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The Medliminal Washington Report 5.22.18

May 22, 2018

Washington, DC at the Jefferson Memorial during spring.

Following the president’s public release of the 44-page blueprint outlining the administration’s strategy and priorities, senior administration officials have been busy implementing initial steps. The Secretary of Health & Human Services outlined regulatory steps that he could take without congressional action such as changing drug rebates or changes to Medicare reimbursement. The Food and Drug

Administration released a list of companies believed to be delaying the introduction of generic drugs and the Centers for Medicare and Medicaid Services put health insurers on notice that it would not tolerate so-called “gag clauses” in contracts that cause many consumers to pay more for drugs at the pharmacy counter. Meanwhile, addressing the nation’s opioid epidemic remains the dominant health care issue on Capitol Hill. The House Energy and Commerce Committee approved more than 30 bills last week, and the Senate continues its work as well. At the state level, Vermont has become the first state to enact prescription drug importation and initial rate filings in Maryland and Virginia could portend dramatically higher premiums in 2019. We’ve got it all covered in this week’s health care review.

The Administration

HHS Secretary Outlines Priorities to Implement President’s “Blueprint” to Lower Prescription Drug Prices

On May 14, Secretary of Health & Human Services (HHS) Alex Azar, outlined the immediate priorities in implementing the President’s blueprint to lower prescription drug prices, which had been publicly revealed on May 11.

“For too long, there’s been a lot of talk on drug prices and no action,” the Secretary said in prepared remarks. “Drug companies have insisted we can have new cures or affordable prices, but not both. I’ve been a drug company executive—I know the tired talking points: the idea that if one penny disappears from pharma profit margins, American innovation will grind to a halt. I’m not interested in hearing those talking points anymore, and neither is the President.”

Three of the most significant include:

  1. Restructure the way Pharmacy Benefit Managers (PBMs) deal with drugmakers by banning them from negotiating discounts as a percentage of list prices. PBMs negotiate formularies and make deals in which drug makers offer significant discounts off the list price of their drugs in exchange for a favorable spot on their preferred drug lists. When prices go up, PBMs often make more money as rebates grow. “They’re taking money from both sides,” Azar said. “They’ve built into their system a regime where they get more money when the list price goes up.” Azar indicated his intention to force PBMs to write contracts based on a set price for drugs, rather than a percentage-based rebate. And, he said, he’s looking to ban them from making any money at all from pharmaceutical companies. Instead, the companies would earn money only from the fees paid by the insurance companies or employers who hire them.


  1. Change the way Medicare pays for some expensive drugs by moving some in the traditional Part B Medicare program, which covers therapies administered by doctors, to Part D, which covers most other prescriptions. Under the current system, the government pays the full list price of Part B drugs, such as cancer treatments and some rheumatoid arthritis therapies, and doctors make more money when they prescribe more expensive drugs. The secretary expressed interest in moving some of the most expensive Part B drugs (which aren’t subject to price negotiation by insurers or PBMs) to the Part D program, which is administered by private health insurance companies that negotiate discounts with drug companies. “This move from B to D gives us the power to negotiate against drug companies.”


  1. Make prices more transparent by releasing new versions of the agency’s Medicare and Medicaid drug price dashboards to provide more detail on how much the programs are paying for the medications they buy. More controversially, the secretary is exploring whether he can require drug companies to include list prices in direct-to-consumer advertising. “When patients hear about a wonderful new drug, they should know whether it costs $100 or $50,000. A patient might even pay for a doctor’s appointment to discuss a drug, not knowing that the price puts it totally out of reach, and that’s unfair. Drug companies don’t have to wait on us. Today, I am calling on America’s pharmaceutical manufacturers to level with the American public—be honest about what you’re trying to charge us, put your list price in your ads.”

On a related note, the administration published its Request for Information in helping to shape future policy development in the drug pricing space. Public comments will be accepted until July 16, 2018.

FDA Publicly Identifies Dozens of Drug Companies That May Be Impeding Generics

On May 17, the Food and Drug Administration to unveiled a long awaited site listing drug companies that the agency finds have blocked the development of generic drugs by failing to provide samples to competitors. This public posting is part of FDA Commissioner Scott Gottlieb’s larger crackdown to “end the shenanigans” by brand name drug companies.

