The law represents the most significant overhaul for the U.S. drug marketplace in decades.

This article was published on Friday, February 16, 2024 in KFF Health News.

By Arthur Allen

Last year alone, David Mitchell paid $16,525 for 12 little bottles of Pomalyst, one of the pricey medications that treat his multiple myeloma, a blood cancer he was diagnosed with in 2010.

The drugs have kept his cancer at bay. But their rapidly increasing costs so infuriated Mitchell that he was inspired to create an advocacy movement.

Patients for Affordable Drugs, which he founded in 2016, was instrumental in getting drug price reforms into the 2022 Inflation Reduction Act. Those changes are kicking in now, and Mitchell, 73, is an early beneficiary.

In January, he plunked down $3,308 for a Pomalyst refill "and that's it," he said. Under the law, he has no further responsibility for his drug costs this year — a savings of more than $13,000.

The law caps out-of-pocket spending on brand-name drugs for Medicare beneficiaries at about $3,500 in 2024. The patient cap for all drugs drops to $2,000 next year.

"From a selfish perspective, I feel great about it," he said. But the payment cap will be "truly life-changing" for hundreds of thousands of other Medicare patients, Mitchell said.

President Joe Biden's battle against high drug prices is mostly embodied in the IRA, as the law is known — a grab bag of measures intended to give Medicare patients immediate relief and, in the long term, to impose government controls on what pharmaceutical companies charge for their products. The law represents the most significant overhaul for the U.S. drug marketplace in decades.

With Election Day on the horizon, the president is trying to make sure voters know who was responsible. This month, the White House began a campaign to get the word out to seniors.

"The days where Americans pay two to three times what they pay for prescription drugs in other countries are ending," Biden said in a Feb. 1 statement.

KFF polling indicates Biden has work to do. Just a quarter of adults were aware that the IRA includes provisions on drug prices in July, nearly a year after the president signed it. He isn't helped by the name of the law, the "Inflation Reduction Act," which says nothing about health care or drug costs.

Biden's own estimate of drug price inflation is quite conservative: U.S. patients sometimes pay more than 10 times as much for their drugs compared with people in other countries. The popular weight loss drug Wegovy lists for $936 a month in the U.S., for example — and $83 in France.

Additional sections of the law provide free vaccines and $35-a-month insulin and federal subsidies to patients earning up to 150% of the federal poverty level, and require drugmakers to pay the government rebates for medicines whose prices rise faster than inflation. But the most controversial provision enables Medicare to negotiate prices for certain expensive drugs that have been on the market for at least nine years. It's key to Biden's attempt to weaken the drug industry's grip.

Responding to Pressure

The impact of Medicare's bargaining over drug prices for privately insured Americans remains unclear. States have taken additional steps, such as cutting copays for insulin for the privately insured.

However, insurers are increasing premiums in response to their higher costs under the IRA. Monthly premiums on traditional Medicare drug plans jumped to $48 from $40 this year, on average.

On Feb. 1, the Centers for Medicare & Medicaid Services sent pharmaceutical makers opening bids for the first 10 expensive drugs it selected for negotiation. The companies are responding to the bids — while filing nine lawsuits that aim to kill the negotiations altogether, arguing that limiting their profits will strangle the pipeline of lifesaving drugs. A federal court in Texas dismissed one of the suits on Feb. 12, without taking up the substantive legal issue over constitutionality.

The nonpartisan Congressional Budget Office predicted the IRA's drug pricing elements would save the federal government $237 billion over 10 years while reducing the number of drugs coming to market in that period by about two.

If the government prevails in the courts, new prices for those 10 drugs will be announced by September and take effect in 2026. The government will negotiate an additional 15 drugs for 2027, another 15 for 2028, and 20 more each year thereafter. CMS has been mum about the size of its offers, but AstraZeneca CEO Pascal Soriot on Feb. 8 called the opening bid for his company's drug Farxiga (which earned $2.8 billion in U.S. sales in fiscal year 2023) "relatively encouraging."

Related Biden administration efforts, as well as legislation with bipartisan support, could complement the Inflation Reduction Act's swing at drug prices.

The House and Senate have passed bills that require greater transparency and less self-serving behavior by pharmacy benefit managers, the secretive intermediaries that decide which drugs go on patients' formularies, the lists detailing which prescriptions are available to health plan enrollees. The Federal Trade Commission is investigating anti-competitive action by leading PBMs, as well as drug company patenting tricks that slow the entry of cheaper drugs to the market.

