Remarks by Administrator Seema Verma at the Biopharma Congress
(As prepared for delivery – November 14, 2018)
Good afternoon, and thank you for having me today. I want to start by taking a moment to remember Dan Best, who served as Secretary Azar’s Senior Advisor for Drug Pricing Reform. For those of you who had the privilege of getting to know Dan, you know that he brought tremendous energy and passion to his role. I am grateful to have had the opportunity to work with him. We miss Dan, and we are keeping him and his family in our thoughts and prayers.
From day one, President Trump has made it clear that lowering prescription drug costs is one of his top priorities. In May, the President released the historic American Patients First Blueprint, which was the most sweeping set of policies to lower drug prices ever proposed by an Administration. CMS has been hard at work to make the President and Secretary Azar’s vision a reality – because the status quo is simply unacceptable. As Secretary Azar has said, “There’s little difference for a sick patient between a miracle cure that hasn’t been discovered and one that is too expensive to use.”
Drug pricing is a particularly acute issue for CMS. Combined, Medicare and Medicaid represent 40 percent of the U.S. drug market – we’re the largest purchaser of prescription drugs on the planet, and even if you just look at Medicare, it is clear that our spending is growing. In 2012, Medicare spent 17 percent of its total budget, or $109 billion, on prescription drugs. Four years later in 2016, this had increased to 23 percent, or $173 billion. We’re talking about an increase of $64 billion in just four years.
I’m excited today to discuss our approach to transforming the way Medicare pays for drugs in its two main programs: Part B and Part D. Part B covers physician-administered drugs through a fee-for-service system, and Part D covers drugs that are picked up at a pharmacy through private plans.
We were honored to have President Trump come to HHS recently – the first visit by a president to the department in over 10 years. President Trump came to announce the International Pricing Index Model for Part B; so let me start with unpacking that.
In Part B, Medicare pays doctors for physician-administered drugs at an amount equal to the sales price of the drug plus a percentage-based add-on fee. Medicare is simply a price-taker for these drugs. There is no competition, and no negotiation. In the Part D program, negotiation brings discounts on the order of 20 percent or more. In Medicaid, drug discounts are guaranteed in statute and additional savings are negotiated by states and plans. But Medicare Part B, by law, pays the average sales price for a drug, whatever that price may be. This is a prime example of the kinds of misaligned incentives we see throughout the Medicare program, and why I have concerns about “Medicare for All.”
As drug prices continue to rise, accepting the sales price is not sustainable for the millions who depend on Part B; the number of enrollees is projected to grow by 16 million in the next ten years – from 53 million enrollees today to 69 million in 2027. The problem is particularly serious when you think of new gene therapies coming on the market, many that will be physician-administered, with prices approaching half a million or even a million dollars or more. These price tags could not have been imagined when Part B was designed. It’s our job to protect and strengthen the Medicare program, so that all Americans, once they become eligible, can benefit from the latest science. We can’t let high-priced drugs jeopardize the promise of the entire program.
In response to these issues, the IPI model offers a fair and sustainable approach to drug payment in Part B – because it is time for Medicare to be a smarter purchaser. Our nation depends on it. The model was developed with several goals in mind: lowering costs for beneficiaries, introducing competition into the system, reducing burden for physicians while maintaining their financial stability, and addressing the disparity in drug prices between the United States and other countries.
Under the new model, Medicare would slowly phase in a payment level based on international prices. Why? Because other developed countries see far lower prices for these drugs than we do, even though Medicare is the single largest purchaser of these drugs. This defies common sense; in what other market does the largest buyer see the highest prices? But pharmaceutical companies have chosen to offer prices abroad that are substantially lower than what Medicare pays and what our seniors – people living on fixed incomes – are forced to pay.
The IPI model would generate savings of 30 percent for beneficiaries and taxpayers, for total savings of up to $17.2 billion over five years. Beneficiaries would potentially see lower Part B and Medigap premiums, and lower cost sharing on the order of $3.4 billion. That could mean that a senior receiving a medicine that costs Medicare $1,800 a month but costs other countries just $300 a month would see their annual coinsurance drop from $4,400 a year to just $900 a year. [PAUSE] That’s real savings. Savings would be driven by the fact that the average amount that Medicare pays for some of the most expensive Part B drugs would phase down. Payments would decrease from a level that is about 80 percent above average international prices today, down to about 26 percent above international prices over five years.
As I mentioned, the goal of the IPI model is to maintain financial stability for physicians – essentially to keep doctors whole, contrary to information being put out by some stakeholders. Instead of basing physician payment on the price of a drug, physicians would receive a fixed payment amount that could vary by physician specialty, physician practice, drug class, or some other variable. We are open to input, and we are working with physicians on this. This change would remove any appearance of an incentive for doctors to prescribe higher-priced drugs, and for manufacturers to set higher prices. Patients would simply receive the most appropriate drug for their clinical condition, and we would pay doctors for administering and handling the product. Another plus; this change would encourage the uptake of lower-cost biosimilars, which have been slower to take hold in the American market than overseas, by paying doctors to cover the costs to handle drugs without linking payment to drug prices.