The list identifies 52 brand-name medicines manufactured by 39 drug companies, including Johnson & Johnson, Celgene, Gilead Sciences, Pfizer, and Novartis, that generic drug makers have had trouble getting samples of, due to restrictions from the manufacturers. Generic companies need large quantities of the brand name drugs – anywhere from 1,000 to 5,000 doses to test them for bioequivalence so they can bring their own versions to market.

“We hope that this increased transparency will help reduce unnecessary hurdles to generic drug development and approval,” Dr. Gottlieb said in a statement. “We’re committed to advancing policies to help bring more competition to the prescription drug market. We know that enhancing generic competition is an effective way to promote access to needed medicines.” The FDA plans to update the list twice a year.

CMS: Pharmacy “Gag Clauses” Unacceptable, Contrary to Lower Drug Prices

On May 17, Centers for Medicare and Medicaid Services (CMS) Administrator Seema Verma sent a letter to Medicare Part D plan sponsors, warning them that the agency will no longer tolerate so-called “gag clauses” in pharmacy contracts as it continues to promote prescription drug price transparency for beneficiaries. “We want to make it clear that CMS finds any form of ‘gag clauses’ unacceptable and contrary to our efforts to promote drug price transparency and lower drug prices,” she said.

Gag clauses often prevent beneficiaries from receiving the most affordable drug options because the clauses prevent retail pharmacies from informing consumers about lower drug prices. Under a gag clause, a pharmacy is not allowed to tell consumers if a plan’s copayment is more than the out-of-pocket costs for a specific therapy.

In addition, Verma suggested that pharmacy benefit managers (PBMs) are also to blame for drug pricing transparency barriers because PBMs may be financially incentivized to participate in gag clause contracts.

“Many patients don’t know that some drugs are actually more expensive when they use their insurance,” she said. “What’s worse is that some PBMs are preventing pharmacists from telling patients when this is happening, because they get a share of the transaction when the patient uses their insurance. Today we are taking a significant step towards bringing full transparency to all the back-end deals that are being made at the expense of patients.”


Senator Graham May Introduce New ACA Repeal Bill

Despite the defeat of several efforts to repeal and replace the ACA last year, including the bill he co-authored with Senator Bill Cassidy (R-LA), Senator Lindsey Graham (R-SC) has revealed that he is working on another proposal that could be filed this year. “I haven’t given up,” Graham told reporters. “Will there be another effort to replace ObamaCare with a state-centric plan? I hope so.”

A group of 30 conservative organizations are urging Republican lawmakers to shift their focus back to repealing and replacing the ACA ahead of the midterm elections. In an open letter, the coalition suggests reforms based on the Graham-Cassidy legislation, arguing that a new health plan could be a winning message at the ballot box during the 2018 midterm elections. “Obamacare has nearly destroyed the private market for individual health insurance,” the coalition writes. “The No. 1 issue voters want their elected representatives to address this year is the high cost of health coverage.”

The group plans to float a legislative proposal by the end of the month that is expected to include granting federal funds to the states, expanding Health Savings Accounts, repealing the employer mandate and eliminating the ACA’s Medicaid expansion. The plan could also incorporate Senators Lamar Alexander (R-TN) and Susan Collins’ (R-ME) proposals to fund cost-sharing reduction payments to insurers and state reinsurance programs for 2019 and 2020.

However, the effort appears to have little, if any, chance of passing this year. Republican leadership has made clear that it has moved on from ACA repeal, and with Senator John McCain’s absence as he battles cancer at home in Arizona, the GOP has an even slimmer margin in the Senate than they did last year when they failed to win enough votes for a bill.

Senate Democrats Press Drug Makers to Include Prices in Consumer Ads

Senators Dick Durbin (D-IL), Kirsten Gillibrand (D-NY), Maggie Hassan (D-NH) and Sherrod Brown (D-OH), along with independent Angus King (ME) are asking drug makers to include the list price of their products in consumer-directed ads and voluntarily comply with a component of the Trump administration’s recently-revealed blueprint to lower drug prices.

On May 18, the senators sent letters to eight pharmaceutical companies, which each spent over $100 million on television advertisements last year for their high-cost medications: Pfizer, Abbvie, Bristol-Myers Squibb, Eli Lilly, Janssen, Merck, Glaxo Smith Kline, and Novartis.