'Sending a Message'

Months after drug companies began suing to stop price negotiations, the Biden administration released a framework describing when it could "march in" and essentially seize drugs created through research funded by the National Institutes of Health if they are unreasonably priced.

The timing of the march-in announcement "suggests that it's about sending a message" to the drug industry, said Robin Feldman, who leads the Center for Innovation at the University of California Law-San Francisco. And so, in a way, does the Inflation Reduction Act itself, she said.

"I have always thought that the IRA would reverberate well beyond the unlucky 10 and others that get pulled into the net later," Feldman said. "Companies are likely to try to moderate their behavior to stay out of negotiations. I think of all the things going on as attempts to corral the market into more reasonable pathways."

The IRA issues did not appear to be top of mind to most executives and investors as they gathered to make deals at the annual J.P. Morgan Healthcare Conference in San Francisco last month.

"I think the industry is navigating its way beyond this," said Matthew Price, chief operating officer of Promontory Therapeutics, a cancer drug startup, in an interview there. The drugs up for negotiation "look to be assets that were already nearing the end of their patent life. So maybe the impact on revenues is less than feared. There's alarm around this, but it was probably inevitable that a negotiation mechanism of some kind would have to come in."

Investors generally appear sanguine about the impact of the law. A recent S&P Global report suggests "healthy revenue growth through 2027" for the pharmaceutical industry.

Back in Washington, many of the changes await action by the courts and Congress and could be shelved depending on the results of the fall election.

The restructuring of Medicare Part D, which covers most retail prescription drugs, is already lowering costs for many Medicare patients who spent more than $3,500 a year on their Part D drugs. In 2020 that was about 1.3 million patients, 200,000 of whom spent $5,000 or more out-of-pocket, according to KFF research.

"That's real savings," said Tricia Neuman, executive director of KFF's Medicare policy program, "and it's targeted to people who are really sick."

Although the drug industry is spending millions to fight the IRA, the Part D portion of the bill could end up boosting their sales. While it forces the industry to further discount the highest-grossing drugs, the bill makes it easier for Medicare patients to pick up their medicines because they'll be able to afford them, said Stacie Dusetzina, a Vanderbilt University School of Medicine researcher. She was the lead author of a 2022 study showing that cancer patients who didn't get income subsidies were about half as likely to fill prescriptions.

States and foundations that help patients pay for their drugs will save money, enabling them to procure more drugs for more patients, said Gina Upchurch, the executive director of Senior PharmAssist, a Durham, North Carolina-based drug assistance program, and a member of the Medicare Payment Advisory Commission. "This is good news for the drug companies," she said.

Relief for Patients

Lynn Scarfuto, 73, a retired nurse who lives on a fixed income in upstate New York, spent $1,157 for drugs last year, while most of her share of the $205,000 annual cost for the leukemia drug Imbruvica was paid by a charity, the Patient Access Network Foundation. This year, through the IRA, she'll pay nothing because the foundation's first monthly Imbruvica payment covered her entire responsibility. Imbruvica, marketed jointly by AbbVie and Janssen, a subsidiary of Johnson & Johnson, is one of the 10 drugs subject to Medicare negotiations.

"For Medicare patients, the Inflation Reduction Act is a great, wonderful thing," Scarfuto said. "I hope the negotiation continues as they have promised, adding more drugs every year."

Mitchell, a PR specialist who had worked with such clients as the Campaign for Tobacco-Free Kids and pharmaceutical giant J&J, went to an emergency room with severe back pain in November 2010 and discovered he had a cancer that had broken a vertebra and five ribs and left holes in his pelvis, skull, and forearm bones. He responded well to surgery and treatment but was shocked at the price of his drugs.

His Patients for Affordable Drugs group has become a powerful voice in Washington, engaging tens of thousands of patients, including Scarfuto, to tell their stories and lobby legislatures. The work is supported in part by millions in grants from Arnold Ventures, a philanthropy that has supported health care policies like lower drug prices, access to contraception, and solutions to the opioid epidemic.

"What got the IRA over the finish line in part was angry people who said we want something done with this," Mitchell said. "Our patients gave voice to that."

Arnold Ventures has provided funding for KFF Health News.

Arthur Allen: ArthurA@kff.org, @ArthurAllen202

Hospitals argue they need the extra money because they have higher costs.

This article was published on Tuesday, February 13, 2024 in KFF Health News.

By Phil Galewitz and Colleen DeGuzman

In the battle to control healthcare costs, hospitals are deploying their political power to protect their bottom lines.

The point of contention: For decades, Medicare has paid hospitals — including hospital-owned physician practices that may not be physically located in a hospital building — about double the rates it pays other doctors and facilities for the same services, such as mammograms, colonoscopies, and blood tests.

