Fact sheet

Speech: Remarks by CMS Administrator Seema Verma at the Pharmacy Quality Alliance Annual Meeting

Remarks by CMS Administrator Seema Verma at the Pharmacy Quality Alliance Annual Meeting (PQA18) (as prepared)

Good afternoon, it’s a pleasure to be with you today. Pharmacists are on the front lines of patient care and have keen insight to the issues that patients face. We appreciate your hard work, and we look forward to working with you on a goal that I’m sure we share – ensuring that all patients can access their medications at an affordable price.

I have been working with the President since the days of his campaign, and I can tell you first hand that this is an issue that he is passionate about. He is deeply concerned and committed to helping Americans who are struggling to pay for prescription drugs. By now you should know that this is a President who delivers on his promises, and who is not afraid to take on special interests in order to make sure Americans get the best deal.

One of the most important things the President has done on this issue is put together an experienced team. I am honored to work alongside Secretary Alex Azar and FDA Commissioner Scott Gottlieb to tackle this issue. Both are talented individuals with a unique knowledge base that is so critical to our strategy

As you know, last week the President announced the American Patients First Blueprint, which is by far, the most comprehensive and far-reaching set of strategies ever released by an administration to tackle the problem of prescription drug costs. Secretary Azar provided more details of the plan on Monday – and the many initiatives within it. Today I am excited for the chance to unpack what CMS has done and will do as part of this historic effort.

The United States leads the world in our development of innovative new therapies and the pharmaceutical industry has brought treatments to the market that are improving lives, saving lives and lowering health care costs. We support innovation, but innovation doesn’t mean anything if people can’t afford their medications.

CMS is the largest payer of healthcare services in the United States, and in just the Medicare program, our drug spending has gone up considerably. In 2012, Medicare spent 17% of its total budget, or $109 billion, on prescription drugs. Four years later in 2016, spending had increased to 23%, or $174 billion.

CMS serves over 130 million beneficiaries -- and drug spending by Medicare and Medicaid accounts for nearly 40% of all drug spending in the US. For Medicare, spending on prescription drugs is growing faster than spending on any other area. We have considerable market influence and we intend to use it.

The American Patients First Blueprint sets forth a four-pillared strategy, and CMS has been hard at work to carry out its part. The four pillars are – reducing Americans’ out-of-pocket spending, increasing competition in the drug market, improving negotiation to get a better deal for patients and taxpayers, and creating incentives for manufacturers to lower list prices.

The President’s initiative is about putting patients first, and ultimately everything we do in this effort is about reducing out-of-pocket spending for our beneficiaries and all Americans. Over the past few days, people have asked us when people are going to feel these changes, and my response is that they are already feeling the impact of our changes. Last year, CMS took a major step that demonstrates that this Administration is unafraid to take on difficult challenges.

CMS changed its payment rate to hospitals for drugs that they purchase through a program known as 340B. This is a program that allows certain hospitals to buy drugs at a discounted price, however… these discounts were not being passed on to our beneficiaries. So, CMS reduced the amount that beneficiaries and the federal government will pay hospitals for drugs that they acquire through this program.

Now Medicare beneficiaries – and not just the hospitals – will benefit from the savings from the 340B program. This change is estimated to save Medicare beneficiaries $320 million in drug spending this year alone. And the President’s Budget includes a legislative proposal to direct the savings from this policy to hospitals that need the subsidy the most.

Another change CMS has made to reduce out-of-pocket spending was to lower costs for beneficiaries to access biosimilars. Biosimilars function like generics do for chemical-based drugs. CMS recently announced that we will treat biosimilars as generic drugs in Part D for the purposes of determining copays. This will immediately lower the out-of-pocket costs for biosimilars for low-income beneficiaries.

And we aren’t stopping there. The President’s budget also calls for an integrated five-part plan to modernize Part D, designed to be deployed together to drive savings for our seniors and for taxpayers. The plan includes providing generic and biosimilar drugs to low-income beneficiaries for free; and protecting beneficiaries from high costs in the catastrophic phase of Part D.

And as outlined in the American Patients First Blueprint, CMS is taking additional bold steps to help patients understand the costs of their medications.  I have said and continue to maintain that we need greater price transparency in all of health care so that patients can make the best decisions for them and their families. Drug pricing is no different. Patients need to know how much a drug is going to cost when it’s prescribed and what alternatives are available so they can get the best deal possible.

As the Secretary announced on Monday, CMS will be issuing a letter this week to our Part D plans to end the practice of “gag clauses.” Gag clauses are contracts in which plans prohibit pharmacies from telling patients when they can access drugs at a lower out-of-pocket cost, if the patients do not use their insurance. 

CMS is not only ending the practice of gag clauses with our plans, we are going several steps further to require Part D plans to provide seniors with information on drug price increases and lower-cost alternatives. Patients deserve nothing less.