“Each year the pharmaceutical industry spends more than $6 billion in drug advertising—more than the entire budget of the U.S. Food and Drug Administration, which oversees these promotions and the safety of our drug market,” the letter said. “With billions in targeted spending on drug advertisements, patients are bombarded with information—an average of 80 prescription drug commercials air every hour on television—but are kept in the dark about one of the most important factors: price.  Too often, after seeing an advertisement for a new drug, the “moment of truth” for a patient only occurs at the pharmacy check-out.  No other industry shrouds the price of a consumer good in such a way—patients deserve more drug price transparency.  When Pfizer spends $1.3 billion each year on its pharmaceutical advertisements in the United States, it should tell the whole story and provide clear information about drug prices, so patients can make informed decisions.

In November, Senator Durbin introduced the Drug-Price Transparency in Communications Act (S. 2157), co-sponsored by the other senators that signed the May 18 letters to drug makers, that would require price disclosure in prescription drug advertising. “We are pleased that the president recently acknowledged the importance of requiring price disclosure on direct-to-consumer ads—it is our hope that he will actually follow through,” the letter said.

House Energy & Commerce Committee Approves More than 30 Opioid-Related Bills

On May 17, the House Energy & Commerce Committee approved 32 bills aimed at curbing the nation’s opioid abuse epidemic as part of a larger package of bills House Republicans plan to bring to the House floor in June. With a few exceptions, most bills had bipartisan backing and were wide ranging, from increasing access to addiction treatment for Medicaid beneficiaries to building up the provider workforce and encouraging non-opioid treatments for pain. The committee had already advanced 25 bills on May 9

On May 16, the House and Ways Committee approved six relatively uncontroversial and bipartisan bills aimed at reducing opioid abuse in Medicare. The bills would expand coverage for medication-assisted treatment, promote non-opioid therapies for pain management and require Part D plans to have so-called lock-in programs for beneficiaries at risk of opioid addiction, among other provisions.

On the Senate side, the Commerce Committee this week will consider opioid legislation within its jurisdiction, while the Judiciary Committee will vote on six opioid bills, including a measure renewing the Office of National Drug Control Policy.

House leaders are expected to merge their individual bills into one package with a vote before the end of June. The Senate is similarly working to wrap its opioid provisions into one bill and schedule a vote before August. Opioid legislation could be one of the few bipartisan issues that gains traction in Congress before November’s the midterm elections.

Ways & Means Committee Chair Hints at Hearings on President’s Rx Drug Proposals

House Ways & Means Committee Chair Kevin Brady (R-TX) hinted last week that he will conduct hearings on some of the president’s recently-announced proposals to bring down drug prices. According to The Hill, Brady said it is too early to tell if the committee will move legislation on the issue, but said he wanted to consider the ideas. “I think there’s some very good ideas in that proposal and some very thoughtful ones that we need to be airing out,” Brady told reporters. “So, yeah, I do expect to conduct congressional hearings on some of those ideas.”

Committee staff said the panel wasn’t planning any near-term review of the White House initiative, which focuses on regulatory actions and demonstration projects that the myriad federal health agencies could implement on their own.

Health Policy

Report: Exchange Insurers Regain Profitability by Raising Prices

A May 17 report by the Kaiser Family Foundation found that health insurers had their best financial year in 2017 selling individual market health insurance since the ACA market reforms began in 2014 – largely by raising their prices.  The average cost of health plans sold on the ACA’s individual market increased by roughly 22 percent in 2017, boosting premiums well above what insurers spent on medical care. Average premiums collected in excess of claims (or gross margins) reached $79 in 2017 per member per month, up from $14 in 2016 and -$9 in 2015. Meanwhile, the aggregate medical loss ratio fell to 82 percent in 2017 from 96 percent in 2016 and 103 percent in 2015.

According to Kaiser, the strong financial performance suggests insurers on average priced their plans adequately in 2017, though the outlook for this year and next year is cloudier, given recent policy changes and political uncertainties that are driving up premiums and potentially pricing out healthy middle-class consumers. The analysis notes those complicating factors include the Trump Administration’s decision to stop making cost-sharing subsidy payments to insurers; the repeal of the individual mandate penalty as part of tax reform legislation; and proposed regulations to expand loosely-regulated short-term insurance plans.