The rationale has been that hospitals have higher fixed costs, such as 24/7 emergency rooms and uncompensated care for uninsured people.

Insurers, doctors, and consumer advocates have long complained it's an unequal and unfair arrangement that results in higher costs for patients and taxpayers. It's also a profit incentive for hospitals to buy up physician practices, which health economists say can lead to hospital consolidation and higher prices.

In December, the House passed a bill that included a provision requiring Medicare to pay the same rates for medical infusions, like chemotherapy and many treatments for autoimmune conditions, regardless of whether they're done in a doctor's office or clinic owned by a hospital or by a different entity. The policy, known as site-neutral payment, has sparked a ferocious lobbying battle in the Senate, not the first of its kind, with hospitals determined to kill such legislation.

Don't bet against them. The House legislation would save Medicare an estimated $3.7 billion over a decade, according to the Congressional Budget Office. To put this in perspective, the program is projected to pay hospitals upward of $2 trillion during that same period. But hospitals have long argued that any adoption of site-neutral payments would force them to cut jobs or services, or close facilities altogether — particularly in rural areas. And senators are listening.

"The Senate is very much attuned to rural concerns," Sen. Ron Wyden (D-Ore.), who chairs the Finance Committee, told KFF Health News. His panel has jurisdiction over Medicare, the health program for seniors and people with disabilities.

"I have heard lots of questions about how these proposals would affect rural communities and rural facilities," he said. "So we're taking a look at it."

Outpatient departments at rural hospitals can have outsize importance to their communities. Taking any funding away from stand-alone rural hospitals is seen as risky. Scores have closed in the past decade due to financial problems. With fewer patients, rural hospitals often struggle to attract doctors and update technology amid rising costs.

Sen. Bill Cassidy (R-La.), a physician who also serves on the Finance Committee, indicated he was apprehensive about the legislation.

"In some cases," he said, higher Medicare payments for hospitals are "justified."

"In some cases, it doesn't seem to be," he said. He told KFF Health News he was planning to introduce legislation on the issue but didn't provide details, and his office didn't respond to inquiries.

As the two senators show, the issue doesn't break cleanly along partisan lines. In December, the House easily passed the Lower Costs, More Transparency Act, the broader bill that included this Medicare payment change, with 166 Republicans and 154 Democrats voting in favor.

"It's more about how close different members are to the hospital industry," said Matthew Fiedler, a former White House health economist under President Barack Obama and now a senior fellow at the Brookings Institution.

The American Hospital Association describes the site-neutral policy as a "cut" to hospital Medicare payments and said in a statement to a House subcommittee that it "disregards important differences in patient safety and quality standards required in these facilities."

Chip Kahn, president and CEO of the Federation of American Hospitals, which represents for-profit hospitals, offered a similar characterization of the House-passed legislation. "This is no time for so-called ‘site neutral' Medicare cuts that could harm beneficiaries," he said in a statement. He urged lawmakers to drop the policy from the broader bill and instead prioritize access to hospital care for patients by not only protecting Medicare, but also strengthening the healthcare safety net.

Hospitals argue they need the extra money because they have higher costs, said Salama Freed, an assistant professor of health policy and management at George Washington University and a nonresident fellow at KFF. But "it doesn't necessarily warrant the amount that they end up getting paid for this," she said.

The Medicare Payment Advisory Commission, which advises Congress on the program, has recommended implementing site-neutral payments for over a decade.

"This is not a hospital cut. It is rolling back an unethical price increase," said Mark Miller, a former MedPAC executive director who's now an executive vice president at Arnold Ventures, a philanthropy founded by John and Laura Arnold, an energy industry investor and an attorney, respectively.

Large hospital systems with the money to buy physician practices, Miller said, have exploited the disparity between Medicare payments to physician offices and hospitals to increase their revenue and consolidate.

Arnold Ventures advocates for site-neutral payments and its leaders have discussed the issue with lawmakers. (The organization has also provided funding for KFF Health News.)

Miller said he's hopeful the site-neutral provision of the House bill will be part of a larger government spending bill that must be passed next month to keep the government open. If lawmakers need to offset the bill's costs, "then it is more likely to get in the funding package," he said.

Though the House-passed legislation is viewed as an "incremental" change, said Fiedler, it faces a rough path forward. Evening out Medicare payment for physician-administered drugs, hospitals fear, could lead to similar moves for other outpatient services.

"Hospitals have a lot of money at stake and will fight this hard," he said. "Hospitals feel if they lose here, down the road there will be more substantial steps."

