Obama’s prescription for drugs

Austin asks whether the President will borrow VA drug pricing into Medicare.  If that’s the plan, it wasn’t mentioned today.  What are the details?  My best guess tonight – about $110 billion in savings over 10 years, out of a total US drug spend 2011-2021 in the range of $3.5 trillion. From the fact sheet distributed with the President’s speech:

Cutting unnecessary prescription drug spending: The framework would limit excessive payments for prescription drugs by leveraging Medicare’s purchasing power – similar to what was called for by the bipartisan Fiscal Commission. It would speed up the availability of generic biologics, and prohibit brand-name companies from entering into “pay for delay” agreements with generic companies. And, it would implement Medicaid management of high prescribers and users of prescription drugs.

No actual dollar figures were attached, so let’s unpack that a bit with some estimates I’ve pulled together covering these ideas plus a few other likely suspects:

Idea10 year savings
Extend Medicaid rebate to duals in Part D$ 49 billion
Biosimilars (5 years of DE)$   9.2 billion
Biosimilar payment reforms in Part B$   2.8 billion
Ban pay-for-delay$   1.9 billion
Medicaid mgmt for high prescribers<$2.0 billion?
Pay-for-value in Rx?
Increased formulary flexibility in Part D$   4.9 billion*
Limited antitrust waivers for Part D plans?
Importation$ 40 billion **

* from this CBO report, Tables 4 & 7.  ** 2004 estimate for all US drug spending, CBO

Some details on these items:

1.  “Leveraging Medicare’s purchasing power – similar to what was called for by the bipartisan Fiscal Commission” Well, I looked at the final report, and the only relevant provision was:

Extend Medicaid drug rebate to dual eligibles in Part D.  (Saves $7 billion in 2015, $49 billion through 2020) Drug companies are required to provide substantial rebates for prescription drugs purchased by Medicaid beneficiaries.  We recommend extending these rebates to Medicaid beneficiaries who are also eligible for Medicare (individuals known as “dual eligibles”) and who receive prescription drug coverage through the Medicare Part D program.

This makes good sense, restoring the rebate to dual eligibles, reversing the 2003 gift to drug companies. Other good options – outlined at length in my Health Affairs article with Aaron Kesselheim (free registration version here) – include greater formulary flexibility in Part D, greater use of generics, value-based pricing, importation, and limited antitrust waivers for Part D plans.  The President’s cost savings estimates are higher than ours (perhaps) because the ACA increased the Medicaid mandatory rebate percentage.   We don’t have a CBO score for the rest of our ideas.  (One can only hope)

2.  “Speed up the availability of generic biologics” The biosimilars provisions in ACA surprised me with 12 years of data exclusivity (a non-patent mechanism to delay generic entry) and a clunky pathway.  I predict no company will use the biosimilar pathway, as enacted. The President wanted 5 years of DE on top of the normal patent term.  5 years is back on the table.  MassBIO won’t be happy, which means Senators Kerry and Brown will hear plenty.  The CBO scored the original proposal to save $9.2 billion over 10 years, raising that estimate to $12 billion if paired with modifications to payment rates for these drugs in Part B.

3. “Prohibit brand-name companies from entering into ‘pay for delay’ agreements with generic companies.” The FTC has been pushing for this for a couple years; undoubtedly it would accelerate generic entry.  The open question is the effect on long-term innovation.  Michael Carrier predicted this amendment will pass in 2017.  Scott Hemphill has written extensively on this topic.  This article is a good introduction to the legal literature.  A more recent Hemphill article, co-authored with Mark Lemley, is here.  The CBO scored this idea to save $1.9 billion over a decade.  Legislative language here.

4. “Implement Medicaid management of high prescribers and users of prescription drugs” – I can’t find a CBO score for this idea (help?), but it can’t be very high.  CBO scored the entire medical home concept for chronically ill FFS beneficiaries at only $5.6 billion the first decade.  Let’s pretend the number is a couple billion over 10 years.

Notice that I’ve left off some options (including direct federal negotiations), summarized in Table 1 from the Health Affairs article mentioned above.  Go read that to see why.

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