CMS Actuary: Short-Term Health Plan Regulations Would Hurt ACA Risk Pools

A newly released report by CMS Chief Actuary Paul Spitalnic finds that the Trump administration’s proposed rule on short-term health plans could have a much larger impact on the ACA exchange markets and federal spending than the agency originally estimated. In March, the administration forecast that 100,000-200,000 people would move to the short-term plans; CMS now estimates that the plans could attract 1.4 million consumers (growing to 1.9 million by 2023), and increase federal spending by $1.2 billion in the first year alone.

The analysis, which was completed on April 6, but not released until May 15, predicts that the proposed short-term plan rules would attract mostly healthy consumers, some of whom already have coverage under the ACA, and the plans, while less-expensive than ACA plan offerings, would not have to comply with the law’s coverage requirements. As a result, consumers remaining on the exchanges would be less healthy than those enrolled in short-term plans, and this consumer shift would weaken the ACA risk pools and cause premiums to increase by about 6 percent by 2022. The increased premiums would lead spending on premium tax credits to also rise, and federal spending would spike as a result. Federal spending could increase by $1.2 billion in 2019 and by $38.7 billion during the first 10 years that the new rule on short-term plans is in place, the analysis predicts.

The proposed rule on short-term plans is still being reviewed, and the final version is expected to be released later this year.

In The States

CMS Rejects Ohio’s Request to Eliminate Individual Mandate

Ohio’s request to formally waive the ACA’s individual mandate through Section 1332 innovation waiver has been rejected by CMS’ Center for Consumer Information and Insurance Oversight (CCIIO). The state legislature had approved the waiver in 2017 before Congress removed the mandate penalty as part of the tax bill signed in December, and the state’s insurance department submitted the waiver application to CMS in March.

In the May 17 letter to Ohio Insurance Director Jillian Froment, CCIIO said a state plan, “among other things, must provide coverage that is at least as comprehensive and affordable as that as provided under Title I of the ACA and must provide coverage to at least a comparable number of residents. For this reason and those described above, the departments determined that the application is not complete.”

However, the agency said that it is willing to work with the state if it wants to revise the application. In a statement, the state insurance department said that is “currently reviewing the federal government’s response to determine potential next steps.”

Vermont Governor Signs Drug Importation Bill

On May 16, Vermont Governor Phil Scott (R) signed into law the first state bill (S. 175) that would allow the importation of prescription drugs from Canada. His signature was not really in question as the bill passed the House by a 141-2 vote and the Senate unanimously approved it earlier this month. Even with Scott’s signature, the state still needs federal approval to move ahead.  HHS Secretary Alex Azar recently called the idea of importing drugs a “gimmick.”

Eight other states have proposed similar importation measures this year—Colorado, Louisiana, Montana, New York, Oklahoma, Utah, West Virginia and Wyoming. None of the measures passed, but legislators requested that the executive branch develop a proposal so the legislature could re-introduce a wholesale importation bill in 2019.

Initial Rate Filings in Maryland and Virginia Point to Higher 2019 Premiums Nationwide

As insurers begin to file their 2019 rate requests for the ACA exchanges, they are sending clear signals that recent legislative and regulatory actions will factor prominently into their calculations.

Cigna has requested an average 15 percent increase in Virginia, citing issues including the elimination of the individual mandate penalty and anticipated changes regarding short-term health plans and association health plans as justification for the increase. CareFirst BlueCross BlueShield filed an average rate increase of 18.5 percent for its CareFirst BlueChoice HMO plans in Maryland and a 91.4 percent hike for PPO plans. In Virginia, the insurer is seeking an average 26.6 percent hike for its CareFirst BlueChoice plans and a 64.3 percent increase for plans offered by subsidiary Group Hospitalization and Medical Services, Inc.

While these are initial rate proposals, it is expected that these steep hikes will continue across the country, particularly in rural areas or the 52 percent of counties with only one exchange insurer.

The Week Ahead

The U.S. House of Representatives and Senate will be in session the week of May 21–25.

May 22: The Senate Health, Education, Labor & Pensions (HELP) Committee will hold a hearing titled, “The Health Care Workforce: Addressing Shortages and Improving Care.”

May 23: The Senate Aging Committee will hold a hearing titled “Preventing and Treating Opioid Misuse Among Older Americans.”

May 24: The Senate Finance Committee will hold a hearing titled, “Rural Health Care in America: Challenges and Opportunities.”