As a candidate for president, Donald Trump was a vocal supporter of allowing the government to directly negotiate with pharmaceutical companies to reduce drug costs under Medicare. However, that proposal was notably absent from the president’s plan to lower prescription drug prices that was detailed last week.
Last Monday, Health and Human Services Secretary Alex Azar said that instead of negotiating with manufacturers directly, the department could move expensive drugs handled under Medicare Part B, which includes medications typically administered at a hospital or doctor’s office, to Medicare Part D, which covers most prescription drugs.
Why make the change? For medications paid for through Medicare Part B, the government pays the set list price. Whereas for drugs covered through Medicare Part D, it contracts with private health insurers, who negotiate rebates and discounts from manufacturers on its behalf.
By broadening the medications paid for by Medicare Part D, the government stands to benefit from more price negotiations, many involving very expensive drugs.
“I think this initiative has the potential to be very impactful,” said Dan Mendelson, president of research and consulting firm Avalere Health. “It would impose price competition on those products, but it would also change the copayments and deductibles associated with these expenditures for consumers.”
As HHS Secretary, Azar could redefine what it means for a drug to be typically administered at a doctor’s office, which would give him leeway to move some medications from Part B to Part D, Mendelson said.
There are enough expensive, competitive drug categories paid for by Part B, such as rheumatoid arthritis treatments, that these transitions could result in significant cost savings for the federal government. Yet for drugs for which there are no alternatives, such as some treatments for rare forms of cancer, Part D’s more competitive framework would not do much to lower costs.
While the federal government stands to save money, patients could actually see their copays go up, Mendelson predicted. (Co-pays are often higher in Part D than Part B.) Additionally, the move would likely result in restrictions on coverage.
The outcome could depend, in part, on the amount of resistance raised by patient groups, which could take steps to limit Azar’s authority by calling on Congress to get involved or by suing the federal government. Until then, Mendelson said he expects Azar and Health and Human Services to stretch the limits, noting, “You’ve got a group of very capable ex-pharma executives who have been given an imperative from the president to reduce drug prices.”