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1 1 (September 23, 2019)

handle is hein.crs/govbbdk0001 and id is 1 raw text is: Cot gres&onal Research Service Informing the legislative debate ince 1914 September 23, 2019 Negotiation of Drug Prices in Medicare Part D The 116th Congress is considering a number of approaches to address prescription drug prices and spending, including proposals to allow the Secretary of Health and Human Services (the Secretary) to negotiate prices in the Medicare Part D program. This In Focus provides an overview of how drug prices are established under Part D and describes elements of various proposals for Secretarial negotiation. Overview of Medicare Part D Congress created a voluntary Medicare outpatient prescription drug benefit, Part D, in the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA; P.L. 108-173). The program started in 2006, and about 46 million Medicare beneficiaries are currently enrolled. In 2019, Part D spending is estimated to reach approximately $98 billion. Part D is also the primary source of drug coverage for individuals enrolled in both Medicare and the state-federal Medicaid program (dual eligibles). (See CRS Report R40425, Medicare Primer, and CRS Report R406 11, Medicare Part D Prescription Drug Benefit.) Part D coverage is provided by private health payers (plan sponsors) that offer drug-only plans (PDP), or by Medicare Part C (Medicare Advantage) plans with a Part D benefit (MA-PD). Congress designed Part D as a market-oriented program in which sponsors compete for enrollees based on the scope and price of benefits, such as premiums and cost- sharing. Figure I. 2019 Medicare Part D Standard Benefit Source: CRS analysis of CMS, 2019 Part D Payment Policies. Note: Enrollees also pay monthly premiums for Part D coverage. Sponsors submit annual bids to offer drug plans. At a minimum, Part D plans must offer a standard benefit defined in law, or alternative coverage at least actuarially equivalent to a standard benefit. (See Figure 1.) Medicare pays plan sponsors a monthly per person amount for standard benefit coverage. Plan sponsors may also receive additional Medicare payments for low-income enrollees and cost-based reinsurance payments for those with high drug spending. Determination of Drug Prices in Medicare Part D To bolster market competition and limit the federal role, the MMA included a non-interference provision (Social Security Act (SSA) §1860D-1 1(i)), which states that in carrying out the requirements of the Part D program, the Secretary: (1) may not interfere with the negotiations between drug manufacturers and pharmacies and PDP sponsors; and (2) may not require a particular formulary or institute a price structure for the reimbursement of covered part D drugs. Although there is no Part D central formulary (i.e., a list of covered drugs), plans must cover at least two drugs in each category or class used to treat the same medical condition and substantially all drugs in six protected classes: immune- suppressant, anti-depressant, antipsychotic, anticonvulsant, antiretroviral, and antineoplastic (cancer). HHS has existing authority to modify these general formulary requirements, including the six protected classes. Most Part D sponsors offer alternative plans that include tiered formularies, which impose different levels of copayments (flat dollar amount) or co-insurance (percentage of drug price) for generic, brand-name, and specialty drugs. Part D specialty drugs are defined as those with a price of at least $670 per month. Part D sponsors, working with pharmacy benefit managers (PBMs), negotiate prices with drug manufacturers and contract with pharmacies to dispense drugs to plan enrollees. Negotiated price concessions mainly take the form of rebates (after-sale reductions) from a manufacturer's list price for brand-name drugs. Plan sponsors and PBMs can secure rebates by including a manufacturer's drug on a plan formulary or by putting it on a low cost-sharing tier. Sponsors and PBMs have the most leverage to negotiate rebates when there are competing drugs on the market, and less ability to secure rebates for sole-source drugs, or those in the protected classes. The value of a rebate may be tied to the sales volume or market share of a drug, and may be aggregated and paid to a plan over time, such as quarterly. Plan sponsors can pass on rebates and other price concessions to enrollees in the form of lower drug prices at the pharmacy, but the vast majority do not. Instead sponsors generally use rebate revenue to buy down, or reduce, premiums, thus spreading price concessions across all enrollees. Part D Drug Spending and Prices Actual Part D spending has been below initial estimates by the Congressional Budget Office (CBO) and the HHS

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