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Drug Pricing Proposal Should Revamp Medicare, GOP Experts Say

Overhauling Part B drug benefit could have “massive impact overnight”

HHS Secretary Alex Azar has been outspoken in seeking to carry out the president’s push to reduce drug costs. (Tom Williams/CQ Roll Call file photo)
HHS Secretary Alex Azar has been outspoken in seeking to carry out the president’s push to reduce drug costs. (Tom Williams/CQ Roll Call file photo)

An upcoming Trump administration proposal on lowering drug costs should ask Congress to allow private insurance companies to negotiate prices for drugs administered in a doctor’s office or hospital, two Republican policy experts said.

The administration’s proposal is a request for comment on strategies to lower drug prices and out-of-pocket costs. It was originally expected to be released in tandem with a speech by President Donald Trump on Thursday, but the speech was delayed as Health and Human Services Secretary Alex Azar recovers from an infection.

It’s unclear what the proposal will contain, but Azar and Food and Drug Administration Commissioner Scott Gottlieb have been outspoken in seeking to carry out Trump’s push to reduce costs. The two have targeted the rebate agreements among drugmakers, insurers and pharmacy benefit managers that can tilt coverage in favor of pricier brand-name drugs, and called out drug manufacturers for extending patents and preventing generic manufacturers from accessing their products.

Gottlieb has also prioritized speeding up generic approvals to boost competition. He wants to reduce restrictions on pharmaceutical companies to increase data sharing and the development of more generics.

But those ideas would not dramatically lower most drug prices quickly. Two influential GOP policymakers, former Centers for Medicare and Medicaid Services Administrator Tom Scully and former Trump transition team member Ed Haislmaier, are separately urging the administration to consider a bolder approach.

Aggressive approach

Medicare is divided into four different buckets, a design that some experts say is outdated.

Specifically, Medicare splits how it pays for prescription drugs. Medication administered in a doctor’s office or other clinical setting, such as chemotherapy, is paid under the Part B outpatient program. But most prescription drugs’ costs are negotiated by private health plans under the Part D drug program. Plans receive a flat payment each month under Part D, putting them at risk of losing money if use of an expensive drug spikes.

Part B drugs cost Medicare and its patients a combined $26 billion in 2015, more than two-thirds of which were attributable to biologic drugs. Moving reimbursement for those drugs into Part D could have a “massive impact overnight,” according to Scully.

“It’s human nature,” said Scully, who ran Medicare and Medicaid under President George W. Bush. “Once you put them at risk, they behave differently.”

Scully helped craft the Part D program, which launched in 2006. Generic drug use shot up once the program debuted, he said.

Shifting the reimbursements to Part D would require enactment of legislation. But CMS does not need such approval to run a demonstration project testing the move’s effects.

Previous efforts to overhaul Part B’s drug benefit did not always go smoothly. A far-reaching demo on reducing reimbursement for Part B drugs under the Obama administration was ultimately scrapped after industry backlash. The Pharmaceutical Research and Manufacturers of America, or PhRMA, also fought against a 2016 HHS paper released under former President Barack Obama that advocated overhauling the program in the style of Part D.

But the “biotech revolution” is outpacing Medicare’s design, said Haislmaier, a senior research fellow with the conservative Heritage Foundation.

Haislmaier agreed with Scully that Medicare’s current structure limits savings, and advocated creating a single streamlined program.

“The problem is the science is moving in a direction that doesn’t fit the established categories,” he said.

The idea that Scully and Haislmaier touted would be different from allowing federal officials to use the leverage of Medicare to negotiate drug prices for the entire program, a concept backed by Democrats. Allowing private insurers to negotiate would give each company less bargaining power than the entire Medicare program, which covers more than 55 million seniors.

Scully also pointed to the 340B program, a discount drug program for safety-net hospitals that he helped create, as an area ripe for change. Congress has homed in on 340B changes, and CMS Administrator Seema Verma implemented steep cuts to the hospitals’ pay this year.

Azar has telegraphed his desire to take “bold measures” in addressing the flaws in the health care industry, particularly through the power of Medicare and Medicaid.

“I know he’s very serious about it,” Scully said. “I would be surprised if they don’t do something fairly aggressive.”

From the Archives: Warren and Price Spar Over Medicare Funding

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