Picking up the pace on Rx pricing reform

Lower drug prices can be achieved through robust competition, greater transparency, and improved negotiations between drug makers and purchasers.  Recent steps taken by the Trump administration demonstrate how to put such policies into practice.  

Last week, the Department of Health and Human Services clarified that private Medicare Advantage plans can use similar tools deployed by commercial health plans to contain drug costs. This was a small, but significant step in reforming the way Medicare pays for expensive drugs.

{mosads}Currently, therapies administered in a physician or hospital outpatient setting are paid by Medicare according to a formula that rewards both the drug maker and physician when the price of the drug is higher.

Neither drug makers nor physicians who prescribe and administer these drugs have an incentive to use lower priced products that may be as effective or more convenient—for example, pill options instead of injections that require going to a facility or physician office.

Higher payments for these drugs have resulted in increased spending for Medicare beneficiaries and taxpayers. According to the non-partisan Medicare Payment Advisory Commission, Medicare and its beneficiaries paid $29 billion in 2016 for physician administered drugs and biologics – an amount that is rapidly increasing every year.

The new policy announced by Medicare officials will help remedy this problem by allowing private health plans to use both their purchasing power and ability to coordinate care that enrollees may need. It preserves the important doctor-patient relationship to discuss options, outcomes and cost. Health plans will be permitted to use proven techniques, such as step therapy, to contain drug costs while ensuring patients have access to appropriate therapies.

These policy changes may motivate drug makers to offer their product at a lower cost to gain the privileged position on a health plan’s formulary. We might even see more outcomes-based data from drug companies as a result, which is important to ensure Medicare pays for drugs that deliver real value.

Existing Medicare patient protections, which allow for an expedited exceptions process, will be expanded to include more health plan education and information sharing with patients. Medicare will continue to require insurers to report on their policies and demonstrate they are sharing cost savings with beneficiaries.

We applaud Secretary Alex Azar and his team at HHS for taking this step to promote competition and tame escalating drug prices. Yet, more work is needed. We urge the administration to put its weight behind the CREATES Act, promoting generic competition as the next small step in this marathon.

Purchasers of drugs across the health system have been outmatched by the political and market power conferred on the pharmaceutical industry, which has the ability to increase prices at will. Additional policies are needed to restore balance to the pharmaceutical market and aggressively bring down drug prices to a sane and sustainable path.

Ceci Connolly is President and CEO of the Alliance of Community Health Plans and a former national health correspondent for the Washington Post. She is an author of the book “Landmark: The Inside Story of America’s New Healthcare Law.” John Rother is the President and CEO of the National Coalition on Health Care, a broad-based nonprofit membership organization promoting an affordable, high-value health care system.