with drug manufacturers for certain cell and gene therapies, some of which cost more than $1 million for a one-time treatment.

The Accelerating Clinical Evidence Model, under which CMS, in consultation with the FDA, would develop payment methods for drugs approved via the accelerated  approval pathway. With the dual goals of encouraging the timely completion of confirmatory trials and improving access to post-market safety and efficacy data, the model would, in theory at least, reduce Medicare spending on drugs with no confirmed clinical benefit.  

A report by the Department of Health and Human Services (HHS) provides additional details on the three payment models, though a timeline for initiating them and other specifics still need to be ironed out.

In addition, CMS released initial guidance for the Medicare Prescription Drug Inflation Rebate program, which also is intended to lower drug prices. The program is part of the Inflation Reduction Act passed last year. 

Under the rebate program, drug companies that increase their prices faster than the rate of inflation will be required to pay rebates to the Medicare Trust Fund.  

CMS is accepting comments from the public regarding the guidance through March 11 and anticipates issuing revised guidance later this year. 

The agency provided additional details, including a timeline for implementing the rebate program, in a fact sheet

Based on that timeline, CMS would start invoicing drug companies no later than Sept. 30, 2025, for Part B rebates owed (for calendar quarters in 2023 and 2024) and Dec. 31, 2025, for Part D rebates owed (for the 12-month periods starting Oct. 1, 2022, and Oct. 1, 2023).

Also according to the timeline, starting on April 1 of this year, enrollees in traditional Medicare and Medicare Advantage plans may pay a lower coinsurance for certain Part B drugs if the drugs’ prices increased faster than the rate of inflation in a benchmark quarter.

Our Take: While consumers are likely applauding these efforts by the Biden administration to rein in drug prices, Big Pharma is no doubt turning to lobbyists and legal experts to prevent a substantial loss of profits.

NPR reported that Medicare spending on drugs nearly tripled in a little over a decade, increasing from roughly $85 billion in 2009 to $240 billion in 2020. The rebates could produce $70 billion in savings for Medicare over the next decade, according to estimates by the Congressional Budget Office — but the actual amount saved will depend on many factors, including the current partisan political environment.  

NPR noted that while Medicaid has lowered spending by clawing back “very similar inflation rebates for 30 years,” drug companies have sidestepped “hundreds of millions of dollars in payments by taking advantage of flexibilities built into the law. Similar gamesmanship could be magnified in Medicare, which spends three times more on drugs than Medicaid.”

Lawmakers who wrote the Inflation Reduction Act have given CMS little time to finalize the details of the policies therein. 

“Congress has pushed them very hard,” said Richard Frank, a senior fellow at the Brookings Institution who served in HHS during the Obama administration. “They’re building the ship and trying to sail it at the same time.”

CMS must also quickly furnish guidance on another provision of the Inflation Reduction Act: Medicare’s newly gained authority to negotiate prices. 

Lawmakers who created Medicare’s Part D outpatient prescription drug program in 2003 barred Medicare from negotiating drug prices in a “noninterference clause,” and until now the pharmaceutical industry has successfully fought attempts to weaken or eliminate the ban, arguing that such negotiating powers would hamper drug development and stifle innovation. 

“We’re having to wrestle with responding to guidance about something we never thought was going to happen,” said Jenny Bryant, the executive vice president for policy and research at Pharmaceutical Research and Manufacturers of America.

Expect to see considerable litigation centering on these policies in the months (and probably years) ahead. There may also be some related dust-ups in Congress, especially as we head into the next presidential election.

One thing everyone seems to agree on: We’re in uncharted drug pricing territory. 

What else you need to know
Kaiser Permanente reported a net loss of $4.5 billion for 2022, with operating revenue of $95.4 billion and operating expenses of $96.7 billion. A year earlier, the Oakland, Calif.-based health system reported a net gain of $8.1 billion. In a press release, Kaiser Permanente cited several reasons for the substantial losses incurred last year, including increased health care expenses driven by inflation, high costs associated with COVID-19, ongoing labor shortages, and higher care volume due in part to deferred care during the pandemic. Yet most of the loss — $3.2 billion — was the result of poorly performing investments.   

Separately, Kaiser Permanente apparently is limiting where some health plan members can have certain prescriptions filled. According to the Moscow-Pullman Daily News, a letter Kaiser Permanente sent to members advised them, “Your plan allows you to fill one prescription for maintenance medication … at a network pharmacy. You will need to obtain your next refill from our mail-order pharmacy or at a Kaiser Permanente pharmacy.” In a statement to Becker’s Hospital Review, Kaiser Permanente said select members can have acute prescriptions filled at their pharmacy of choice, while routine and planned medications can be filled through the mail-order service or at a Kaiser Permanente location.

