The past couple of weeks have involved a flurry of healthcare-related developments, including on the Medicaid drug pricing front. On February 9, 2018, President Trump signed into law the Bipartisan Budget Act of 2018, which revises the rebate formula for line extensions applicable to certain drugs in the Medicaid program. Then later that same day, the Council of Economic Advisors issued a report titled "Reforming Biopharmaceutical Pricing at Home and Abroad," which among other things, recommended revising how Medicaid best price is reported to facilitate the adoption of value-based contracting and called for greater oversight over the 340B program.
As if that wasn't enough, on February 12, 2018, President Trump released his FY 2019 Budget Proposal, which also calls on Congress to adopt several changes to drug pricing in the Medicaid and 340B program. We thought we would briefly review some of these changes for our readers below. Before we do though, we emphasize that the President's proposals are just that: proposals. The President's Budget Proposal called on Congress to act through legislation to adopt these changes. That said—some of these proposals could potentially be adopted through CMS' numerous waiver authorities, such as section 402 (Medicare & Medicaid) of the Social Security Amendments of 1967, section 1115 (Medicaid) of the Social Security Act, and section 1115A (CMMI) of the Social Security Act (although as we have noted in the past, CMMI's waiver authority is quite limited in Medicaid).
Clarifying Medicaid's definition of generics for price reporting purposes.
Summary: In 2017, the HHS Office of the Inspector General (OIG) noted that a number of drugs have been misclassified as generics, thereby allowing their manufacturers to pay lower rebates to state Medicaid programs; approximately $1 billion less by the OIG's estimate. This was one of the issues that was brought to light in spectacular fashion several years ago during the EpiPen scandal. This proposal would clarify Medicaid definition of brand drugs and require a reclassification of current products.
Cost Savings: $319 million over 10 years.
Allowing a 5-state compact to negotiate Medicaid pricing.
Summary: As we noted on this blog previously, Massachusetts submitted a waiver request to CMS in September 2017 to allow it to employ commercial insurance tools to obtain lower drug prices and enhanced rebates, including closed formularies, limited pharmacy networks, and tiered copays for prescription drugs. The FY 2019 Budget seems to suggest building on these efforts and proposes to establish a pilot demonstration for up to five states to test drug coverage and financing reforms. Participating states would determine their own drug formularies, establish an appeals process to protect beneficiary access to non-covered drugs based on medical need, and negotiate drug prices directly with manufacturers instead of participating in the Medicaid Drug Rebate Program. Also notable is that prices negotiated under this demonstration would be excluded from Best Price reporting requirements.
Cost Savings: $85 million over 10 years.
Improving 340B Program Integrity.
Summary: Over the past year, Congress has heightened its scrutiny over the 340B program. Most Congressional concern regarding the program revolves around the Health Resources and Services Administration's (HRSA) limited oversight of the program. According to many, this limited oversight has contributed to, among other issues, the program's extraordinary growth and lack of accountability for how 340B savings are spent by "covered entities." Although the FY 2019 Budget Proposal does not provide much detail on how 340B program integrity would be improved, it indicates that the Trump Administration shares Congress' concerns.
Cost Savings: Estimates not available at the time of Budget publication.
Modify Payment For 340B Drugs And Require Minimum Level of Charity Care To Receive Payment Adjustment Related To Uncompensated Care.
Summary: In the CY 2018 Hospital Outpatient Prospective Payment System (HOPPS) final rule, CMS finalized a payment policy for Part B drugs that directly affect 340B covered entities. In particular, CMS reduced its payment rate for Part B drugs purchased at 340B prices from ASP + 6% to ASP -22.5%, thereby significantly reducing payment to certain hospitals (because the reduction was required to be budget neutral, the savings were redistributed to providers throughout the system). The American Hospital Association has sued CMS on this issue but lost at the lower court—an appeal to the D.C. Circuit is pending. The FY 2019 Budget Proposal would explicitly tie a hospitals level of uncompensated care to how much of the savings is redistributed to them. The savings from hospitals that provide uncompensated care equaling at least 1% of their patient care costs will be redistributed based on their share of aggregate uncompensated care. Hospitals not meeting this threshold are not eligible for redistribution at all, and the savings from their payment reduction will be returned to Medicare Trust Fund.
Cost Savings: Estimates not available at the time of Budget publication.
As always, we will keep a close eye on Congress' response to the President's Budget Proposal and the extent to which the Trump Administration pursues some of these policies through its administrative authority.
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