: Here’s one way Washington is moving to slash seniors’ prescription-drug costs

While drug-pricing reform legislation is stuck in Washington gridlock, a federal regulator is pushing forward reforms that could slash many seniors’ prescription-drug costs as soon as next year.

A proposed rule issued last week by the Centers for Medicare and Medicaid Services would require Medicare prescription-drug plans to pass along price concessions they get from pharmacies to consumers at the pharmacy counter. 

The rule change would trim Medicare beneficiaries’ costs by about $21.3 billion over 10 years, CMS estimates.

“It’s about time,” Antonio Ciaccia, CEO of drug-pricing research nonprofit 46brooklyn Research, said of the proposal. The pharmacy price concession issue, he says, “has been one of the festering wounds” within the Medicare Part D prescription-drug benefit.

The price breaks, which Part D plan sponsors and pharmacy benefit managers recoup from pharmacies after the point of sale, have skyrocketed in recent years. Pharmacy price concessions jumped more than 107,000% between 2010 and 2020, to $9.5 billion, according to CMS. Currently, Medicare beneficiaries’ out-of-pocket drug costs are typically based on prices that don’t factor in those concessions—and that means they’re paying amounts that are “increasingly inflated relative to reality,” Ciaccia says.  

“The pharmacy price concession issue “has been one of the festering wounds” within the Medicare Part D prescription-drug benefit.”

— Antonio Ciaccia, CEO of 46brooklyn Research

Under the price-concession arrangements, negotiated between pharmacies and Part D plan sponsors or their PBMs, the amounts recouped from pharmacies after the point of sale are often tied to certain performance metrics, such as patients’ medication adherence. The Pharmaceutical Care Management Association, a trade group for pharmacy benefit managers, says the pharmacy price concessions are designed to improve quality and safety for Medicare beneficiaries. “We look forward to working with CMS on ways to enhance the use of value-based contracting rather than limiting this important tool,” the trade group’s president and CEO JC Scott said in a statement.

While sweeping drug-pricing reform is in limbo, the CMS proposal might take effect

Critics say the connection between the price concessions and pharmacy quality is murky, and the rapidly increasing amounts clawed back under the arrangements are pushing pharmacies out of business. A mail-order pharmacy automatically shipping refills might generate a high quality score even if the patient never takes the drug, says Douglas Hoey, CEO of the National Community Pharmacists Association, a trade group for independent pharmacies. The price concessions cost each of the group’s members roughly $100,000 annually on average, he says, or nearly 3% of their average revenues.

While seniors with hefty out-of-pocket drug costs would likely see the greatest savings from the rule change, some seniors could see their costs rise. That’s because Part D plans that are forced to share the price concessions with consumers at the pharmacy counter could raise their premiums to compensate.

But the end result could be something closer to how insurance should actually function, Medicare experts say. Under the current system, the sicker patients–seniors picking up lots of prescriptions—are generating more price concessions for plans, making Part D premiums a little lower for everyone. The system “shifts cost on to people who have the most expense, and we don’t want health insurance to work that way,” says Julie Carter, senior federal policy associate at the Medicare Rights Center, a nonprofit consumer service group. Policy makers should ensure that “people with high expenses don’t get hung out to dry,” she says. “It might be that a more reasonable system has a little bit higher premiums.”  

The rule change should also benefit seniors shopping for Part D plans, helping them make more accurate comparisons among plans’ premiums and cost-sharing amounts, CMS says. Comparing plans won’t suddenly become simple, Carter says, but consumers would benefit if premiums more accurately reflect the coverage provided.

The rule would cost the federal government about $40 billion over 10 years, CMS says, in part because the government pays a share of the cost of coverage under Part D plans.

While the Build Back Better spending bill and its many drug-pricing reform provisions remain in limbo, policy experts give the CMS proposal relatively good odds of taking effect—and seniors could start feeling its impact within a year. The proposed rule would take effect in 2023, and CMS is accepting comments on the proposal until March 7.

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