Also, for the past few years, CMS has published drug dashboards with a range of metrics on drug spending.  I was pleased to announce yesterday the release of our redesigned CMS drug dashboard.

For the first time, the dashboard highlighted year-over-year changes in drug prices over a multi-year period along with the manufacturers that were responsible for the increases. In addition, this week’s release expands the set of drugs that are reported in the dashboards to include the majority of drugs prescribed in Medicare and Medicaid. The prior release of the dashboards included only 80 drugs in Medicare and 70 drugs in Medicaid, while this release includes over 3,000 drugs in each program.

The world can now see which manufacturers have increased their prices and for which drugs. The data shows that some of our most commonly used drugs have been taking price increases of 10% or more each year over the last five years, and that will now be visible to the public.  There are also examples of increases that are double-digit, triple-digit and quadruple-digit increases.   There is no clearer example of why reform is needed.

Our strategy is to increase competition. And as the history of the Part D program demonstrates, competition is the most powerful engine for increasing quality and efficiency across our healthcare system, including in the market for prescription drugs. Where competition exists, market forces push prices down – but where competition doesn’t exist, costs can be high and patients pay more.

For example, when the first cure for Hepatitis C arrived on the market in 2014, the drug had no competitors and was very expensive. Over the next few years, a couple of competitor branded drugs emerged and by 2016, the cost of the lowest price competitor was about 45% less than the original Hepatitis C drugs. 

Competition from generic alternatives can be even more effective at lowering prices. A great example of this is statins. When only branded options were available, the average cost was around $200. Just a year after the first generic statin reached the market, the average cost dropped to about $40 for patients on the generic product – an 80% decrease.

Thankfully, under the leadership of Scott Gottlieb, the FDA has approved a historic number of drugs to increase competition. CMS also made another important change last year pertaining to biosimilars, which will also increase competition.

The biologic on which a particular biosimilar is based is called the biosimilar’s “reference product.”   Right now, only a few biosimilar products are on the market in the US. To encourage growth and competition, CMS finalized a policy that established separate payment codes for each biosimilar product. This will encourage the emergence of a robust market for biosimilars and drive competition between biosimilars and their expensive reference products. The result will be that beneficiaries will have more, lower-cost options. 

We also took steps to increase competition among Part D plans and among pharmacies, in order to expand access to pharmacies and to ensure that beneficiaries can access plans that are custom-tailored to meet their needs.

Our blueprint also outlined other strategies we are working on to introduce competition into the Part B (that’s B as in boy) program. We often don’t see the full benefits of competition in Part B, because some drugs within a therapeutic class have a competitor in Part D. 

And we are concerned that financial incentives may be influencing treatment decisions for these drugs – providers receive a reimbursement for Part B drugs but not for Part D drugs. Therefore, a patient may receive a Part B drug within a given therapeutic class when a Part D drug is available and may be cheaper and more effective. Therefore, bringing B into D for these types of drugs has the potential to both lower costs for patients and improve the quality of care.

We are reviewing opportunities to develop demonstration projects in this area to test this strategy. 

One additional tool for injecting competition into Part B that we are exploring is leveraging the authority created by the Competitive Acquisition Program for Part B drugs. In the traditional Part B program, clinicians purchase drugs and then bill Medicare for the drugs at a rate of ASP plus 6%. However the Competitive Acquisition Program provides CMS with a way to bring vendors into the picture to buy and take ownership of the drugs.

This takes physicians out of the business of having to buy, store, and handle drugs administered in-office, which can be an especially complex process for some of the new expensive gene therapies. And the presence of multiple vendors can create a competitive dynamic akin to Part D plans. As vendors compete and negotiate directly with manufacturers, our beneficiaries will get a better deal.

We also lack competition when new drugs are coming to market with extremely high price tags, or high price tags to address diseases that impact a small number of patients. In this area, we need to modernize the way our programs pay for drugs. To this end, we are looking at value-based payment mechanisms.

This will not only be important in Medicare but also for our state partners in Medicaid. State Medicaid programs face challenges when new expensive therapies emerge, especially cures, which the states had not anticipated. For example, cures for Hepatitis C resulted in savings over the long term, but to get there, states had to first find a way to pay for the drugs up front within the constraints of fixed budgets.

Value based arrangements will demand patient outcomes in exchange for payment.   For drugs that cost hundreds of thousands of dollars, we should know that they are working before we have to pay for them.   So for example, payment would only be made for a drug if it was proven to be effective in terms of clinical outcomes or reducing total cost of care. Another example would be paying for high-cost drugs over several years, making installment payments only if the drugs actually work. 

CMS will be looking at modernizing our rules so Part D plans can take advantage of indications-based payment. This would allow plans to vary the payment amount for a drug based on the indication for which the drug is used, giving plans yet another way to put pressure on manufacturers and ensure that the amount a patient pays matches the value of the drug.