CommonSpirit Health and AdventHealth are ending the Centura Health joint venture that originated in 1996 between Englewood, Colo.-based Catholic Health Initiatives (CHI) and Altamonte Springs, Fla.-based AdventHealth, then known as Adventist Health Systems. (CHI merged with San Francisco-based Dignity Health in 2019, forming CommonSpirit Health, which is based in Chicago.) For 27 years, Centura Health, based in Centennial, Colo., has managed 20 hospitals and a network of outpatient practices in Colorado and Kansas for the health systems, but the partnership has “reached its natural maturity,” according to a joint press statement. Though there is no definite timeline, AdventHealth will eventually operate and manage the five hospitals and affiliated clinics it owns in Colorado and CommonSpirit Health will operate and manage the remaining 15 hospitals and clinics.

In separate news, Centura Health, CommonSpirit Health, and Salt Lake City-based Steward Health signed an asset purchase agreement under which CommonSpirit will acquire Steward’s Utah assets — five hospitals, more than 35 medical group clinics, and a clinically integrated network of care providers — and Centura will manage them. Financial terms of the agreement were not disclosed; however, CommonSpirit noted “a gross purchase price of $685 million, plus certain working capital adjustments” in its recent quarterly earnings report. The transaction is expected to close later this year. 

Sanford Health and Fairview Health Services agreed to delay their merger by two months, with a new targeted closing date of May 31. Minnesota’s attorney general’s office asked the two health systems, based in Sioux Falls, S.D., and Minneapolis, respectively, to postpone the proposed transaction to give the AG and lawmakers more time to complete a review. Some of the same concerns that existed a decade ago when the health systems first attempted to merge have resurfaced, including concerns by the University of Minnesota. The university proposed a plan in January to reacquire the medical center and other facilities on its campus from Fairview. Medical students at the university and organizations such as the Minnesota Nurses Association have expressed opposition to the deal. Some lawmakers want the state’s health commissioner to weigh in on health care mergers like this one, according to MPR News. Meanwhile, Sanford and Fairview announced the members of the post-merger leadership team.    

Cigna Corp. is rebranding to reflect three distinct brands: The Cigna Group is the new name of the overarching holding company; Cigna Healthcare is the health benefits provider of The Cigna Group, serving commercial, government, and international members; and Evernorth Health Services encompasses the company’s pharmacy benefit management, care delivery, and data analytics services. Businesses operating within Evernorth Health Services include Express Scripts, Express Scripts Pharmacy, Accredo, eviCore, MDLIVE, and myMatrixx. 

An over-the-counter version of naloxone nasal spray, an opioid overdose reversal agent, has nudged a step closer to being approved. The FDA accepted Emergent BioSolutions’ supplemental NDA for an OTC 4 mg nasal spray in December, granting the sNDA priority review; Emergent BioSolutions markets the prescription nasal spray under the brand name Narcan. Last week, two FDA advisory committees unanimously agreed that Narcan’s risk-benefit profile supports switching the drug to OTC status. Currently, access laws in all 50 states make it possible for residents to purchase Narcan directly from a pharmacist without an individualized, in-person prescription, but not all pharmacies stock it. If Narcan nasal spray becomes available OTC, it can be sold in convenience stores, supermarkets, vending machines, and elsewhere. The FDA is expected to make a decision on the sNDA by March 29. 

Brett Saunders will become Bausch + Lomb’s next CEO and board chair on March 6, when Joseph Papa steps down as the company’s CEO and director. Saunders joined the company Thursday in an advisory capacity, according to a news release. He previously served as CEO of Bausch + Lomb from 2010 to 2013. Afterward, he was CEO of Forest Laboratories, which merged with Actavis, which acquired Allergan and then assumed the Allergan name. AbbVie bought Allergan in 2020 for $63 billion.

What we’re reading
Comparison of Prices for Commonly Administered Drugs in Employer-Sponsored Insurance Relative to Medicare. JAMA, 2.10.23

Hospital Price Transparency: Progress And Commitment To Achieving Its Potential. Health Affairs Forefront, 2.14.23

Research: How Risky Behavior Spreads. Harvard Business Review, 2.17.23

What else we’re reading
Blockchain Life: Making Sense of the Metaverse, NFTs, Cryptocurrency, Virtual Reality, Augmented Reality, and Web3, by Kary Oberbrunner and Lee Richter. I just ordered it, so I can’t comment here, but the reviews are terrific. I admit ignorance about most of these things, which is precisely why I feel Blockchain Life is a must-read for me.


Contact Darwin Research Group and we will get right back to you.