|THIS WEEK IN HEALTHCARE
What happened in healthcare this week—and what we think about it.
A new proposal to address the rising cost of drugs
House Speaker Nancy Pelosi (D-CA) revealed her plan to lower the cost of prescription drugs on Thursday. It would give the Secretary of Health and Human Services (HHS) the power to negotiate prices for as many as 250 medications a year for Medicare and extend those negotiated prices to the private market. The legislation includes fines as an enforcement measure if drug companies refuse to cooperate in negotiations. Pelosi’s proposal would also limit out-of-pocket drug spending for Medicare beneficiaries to $2,000. In a nod to President Trump’s own drug cost proposals, Pelosi’s plan includes a provision tying the maximum price for a drug to a multiple of what other countries pay for it. With that, Pelosi earned at least some initial buy-in from the White House in tweet form, with Trump saying he was glad to see her plan in addition to the one jointly proposed by Senator Chuck Grassley (R-IA) and Senator Ron Wyden (D-OR), and encouraging further bipartisan cooperation on the issue. Grassley, however, has struggled to get Republican support for his bill, which would penalize drug companies if they raise prices faster than inflation, which many in the GOP oppose on free market principles. The Grassley-Wyden plan also includes a cap on out-of-pocket spending for Medicare Part D beneficiaries, albeit one higher than Pelosi’s at $3,100. HHS Secretary Alex Azar has warned that giving his department the power to negotiate drug prices could backfire and end up leading to drug companies pulling back on innovation. The drug lobbying group Pharmaceutical Research and Manufacturers of America (PhRMA) concurs, calling Pelosi’s new plan “radical”, and saying it would upend the market-based system which allows for development of innovative, lifesaving medicines. The Trump administration’s efforts to address the high cost of drugs have been largely fruitless thus far: a federal judge struck down a rule which would have compelled drug companies to provide the list price of drugs in television ads, and the administration backed off its proposal to ban rebates paid by pharmacy benefits managers (PBMs) in Medicare and Medicaid. We continue to believe there is bipartisan interest in addressing drug costs in the runup to the 2020 election, and the issue may be one of the rare few where legislative action could be taken across the next year.
Democratic Presidential candidate and South Bend, IN mayor Pete Buttigieg introduced his healthcare plan this week, calling it “Medicare for All Who Want It”. His plan emphasizes consumer choice and proposes a “public option” to create market competition by incentivizing private insurers to offer better plans to customers. Like former Vice President Joe Biden, whose plan is positioned as an expansion of the Affordable Care Act (ACA), Buttigieg’s proposal would auto-enroll low-income residents of states which haven’t expanded Medicaid. It would also increase subsidies to make ACA marketplace plans more affordable. Unlike other candidates, however, Buttigieg is targeting hospitals, along with insurers and drug companies, as contributors to the high cost of care. Similar to legislation currently being considered in Congress, his plan would set benchmarks for how much out-of-network providers could bill for procedures at in-network facilities and peg the allowable amount to twice the Medicare rate. Although this will surely not excite providers, it would likely result in less of a cut to hospital payment rates than would occur under Medicare for All (M4A) proposals. Buttigieg estimates his plan will cost $1.5T over a decade, a lot less than that of Senator Bernie Sanders (I-VT), whose plan is pegged at $30T over the same timeframe. He plans to pay for his plan through “cost savings” and corporate tax reform. Mayor Pete seems to be trying to appeal to both Democratic camps, those who like the ACA, as well as those who are intrigued by M4A but are skittish about abrupt change forcing people off their private coverage. Time will tell whether this more moderate approach will energize the Democratic base in next year’s primaries.
Federal judge strikes down CMS site-neutral payment rule
This week a DC federal court judge overturned the “site-neutral” payment rule the Centers for Medicare and Medicaid Services (CMS) put into place this year. U.S. District Court Judge Rosemary Collyer said CMS exceeded its authority when it cut the payment rate for clinic services at off-campus provider-based clinics. The industry fervently opposed the policy, which was expected to cost hospitals $760M in reimbursement this year. The judge said the process was the problem, not the rule itself. CMS may be correct, Collyer wrote, that “it is paying millions of taxpayer dollars for patients’ services at outpatient departments that could be provided at less expense in physician offices.” But she added, the agency can’t ignore the process of setting rates laid out by Congress and choose to lower reimbursements for only certain services by certain providers. Hospitals may be out the dollars they’ve lost on lower payments so far this year, as the judge did not rule that CMS must reimburse hospitals for those lost funds. Despite this win, it may be premature for hospitals to celebrate, as CMS is likely to appeal. And while the ruling may relieve pricing pressure in the short term, site-neutral payments have bipartisan support, and it’s likely their implementation is inevitable. Moreover, hospitals will still have to justify to the public why the same service costs more at hospital-owned practices than at independent ones, or run the risk of losing patients to lower-priced competitors.