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On Tuesday, the White House celebrated the passage of the Cut Inflation Act, a sweeping climate, tax and health care package passed in August. Among other measures, it grants Medicare historic new powers to control prescription drug prices.
Democratic leaders like U.S. Sen. Chuck Schumer, DN.Y., celebrated what they consider one of the law’s historic achievements. “For years, naysayers said we could never take on big pharma and cut prescription drug costs, but we did and we won,” Schumer said.
But for those faced with putting this law into practice, the work has only just begun. Now, federal government workers and drug companies are entering a new round in the fight over how much the massive Medicare program pays for prescription drugs.
This round is shaping up to be a bureaucratic brawl over the fine print of the new law, its shortcomings and its legality. Here’s what’s at stake and what’s preventing Medicare from benefiting from the new measures.
Medicare’s New Powers to Reduce and Cap Prescription Drug Prices
Two of the biggest battlegrounds will be a pair of new powers lawmakers have given Medicare, the federal insurance program that covers 64 million seniors and people with disabilities. Medicare’s roughly $180 billion annual drug budget accounts for more than a third of the nation’s total drug spending.
One of the new powers allows the federal government to negotiate deep discounts directly with drugmakers for some of Medicare’s most expensive drugs. This provision is unprecedented – and one that the pharmaceutical industry has fought for decades.
To be eligible for negotiation, drugs must be among Medicare’s 100 most expensive products, have been on the market for at least several years, have no generic competition, and be unaffected by several other Medicare exemptions. law.
Despite those caveats, Medicare can still target some of the industry’s biggest moneymakers, like Eliquis and Xarelto, a pair of blood-thinning drugs Medicare spent $10 billion on in 2020, and Januvia, a blood-thinning drug. diabetes which racked up nearly $4 billion in Medicare sales. same year.
Medicare will announce its first 10 targets next September, and negotiated prices for these drugs will take effect in 2026. The law allows Medicare to target additional drugs each year thereafter, up to 60 by the end of this decade. .
The other new power lawmakers have given Medicare is known as inflation reimbursement. He has a precedent. Medicaid, which covers 82 million low-income Americans, has used its power to reimburse inflation for 30 years. It allows Medicaid to recover any price increase that exceeds the rate of inflation and has significantly reduced Medicaid spending.
This provision, which applies to most drugs, now allows Medicare to do the same. It will go into full effect in 2023, with Medicare planning to collect reimbursements for some drugs as early as April.
Drugmakers often raise product prices in January, so executives will be faced with major pricing decisions very soon, said Sean Dickson, director of health policy at the nonpartisan West Health Policy Center. focused on reducing health care costs.
Figures released last week by the Congressional Budget Office estimate that together, this pair of provisions would save Medicare about $170 billion over the next decade. But these savings are far from guaranteed.
More lobbying and likely lawsuits
Although the Inflation Reduction Act is now in force, many of its crucial details have yet to be fulfilled. It is in this process, known as rule-making and guidance, that experts expect the pharmaceutical industry to alter its lobbying efforts.
Many seemingly technical details could have major implications for the impact of this law. For example, the text of the law does not clearly state how a negotiated price will be calculated if the negotiation between a drugmaker and Medicare results in an impasse.
Mark Newsom, a policy consultant who worked at the Centers for Medicare and Medicaid Services for several years, including in 2004 when Medicare underwent major reforms, expects strong political and legal pressure from the pharmaceutical industry. on this regulatory process.
Many experts say they expect to see lawsuits challenging the provisions of the law. A legal target could be a massive tax penalty for companies that refuse to enter into an agreement with Medicare.
“They’re going to go to the Hill and ask for legislative change, or they’re going to go to court and they’re going to sue,” Newsom said.
Take advantage of vulnerabilities in the law
At the same time, the pharmaceutical industry is also making plans for a world in which the new powers of Medicare will survive. “They’re absolutely gearing up for implementation,” said Alice Valder Curran, who advises pharmaceutical companies on pricing strategy at law firm Hogan Lovells.
There is plenty of evidence from 30 years of implementing Medicaid inflation reimbursements showing how drugmakers work around the system.
“Manufacturers have long adopted creative strategies to avoid paying these rebates,” said Dickson of the West Health Policy Center, which previously advised drugmakers on compliance with government pricing rules.
Sometimes companies openly break the rules, as evidenced by a recent $233 million settlement between the Justice Department and drugmaker Mallinckrodt. Far more often, however, Dickson said, companies take advantage of the rules, exploiting vague definitions, flawed formulas and other loopholes in refund law.
One area ripe for play is the formula known as the average manufacturer price that Medicaid uses to determine whether companies owe money to raise prices faster than inflation. The law gives companies wide discretion in how they calculate this average, and companies have used this discretion to include or exclude certain sales to avoid triggering rebate payments. A single loophole in that formula, which Congress closed in 2019, had cost Medicaid at least $595 million a year in lost rebates, according to a report by the U.S. Department of Health and Human Services’ Office of Inspector General. social.
The Inflation Reduction Act essentially replicates the language of the Medicaid Inflation Reimbursement Act, making Medicare now vulnerable to the same loopholes. And there’s a lot more incentive for drugmakers to exploit them, Dickson said. Companies derive three times more revenue from Medicare than from Medicaid.
“It’s an ongoing effort to keep working and finding where those vulnerabilities are,” said Amber Jessup, chief health care economist with the Department of Health and Human Services’ Office of Inspector General, which monitors federal health programs for fraud, waste and abuse. Jessup added that it is too early to know if similar vulnerabilities could be found in the negotiation provision of this new law.
She says her team of auditors, analysts, evaluators and lawyers are feeling the brunt of this new challenge. “There are a lot of health care dollars at stake.”
Prepare for the unprecedented
Whatever conflicts lie ahead, the Cut Inflation Act will usher in a sea change in the way Medicare pays for prescription drugs. “It transcends every other pricing reform I’ve ever seen because it’s so expensive,” said industry adviser Alice Valder Curran.
This expansion has made the longer-term implications of the law difficult to determine, especially for large pharmaceutical companies with hundreds of products on the market, each priced and paid for in different ways. “We’re really still in the discovery phase,” Curran said.
Other industry experts expect companies to consider various responses to the law to make up for losses to their bottom line, including charging private insurers more or raising introductory prices for future drugs — an unregulated area. by this law.
The only certain thing at this early stage in the implementation of the new law is that drugmakers and the government officials who regulate them are both racing towards a new frontier. The race to map it, navigate it and thrive there has just begun.
This story was produced by Compromisea podcast exploring our confusing, expensive, and often counter-intuitive healthcare system.