Part D Senior Savings Model Shows Promise to Lower Insulin Costs | Citizens Against Government Waste

Part D Senior Savings Model Shows Promise to Lower Insulin Costs

The WasteWatcher

It is always good for patients and taxpayers when pharmaceutical manufacturers and pharmacy benefit managers (PBMs), which manage drug benefit plans in private-sector insurance and Medicare, agree on an issue.  Centers for Medicare and Medicaid (CMS) Administrator Seema Verma was successful in brokering a deal over insulin coverage between these two important healthcare stakeholders.  It took about a year to negotiate the agreement with the three major insulin manufacturers, Eli Lilly, Novo Nordisk, and Sanofi.

On May 26, Administrator Verma announced that more than 1,750 standalone Medicare Part D plans and Medicare Advantage prescription drug plans agreed to participate in a demonstration model beginning in January 2021.  The plans will provide a broad range of insulins for a maximum copay of $35 for a month’s supply.  It is expected seniors will save an average of $466 annually.

This will be a voluntary program, so a Medicare beneficiary will have to pick a plan that offers the demonstration model.  It should be welcome relief to diabetic seniors knowing they will have a stable copay for a year. It will also encourage beneficiaries to remain compliant with their insulin regimen.  When patients do not control their glucose levels it leads to other costly and serious conditions like kidney failure, amputations, heart disease, and blindness.

The current Medicare Part D standard benefit plan requires beneficiaries to pay a $435 deductible, then a 25 percent coinsurance of the drug’s price when reaching the initial coverage limit and coverage gap phases, and then 5 percent coinsurance in the catastrophic phase.  Part D drug plans can already provide lower-cost sharing in the coverage gap, but the costs are passed along in a higher premium.

The changes made require pharmaceutical companies to continue to pay their 70 percent discount in the coverage gap, or “donut hole,” and the PBMs to pass along a share of the rebate that they receive from drug manufacturers in price negotiations.

It will be interesting to see how this demonstration model plays out and Citizens Against Government Waste (CAGW) commends Administrator Verma and the private healthcare stakeholders for working together to get it done.  The demonstration model will certainly help Medicare beneficiaries, but more needs to be done to eliminate the current, deep-seated distortions in Medicare Part D.  Those reforms can only be enacted by Congress.

Medicare Part D has been successful because it uses the private sector to drive discounts and deliver care.  But congressional actions, like the forced 50 percent drug discount created as a result of the Patient Protection and Affordable Care Act (ACA), or Obamacare, and then increasing that discount to 70 percent under the 2018 Bipartisan Balanced Budget Act, constitute government-mandated prices controls that have helped to further distort the pharmaceutical marketplace.

Among other ideas, Congress should consider the American Action Forum’s plan, which would require the PBM or insurer to carry most of the risk after the deductible and up to the catastrophic phase by paying for 75 percent of the costs while the beneficiary would pay 25 percent.  Once in the catastrophic phase, the PBM or insurer would pay 71 percent, the drug manufacturer would provide a 9 percent discount, and 20 percent would be paid for by Medicare. 

However, CAGW believes it would be better if the drug manufacturer was not mandated to pay 9 percent, as it is another price control that would distort the market.  Instead, the drug plans or insurers should continue to carry most of the risk but be given as much flexibility as possible to design their formularies.  This would encourage the drug plans to negotiate robustly and utilize more generics and biosimilars, thus driving down costs.

The use of rebates, instead of up-front negotiations based on volume, have also helped to distort the marketplace.  Using rebates, instead of discounts, came about as a result of a 1996 class-action lawsuit.  Pharmacies alleged that pharmaceutical manufacturers violated the Sherman Antitrust Act by selling pharmaceuticals at significant discounts to health maintenance organizations, which had more restrictive formularies.  It will take congressional action to fix this issue to allow pharmaceutical manufacturers to offer upfront discounts and PBMs to negotate prices based on a purchaser’s volume.

Another issue is the demonstration project being run by the Center for Medicare and Medicaid Innovation (CMMI).  CAGW has had concerns with this agency since its inception under ACA, as laid out here and here, and has called for its elimination.  While Administrator Verma has previously implemented strong free-market solutions in a variety of areas, like utilizing state innovation waivers to provide more flexibility in running state-based health insurance exchanges and expanding the use of short-term, limited-duration health insurance plans, she will not always be there to keep an eye on CMMI and its heavy-handed, non-transparent activities.  All of these reforms can be changed with a new administrator or future administration.

Unfortunately, Congress has been unable to act and implement much-needed, free-market based reforms to all healthcare programs.  As a result, the Trump administration has been doing what it can to lower costs and this demonstration model for insulin in Medicare Part D is a good step in the right direction.  If that problem can be resolved, there is hope the other issues can be as well.

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