Phil Galewitz: pgalewitz@kff.org, @philgalewitz

Colleen DeGuzman: cdeguzman@kff.org, @acolleendg

Two-thirds of the 48 million beneficiaries who have had their eligibility reviewed so far got their coverage renewed. 

This article was published on Wednesday, February 7, 2024 in KFF Health News.

By Phil Galewitz

Halfway through what will be the biggest purge of Medicaid beneficiaries in a one-year span, enrollment in the government-run health insurance program is on track to return to roughly pre-pandemic levels.

Medicaid, which covers low-income and disabled people, and the related Children's Health Insurance Program grew to a record 94 million enrollees as a result of a rule that prohibited states from terminating coverage during the nation's public health emergency.

But since last April, states have removed more than 16 million people from the programs in a process known as the "unwinding," according to KFF estimates compiled from state-level data.

While many beneficiaries no longer qualify because their incomes rose, millions of people have been dropped from the rolls for procedural reasons like failing to respond to notices or return paperwork. But at the same time, millions have been reenrolled or signed up for the first time.

The net result: Enrollment has fallen by about 9.5 million people from the record high reached last April, according to KFF. That puts Medicaid and CHIP enrollment on track to look, by the end of the unwinding later this year, a lot like it did at the start of the coronavirus pandemic: about 71 million people.

"What we are seeing is not dissimilar to what we saw before the pandemic — it is just happening on a bigger scale and more quickly," said Larry Levitt, executive vice president for health policy at KFF.

Enrollment churn has long been a feature of Medicaid. Before the pandemic, about 1 million to 1.5 million people nationwide fell off the Medicaid rolls each month — including many who still qualified but failed to renew their coverage, Levitt said.

During the unwinding, many people have been disenrolled in a shorter time. In some ways — and in some states — it's been worse than expected.

The Biden administration predicted about 15 million people would lose coverage under Medicaid or CHIP during the unwinding period, nearly half due to procedural issues. Both predictions have proven low. Based on data reported so far, disenrollments are likely to exceed 17 million, according to KFF — 70% due to procedural reasons.

But about two-thirds of the 48 million beneficiaries who have had their eligibility reviewed so far got their coverage renewed. About one-third lost it.

The federal government has given most states 12 months to complete their unwinding, starting with the first disenrollments between last April and October.

Timothy McBride, a health economist at Washington University in St. Louis, said the nation's historically low unemployment rate means people who lose Medicaid coverage are more likely to find job-based coverage or be better able to afford plans on Obamacare marketplaces. "That is one reason why the drop in Medicaid is not a lot worse," he said.

There are big differences between states. Oregon, for example, has disenrolled just 12% of its beneficiaries. Seventy-five percent have been renewed, according to KFF. The rest are pending.

At the other end of the spectrum, Oklahoma has dumped 43% of its beneficiaries in the unwinding, renewing coverage for just 34%. About 24% are pending.

States have varying eligibility rules, and some make it easier to stay enrolled. For instance, Oregon allows children to stay on Medicaid until age 6 without having to reapply. All other enrollees get up to two years of coverage regardless of changes in income.

Jennifer Harris, senior health policy advocate for Alabama Arise, an advocacy group, said her state's Medicaid agency and other nonprofit organizations communicated well to enrollees about the need to reapply for coverage and that the state also hired more people to handle the surge. About 29% of beneficiaries in Alabama who've had eligibility reviews were disenrolled for procedural reasons, KFF found.

"Things are even keel in Alabama," she said, noting that about 66% of enrollees have been renewed.

State officials have told the legislature that about a quarter of people disenrolled during the unwinding were reenrolled within 90 days, she said.

One of a handful of states that have refused to expand Medicaid under the Affordable Care Act, Alabama had about 920,000 enrollees in Medicaid and CHIP in January 2020. That number rose to about 1.2 million in April 2023.

More than halfway into the unwinding, the state is on track for enrollment to return to pre-pandemic levels, Harris said.

Joan Alker, executive director of the Georgetown University Center for Children and Families, said she remains worried the drop in Medicaid enrollment among children is steeper than typical. That's particularly bothersome because children usually qualify for Medicaid at higher household income levels than their parents or other adults.

During the unwinding 3.8 million children have lost Medicaid coverage, according to the center's latest data. "Many more kids are falling off now than prior to the pandemic," Alker said.

And when they're dropped, many families struggle to get them back on, she said. "The whole system is backlogged and the ability of people to get back on in a timely fashion is more limited," she said.

