Consider that hospitals’ total expenditure in 2019 was $1.2 trillion, or three times the total of the spend on pharmaceuticals. However, patients’ out-of-pocket spending on drugs in 2019 was $54 billion, or 50 percent higher than their out-of-pocket spending for hospital care.
Here are five policy solutions that the administration ought to pursue to lift this unfair burden on patients:
One: The administration should cap patients’ out-of-pocket costs for Medicare Part D drug expenditures. Medicare Part D is the only part of Medicare where patients have unlimited financial exposure to the cost of care. In 2020, American Action Forum analyzed the impact of capping out-of-pocket costs for Medicare Part D enrollees. AAF concluded that “a $2,500 (out-of-pocket cap) would provide beneficiaries with $7.4 billion in savings over 10 years (from 2020-2029); these savings would accrue almost entirely to the high-cost enrollees through reduced OOP expenses, while all beneficiaries would experience at least some increase in premiums, though it will be incredibly small.”
Two: Allow Medicare Part D patients to benefit from the billions of dollars in concessions paid to insurers and pharmacy benefit managers by the biopharmaceutical companies by eliminating rebate contracting or passing on all of the concessions to the patients at the point of sale. The dollar amount we are talking about is not inconsequential. The latest tally of these concessions in 2019 equaled $175 billion or approximately 40 percent of gross domestic biopharmaceutical spend.
Currently, patients’ coinsurance or deductible are tied to the list and not the net price. Biopharmaceuticals are the only segment of the health care system where patients do not benefit from the prices negotiated on their behalf by their insurers or PBMs. A paper published in Health Science Journal last December concluded that eliminating rebate contracting and passing on all of the concessions to the Medicare Part D patients leads to lower overall health care expenditures and patient out-of-pocket costs.
Three: Support policies that encourage the utilization of lower-priced alternatives when clinically appropriate such as generics, authorized generics and biosimilars by taking down the rebate wall. Rebates walls occur when certain manufacturers tie their rebates to volume targets. Since the rebates offered by the blockbuster drug dwarf what new entrants can offer, insurers and PBMs discourage the use of competitive medicines or block them from the drug formulary (the list of drugs covered by the insurer) entirely. When this rebate wall strategy is successful, patients are denied access to medicines that could be just as efficacious but cost less.
Four: Reimburse health care professionals based on a flat fee. Medicare covers the costs of infused drugs in a clinical setting through the Medicare Part B program. The administration fee to the HCPs is based on a percentage of the average sale price. Linking reimbursement to a percentage of ASP may induce utilization of more expensive biopharmaceuticals. Instead, Medicare should use a cost plus flat-fee model to reimburse providers for their service.
Five: Biden should encourage new payment models such as payment for outcomes or guarantees that tie costs to the medicine’s value. Such payment models ensure that the incentives of manufacturers, insurers, and providers align with the patients and that patients are not charged high out-of-pocket costs for medicines that do not provide the promised benefits. Value-based payment models are particularly useful for the new gene and cell therapies that offer the hope of cures but are expensive.
One of the highest priorities for any federal or state policymaker should be to reduce out-of-pocket spending by patients. The recommended policies will meaningfully reduce patients’ drug costs without reducing investment in cures or access to medicines. The current administration should consider these policies as they have bipartisan support.
Robert Popovian, Pharm.D., MS., is the former vice president of Pfizer U.S. Government Relations, and member of the Board of Councilors at University of Southern California, School of Pharmacy. Wayne Winegarden, Ph.D. is a senior fellow and director of the Center for Medical Economics and Innovation at the Pacific Research Institute.