Value-based payment models will be especially important for Medicare Part B. Many of the most expensive new therapies that are coming out – such as CAR-T, with price tags approaching half a million dollars – are covered in Part B. But the amount that CMS pays for high-cost drugs in Part B vastly exceeds the sales price for these therapies, and there is no guarantee of value.

Private health insurers are already experimenting with value-based payment arrangements. However, one of the barriers that they are telling us is standing in the way of these arrangements is a policy known as “Medicaid Best Price.” The Medicaid Best Price policy ensures that Medicaid programs do not pay more than a manufacturer’s “Best Price” in the commercial market.

Manufacturers are concerned, for example, that if they enter into a value-based arrangement, and don’t get payment if the drug doesn’t work, then zero could become the new “Best Price” for the drug. We recognize that there is uncertainty regarding this policy, and we intend to address this. 

While we are doing everything we can to increase competition, our strategy also calls for strengthening negotiation. 

CMS has no negotiators working on our behalf in Part B – instead we are simply price takers, paying the sales price of a drug plus a six percent markup for providers to administer the drug. With this arrangement, every incentive is in place for manufacturers to set high prices for Part B drugs and for providers to pick the drugs that are most expensive. While this system may have made sense when it was designed, in today’s world, with some therapies costing over half a million dollars, adding 6% to the sales price doesn’t make any sense. And to complicate things further, payment for the same Part B drug can vary dramatically depending on whether the drug is administered in a hospital or in a physician’s office. These are issues we plan to address. 

Now, we often hear that Medicare should negotiate drug prices with manufacturers. In response, I have to point out one of the brilliant features of Part D – it hired a group of negotiators: The Part D plans. These plans, and their Pharmacy Benefit Managers or PBMs, are negotiating with manufacturers every day to keep premiums low. The average monthly Part D premium increased less than $5 over the entire period 2013-2017, and the average monthly premium is actually lower this year, at $33.50, than it was last year.

It’s important to point out the success that PBMs have had in managing utilization. While there are other issues that we need to contend with regarding PBMs, PBMs have effectively encouraged the use of low-cost generics – nearly 90% of all prescriptions filled in America today are for generics, but generics only make up about 25% of all drug spending. So, CMS intends to give health plans and PBMs in Part D far more leverage in their negotiation and we already took action on this front this year.

Our recently released Part D rule provided important new tools to Part D plans. Plans can now substitute new generic drugs for branded drugs more quickly on formularies, to allow beneficiaries to access low-cost generics months earlier.

The American Patients First Blueprint explains that plans should have greater latitude to adjust benefit design during the plan year as needed to respond to price increases for generic drugs.

Part D was developed fifteen years ago, and since then, drug plans in the commercial market have developed a range of capabilities to better control costs. We plan to update our regulations in Part D, so Part D plans can deploy the full set of tools that drug plans in the commercial space are using to drive a hard bargain with manufacturers. This will include providing Part D plans with more flexibility to manage high cost drugs in the so-called “protected classes,” which are therapeutic classes in which the plans lack any real power to negotiate with drug manufacturers. 

Now to the fourth and final pillar of our strategy – introducing incentives for manufacturers to reduce the list prices of drugs. Many stakeholders have raised concerns with the practice of manufacturer rebates in Part D. Everyone benefits when rebates go up – manufacturers get preferential placement on formularies, and plans and PBMs get more money. But in maximizing rebates, the system is driving up list prices, since rebates are paid as a percentage of list price. And as list prices go up, patients end up paying more. 

As Secretary Azar and Commissioner Gottlieb have mentioned, a safe harbor from the Anti-Kickback Statute is currently in place to allow for these rebates to be paid. We will be re-examining this safe harbor and whether the protection it provides for these rebates should continue. We will be looking into whether rebates should be replaced with upfront negotiated discounts that remove the incentives associated with rebates. There will be a lot of discussion going forward on the use of rebates and we have asked for public input on the Blueprint, and this input will be critical in our efforts. 

As with all of CMS’s initiatives and priorities, I ask that you share your thoughts with us.  Please submit comments in response to the Blueprint, as this will provide us with much-needed input from leaders like you who are on the front lines of our healthcare system and are impacted by our policies.  And I would encourage each of you to follow our work on Twitter, which you can find @SeemaCMS.

It is not lost on anybody that this issue is a complicated one, and one that has many moving parts. There is no single lever to pull that will immediately lower costs and also encourage the innovation that we need to not only treat diseases, but to cure them. The reorganization of our current system of drug pricing and payment will require a sustained series of actions. But this Administration is ready to meet this challenge.

At some point in our lives, each and every one of us will be in a position where we need medical care and access to prescription drugs. At CMS we are working under the President’s directive to ensure that when that time comes, all of our beneficiaries will have access to the best medicines at an affordable price.

Thank you.