The big question, Levitt said, is how many of the millions of people dropped from Medicaid are now uninsured.

The only state to survey those disenrolled — Utah — discovered about 30% were uninsured. Many of the rest found employer health coverage or signed up for subsidized coverage through the Affordable Care Act marketplace.

What's happened nationwide remains unclear.

Phil Galewitz: pgalewitz@kff.org, @philgalewitz

Regulators say drugmakers illegitimately use the patents to prevent competitors from offering cheaper generics.

This article was published on Wednesday, January 31, 2024 in KFF Health News.

By Elisabeth Rosenthal

The Federal Trade Commission has challenged the validity of over 100 drug product patents, focusing on devices used to deliver medicines, like inhalers and autoinjectors, in an effort to increase competition and potentially lower some prices.

The FTC says drugmakers illegitimately use the patents to prevent competitors from offering cheaper generic alternatives.

It's the first time the FTC has tried the tactic, said Hannah Garden-Monheit, director of the FTC's Office of Policy Planning.

"We are using all the tools we have to bring down drug prices and reduce barriers to generic competition," she said in an interview.

President Joe Biden has instructed his Federal Trade Commission to be more aggressive in reining in the pharmaceutical industry. Under its chairperson, Lina Khan, the agency is aggressively testing the limits of its powers in pursuit of that goal.

The targeted patents cover devices that propel medicines for asthma and emphysema into the lungs or inject epinephrine to treat a severe allergic attack. Drugmakers list them in the FDA's "Orange Book," which can afford the products greater protection from generic competition.

Many of the medicines delivered by the devices are decades old, years off patent. But manufacturers have long tweaked the delivery methods, patenting the changes, in ways that sometimes make the drugs more convenient to administer.

They might, for example, change the propellant in an inhaler or add a counter that tells a patient how many doses are left. Autoinjectors mean patients don't see a needle or syringe but merely press a device with a hidden needle against the skin to deliver the medicine. Some autoinjectors even talk patients through the process.

Though there has long been a procedure for disputing the validity of Orange Book-listed patents, it is rarely used.

In challenging Orange Book listings, the FTC is trying to cut away at what are known as patent thickets. While a single patent once would cover a single active medicine, many drugs today are protected by half a dozen patents or more, creating additional obstacles for cheaper generics seeking to enter the market.

The move is critically important because drugmakers frequently extend the 20-year patent protection of a drug by changing the delivery device or method. For example, instead of a pill, they make a capsule. Or instead of a dose every six hours, they create a longer-acting, once-a-day version. They can also alter the process by which a drug is made — so-called "process patents."

Each tweak gets a new patent, which the manufacturer then adds to its official compendium of drug patents. There is no advance scrutiny of listings by regulators.

Generic drugmakers wishing to make a copycat version of a branded drug generally have to challenge the patents in court. But merely listing a patent in the Orange Book automatically triggers a 2½-year delay of FDA approval of a litigating generic competitor.

The FTC says patent law protects active ingredients, not delivery methods.

The pharmaceutical industry, already battling the Biden administration's plan to negotiate prices of some drugs for Medicare patients, says it wants more clarity about which aspects of its products can be patented.

"The underlying statute is not clear about listing certain types of drug delivery device patents, and the industry has long asked for the FDA to provide guidance," said Megan Van Etten, a spokesperson for Pharmaceutical Research and Manufacturers of America, the industry trade group, in an email. "We're disappointed that the FTC has characterized companies as acting inappropriately rather than help seek the clarity the industry needs to ensure compliance."

After an FTC challenge, companies have 30 days to withdraw or amend the patent or show it is valid. Some have already backed down.

"We've had some significant wins," Garden-Monheit said. After the FTC's challenge, drugmaker GSK, formerly GlaxoSmithKline, withdrew all patents on two popular inhalers for asthma, Advair and Flovent, both of which contained old off-patent medicines but nonetheless cost hundreds of dollars. Amneal Pharmaceuticals withdrew patents on its epinephrine injector.

Still, the deadline for companies to respond to the first set of warning letters has passed and only about 30% of those that received them answered, leaving the commission to ponder its next steps. The FTC could take a drugmaker to court to seek a cease-and-desist order.

And Garden-Monheit said the agency is poised to look at other types of patents that may be invalid, which pile up to add to the thicket. There are thousands of patents in the Orange Book.

"We are taking a close and active look at this," Garden-Monheit said. "Companies who haven't received a letter from us challenging a patent shouldn't think they're off the hook."

Elisabeth Rosenthal: erosenthal@kff.org, @RosenthalHealth