Signals are Clear - Benchmarking & Transparency in Drug Pricing are Here to Stay

Late last week, President Trump announced additional details of his plan to reduce pharmacy costs in the U.S.  His plan for Medicare Part B drugs, beginning in 2020, includes:

  • Allowing CMS and Managed Medicare Plans to negotiate Part B prescription drug prices
  • Developing a Target Price that would be phased in over 5 years by using an International Price Index (IPI) Model to benchmark U.S. drug prices against other developed countries –– and phasing out the Average Sales Price (ASP) pricing approach
  • Moving to a fixed payment for physicians administering specialty drugs rather than paying them the standard 6% of ASP – thereby removing the incentive to administer high-cost drugs

While you may not agree with his politics, you may be able to recognize his negotiating abilities. In May, President Trump signaled to the industry and voters that reducing drug prices for Americans was a top priority.  At that time, he suggested that consumers were subsidizing the middleman profits.  He quickly followed with legislation that removed the “gag clause” – allowing pharmacists to inform consumers when the cash price of a drug is lower than their insurance benefit price. He referenced the fact that U.S. consumers were paying higher prices than people in other countries were for drugs, therefore suggesting that the U.S. was subsidizing these other nations. Sound familiar? NATO, UN, NAFTA, etc. It’s a message that seems to resonate with voters and consumers. 

He also took aim at the high “List Price” of drugs, in turn creating a national debate on who is to blame for the growing gap between List Price (average wholesale price, or AWP) and Net Prices (AWP less pharmacy discounts and manufacturer rebates) of prescriptions. He targeted manufacturers who set the price, the pharmacy benefit managers who require rebates from the manufacturers for placement on their covered drugs lists, or health plans who benefit from the rebates as they flow back to them rather than lowering the consumers price at the point of service. He also went so far as to suggest that he would require manufacturers to include the List Price of drugs in their advertising campaigns and remove rebates from safe harbor protections. Last week, we saw Amgen cut the price of cholesterol drug Repatha by 60%. The industry is reading the President’s signals with the belief that he is, indeed, serious.

So what's next? There will be a major debate around the current Part B proposed IPI Model

While this is happening, the President’s team will be developing the next set of changes.  Here is what he has signaled:

  • Medicare Part D Program will remove the incentives that favor rebates over discounts in the bid process
  • Medicare Part D Program will require rebates to be adjudicated at point of sale
  • Medicare MA-PD plans will be allowed to negotiate ALL of the Part B drug prices
  • Rebates generally will be targeted for removal from safe harbor protections

Pulse8's newest solution, Formul8, will help you manage your pharmacy program. We bring the transparency and benchmarking necessary to evolve the relationship with your pharmacy benefit manager, pharmacy network, drug manufactures, and members. We use industry-accepted utilization and unit cost benchmarks, classification data, and analytics to identify 5-8% savings opportunities within your pharmacy spend, resulting in over a 5-to-1 return on your investment. For more information or to schedule a demo, contact us today!

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