The Biden administration wants to rein in fees charged in Medicare by controversial middlemen that play a crucial behind-the-scenes role in the pharmaceutical pricing system.
It would be a huge win for pharmacies, which have been lobbying in Washington for the change for years. The proposal would also lower out-of-pocket costs for some Medicare patients, but not all, as plans would likely raise premiums to compensate. The Centers for Medicare and Medicaid Services said the agency expects “more than half” of traditional Medicare patients would see lower total costs.
Pharmacies, particularly independent ones, have complained for years that retroactive fees lack transparency and sometimes result in Medicare plans reimbursing them less than what they pay for drugs.
“After many years and multiple administrations, this is as close as we’ve ever come” to reforming the fees, said Douglas Hoey, chief executive officer of the National Community Pharmacists Association.
The pharmacy fees have been growing at a significant pace in recent years, according to John Leppard of Washington Analysis, which tracks the impact policy has on the pharmaceutical industry for investors. He calculated the fees increased to $9.5 billion in 2020 from $2.1 billion in 2016, a 35% jump.
Pharmacy benefit managers, which negotiate with drug makers on behalf of health plans for favorable insurance coverage, argue the fees ensure safety and quality, but pharmacies say they are unpredictable, are not necessarily tied to performance, and raise prices for patients.
In a statement, the Pharmaceutical Care Management Association, the trade group for pharmacy benefit managers, argued the fees represent “value-based contracting” that is designed to “improve pharmacy quality and safety for beneficiaries.”
The proposal would cost the federal government $40 billion over the next decade. Consumers would save an estimated $21.3 billion, and drug makers would save another $14.6 billion over the same timeframe, according to CMS.
Drug makers are forecast to see a windfall because patients would move through the Medicare insurance plan phases more slowly. The rule comes as Democrats in Congress are weighing a complete overhaul of Medicare’s pharmacy drug benefit, but legislation is currently stalled.
The proposal is not yet final, and the next step in the process is a public comment period that ends March 7.
Lawmakers including Sens. Jon Tester (D-Mont.), Ron Wyden (D-Ore.), and Chuck Grassley (R-Iowa) and Reps. Peter Welch (D-Vt.), Morgan Griffith (R-Va.), and Buddy Carter (R-Ga.) have long pushed for legislative reform to retroactive pharmacy fees to protect small pharmacies especially in rural areas, but haven’t made progress in Congress.
Wyden, who leads the Senate committee in charge of Medicare, said in a written statement that he supports the proposal, and that it is “an important step towards easing the financial strain on thousands of independent pharmacies and millions of Medicare beneficiaries across the nation.”
The Trump administration proposed a similar policy in 2018, but it was abandoned before it went into effect.
There is debate, though, over the extent to which this would help Medicare beneficiaries.
At issue is the opaque pricing system in which drug makers, pharmacy benefit managers, Part D health plans, and pharmacies joust for profits.
“One of the problems we see going forward is how to unwrap and figure out the actual point of sale cost. It’s such a jumble,” said Julie Carter, senior federal policy associate at the Medicare Rights Center, a nonprofit advocacy group. “Will the money then be funneled around in a different way? Will it be put in one pocket and taken out of another? We’re hoping that increased transparency will lead to a better situation for beneficiaries, but we don’t know for sure.”
Indeed, Part D plan sponsors would likely compensate by raising premiums to preserve their profit margins, according to Cowen analyst Gary Taylor in a note to investors.
Nonetheless, others contended the rule would help ensure that benefits of negotiated discounts go to patients who are getting a specific prescription, rather than spread among all Part D beneficiaries.
“They are restoring Part D insurance to its true nature,” Antonio Ciaccia, president of 3 Axis Advisors, which is a consultant to the American Pharmacists Association. “This is the most tangible move to create real savings at the pharmacy counter that I’ve seen from any pharmacy proposal in years, because it removes a layer of fat, so we can find out where some of those unnecessary incentives have gone.”