Proposed Legislation Could Boost Medicare's Ability to Extract Savings on Drugs

Recently, the health care reform debate has featured little-known MedPAC among its various twists and turns. President Obama has advocated an expanded role for the agency, which advises Congress on issues affecting the Medicare program, while Senator Jay Rockefeller (D-WVA) has introduced legislation that would tranform it into a "Federal Reserve" for the health care system.

These are reasons why folks might want to pay close attention to its June 2009 payment policy report (published June 15th) and, in particular, its chapter dedicated to follow-on biologics (FOBs).

FOBs–or generic biologics–are new versions of innovator products. A legislated pathway does not exist, although Congress has been debating its creation for the past few years. There are currently two bills introduced, both in the House, and neither is an attempt at compromise.

A key point of contention: the period during which generic manufacturers cannot utilize innovator test data (data exclusivity). Innovators want a longer period in order to protect profits, and generic makers a shorter period to commence profits. An equally important, but far more complex, issue is the question of patent law, and the fact the biologics may not always be patentable in the same way.

The MedPAC report covers these and other issues in detail. It makes the point that without the FDA providing sufficient cover in designating product "similarity" or "interchangeability", current policy severely limits Medicare's ability to drive price competition.

Significant, therefore, are the report's recommendations for policy change on coding and payment strategies. As MedPAC notes: "The extent to which a regulatory pathway for FOBs could achieve savings in Medicare Part B would depend in part on how these products are coded and paid under the Medicare Part B payment system." (Part B accounts for 70% of Medicare's biologics $13 billion spend, Part D the rest.)

Recommendations include different approaches for placing FOBs and innovator biologics in the same billing code, seen as a key component of price competition. It also proposes three payment options, notable in their divergence from the fee-for-service payment system:

1. Reference pricing: a single payment rate established for a group of clinically comparable drugs; patients pay the difference for a higher priced drug
2. Payment for results: an explicit, risk-sharing link between a drug's payment and patient outcome; manufacturers might, for example, guarantee a clinically defined biomarker or surrogate outcomes
3. Bundling: a prospectively set payment rate for a group–or bundle–of services providers furnish during an episode of care

Combined with a legislated pathway, these policy changes would substantially increase Medicare's ability to extract savings. And given Medicare's leading stature among all payers, they would also open the door for commercial health plans to do likewise.

Even absent a pathway, Medicare could still leverage these new pricing strategies against rising costs.

Suddenly, the biopharmaceutical value chain finds itself the target of a potent economic force.

Comments

[jack kreg:]

I'm the government, I'm here to save you money on your health care bills,
Lets start by you paying higher taxes on your healthcare insurance, lets start by forcing you to purchase health care which meets gov standards, again higher costs.

Any body who believes that health care will be cheaper with a Nixon era gov run health care plan needs to take a good look at their wallet, cause the gov is about to empty it.

Jun 16 12:11 PM

[jack kreg:]

I'm the government, I'm here to save you money on your health care bills,
Lets start by you paying higher taxes on your healthcare insurance, lets start by forcing you to purchase health care which meets gov standards, again higher costs.

Any body who believes that health care will be cheaper with a Nixon era gov run health care plan needs to take a good look at their wallet, cause the gov is about to empty it.

Jun 16 12:11 PM

[YoYoMama:]

I'm free market health care. I am dominated and governed by INSURANCE COMPANIES whose sole motive is profit and not covering American's health-related expenses.

Because my motive is profit, insurance premiums are rising an average of 10% per year. Because of skyrocketing costs, I currently stand at 16% of US GDP, and by 2040 I will be at 30% GDP. I currently account for 2/3 of all bankruptcy filings, and of those bankruptcy filings, 75% of filers HAVE HEALTH INSURANCE.

I have a vested interest in this issue NOT being hashed out in Congress. I also don't want anyone to know that Republicans also have proposals out there that range from reducing costs to co-ops to hybrid plans.

I only want to paint this as a Democratic and liberal issue, because that way I can mask the fact that issue that touches at the heart of Americans pocket books right now. That way my purveyors, the INSURANCE companies, can still pocket as much money from their policy holders as possible, while paying out as little as possible.

Because after all, the issue IS about money, isn't it.

Jun 16 06:22 PM

[envirodoc:]

I am 81 and disabled, my wife of 51 years is 76. Our entire retirement savings were wiped out by the market crash. I have diabetes, high blood pressure and early alzhiemers. Due to the escallation of drug prices in the past few years, I will be in the infamous medicare
gap' or 'doughnut' and unable to pay for my essential life supporting medication after July of this year! Unless the President or Congress gets around to proving some relief, by raising the inadequate drug cost allowance, when the elderly reach the medicare 'gap,' the death rate will rise! We urgently also need to have Medicare authorised to negociate the lower drug prices that the Veterans Administration pay the drug companies.
[e-mail]

Jun 17 03:13 PM