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Medicare Advantage Plans Given Negotiating Power on Part B Drug Prices

Analysis  |  By John Commins  
   August 08, 2018

The plan does not expand negotiating powers directly to the federal government and Part D drugs, which prompted one critic to call the policy shift 'small potatoes.'

The Centers for Medicare & Medicaid Services is rescinding an Obama-era policy that prohibits Medicare Advantage plans from negotiating lower Part B drug prices for their enrollees.

Under the revised policy announced Tuesday, enrollees starting in 2019 can choose Medicare Advantage plans that mandate the use of preauthorized but less-expensive drug formularies, with at least half of the savings generated by the "step therapy" passed back to enrollees, CMS said.

Medicare Advantage plans have been denied the negotiating tools for Part B drugs that commercial plans commonly use when negotiating lower drug prices, CMS Administrator Seema Verma told reporters Tuesday.

"What we are essentially allowing them to do is to introduce step therapy for Medicare Part B drugs," she said. "The plans have the option of using that tool. That might help them negotiate better discounts. It might encourage manufacturers to lower their prices. It will also encourage them to direct patients to high-value medications."

Medicare Advantage plans will have the ability to "cross-manage" drugs covered under different parts of Medicare, allowing them to pay for the most appropriate, most affordable drugs, regardless of whether patients receive them in a doctorโ€™s office (Part B) or at a pharmacy (Part D), Verma said.

CMS estimates that the policy shift could generate between 15% and 20% savings within the $11.9 billion spent annually on prescription drugs in Medicare Advantage.

Verma was asked at the briefing why CMS limited the negotiating ability to Medicare Advantage, and did not expand those powers to include the federal government, which is the world's largest purchaser of prescription drugs.

"This will impact about 20 million Americans, about 33% of our Medicare enrollees," Verma replied. "This is just one of the many things we are doing with the president's blueprint. We will be continuing to make announcements over the coming weeks so that we can make sure we are getting the best deals for Americans on drug pricing."

The plan received mixed reviews from stakeholders.

"PhRMA has serious concerns with the new CMS guidance regarding Medicare Advantage coverage of Part B medicines and the implications for patients suffering from complex conditions," PhRMA said in a media release.

"Step therapy will delay many patients' access to medicines they need, interfere with the patient-physician relationship and increase burdens on physicians to comply with new, more complicated requirements. The bottom line is this guidance prioritizes the interests of middlemen while increasing out-of-pocket costs for some patients," PhRMA said.

However, the Pharmaceutical Care Management Association praised the new policy as "an important step toward reducing costs for the program and beneficiaries."

"Some of the highest priced drugs are found in Medicare Part B, where PBMs currently don't play any meaningful role," PCMA said.

The reaction was also mixed among consumer groups.

Peter Maybarduk, director of Public Citizen's Access to Medicines Program, called the policy "small potatoes" when compared to what the federal government could do to make drugs more affordable.

"Adjusting the rules for Medicare Advantage plans under the much smaller Part B program is a much smaller change than giving the government power to negotiate directly for Part D," Maybarduk said.

Instead, Maybarduk accused the Trump administration of "protecting Big Pharma."  

"Even if Medicare Advantage plans for Part B somehow reduced their costs from $12 billion to zero, that still would produce less in savings than the government simply negotiating prices directly for the $100 billion Part D program," Maybarduk said.

However, David Mitchell, president and founder of Patients For Affordable Drugs, called the new policy "a small but positive step" that gives Medicare Advantage plans "greater leverage to negotiate with drug corporations."

Mitchell said that concerns about the potential misuse of step therapy are legitimate, "but as long as patients are protected with a timely and workable appeals process, allowing step therapy in Medicare Advantage is a step I can support."

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.


Medicare Advantage plans will have the option to impose prior-authorization requirements on drug formularies.

CMS estimates 15% to 20% savings within Medicare Advantage's $12 billion annual drug spend.

Half the savings generated by 'step therapy' to be returned to beneficiaries.

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