An increase in the total amount of funding available for add-on payments is designed to protect financial stability for physicians. The pool of funds available for add-on payments would be six percent of prior year spending on Part B drugs; as opposed to just 4.3 percent of average sales price, which it is today. This increase would result in an additional $1.3 billion in add-on payments for doctors over five years. Let me repeat this – an additional $1.3 billion for doctors over five years.
Reducing the burden on physicians is also our goal. We have heard from physicians that taking on the financial responsibility for Part B drugs – which are expensive and fragile medicines – can be challenging, especially for physicians in small practices. Our Patients Over Paperwork Initiative makes that clear that we want physicians to be able to focus on providing high-quality care for their patients. We are committed to addressing the administrative burdens that they face. Therefore, the IPI model shifts the responsibility of holding title to Part B drugs to vendors that physicians are already working with who are better equipped to deal with this – and those vendors would bill Medicare directly. This is not unlike how the 340B program works today. The vendors might be specialty pharmacies, distributors, manufacturers or even physician practices. We are looking forward to working with physicians and distributors on ways to structure this to ensure the success of the model.
There are no two ways about it – the IPI model is a significant change; it is an overhaul of Medicare Part B drug pricing. That is why we have taken the extra step of soliciting input by issuing an Advance Notice of Proposed Rulemaking. The input we receive will inform the development of a Proposed Rule early next year. Our goal is that the model will be mandatory for half of the country’s providers. While we will seek input on the methodology for selecting geographies, randomization will likely be needed to ensure a valid comparison group.
The IPI model would – for the very first time – introduce competition in Medicare Part B. Now, in Part D, private plans are already negotiating with manufacturers, and plans are keeping premiums down. Part D premiums decreased this year and are projected to decline again next year.
Part D has been a success, because instead of a government bureaucracy making decisions for patients, the Part D program protects a patient’s ability to choose the plan that is right for them. Beneficiaries know which drugs are covered in a particular plan, the premium, and the level of cost sharing. The patient can choose the plan that meets their needs, and make trade-offs between costs and quality. They make the decision – not the government.
Part D is a market-based system – prescription drug plans compete for beneficiaries. In a market system, competitors must provide the highest quality at the lowest cost to attract customers. But when the government controls the process and only offers one option – with no choices – the push to excel or go out of business is no longer there.
As we look to the future of Part D, we must move to an even more dynamic and competitive market, which will lower prices while protecting patient choice. CMS intends to give Part D plans more leverage in their negotiations and more flexibility in their benefit design, so that they can continue to drive towards lower costs and higher quality for our beneficiaries. I want Part D plans to have every tool that plans in the commercial market have to lower costs, increase quality, and promote transparency – including at the point of prescribing, and we have seen innovative approaches emerge in the private sector to provide real-time cost information to patients and providers.
One area in which our Part D plans are more constrained is in their negotiating power for drugs that are in the “protected classes.” These are therapeutic classes for which Part D plans have to cover essentially all available products.
This administration is committed to ensuring that seniors are getting the best deal possible in all therapeutic classes, including in the protected classes. Private plans are able to ensure access to drugs in these categories while also negotiating with drug manufacturers for the best deal. Today there are more competitor drugs in these classes – including generic drugs – than there were when the protected class policy was created. Typical private market discounts for these drugs are in the 20 to 30 percent range, but the average discount across all protected classes in Medicare Part D is just 6 percent. It is important to lower costs for all patients, including patients who need drugs in the protected classes.
One of the successes of Part D plans has been their encouragement of generic drug utilization over the years. Most of you in this room are aware that around 90% of all prescriptions filled in America are for generic drugs – a remarkable statistic. Earlier this year, we finalized a rule that allows plans to substitute generic drugs for branded drugs more quickly on formularies, so beneficiaries can access low-cost generics as soon as they’re approved.
When it comes to empowering Part D plans to encourage generic utilization, CMS is leaving no stone unturned in looking for ways to save money for our beneficiaries. In 2016, Part D beneficiaries spent over $1.1 billion in out-of-pocket expenses for branded drugs that had comparable generics. Clearly, there are savings for patients being left on the table. To this end, CMS issued a memo to Part D plans this summer explaining the tools they have available and the expectation CMS has to ensure that beneficiaries get the best deal possible. While the memo reminded plans of their current authority in this area, we recognize that additional barriers stand in the way of fully encouraging generic utilization. Stay tuned for more from the agency on this issue.
Other policy changes I would highlight include removing what was called the “meaningful difference” requirement, which restricted plans from offering more choices to seniors. CMS removed that requirement and saw an uptick in the number of Part D plans by over 15%. With more plans comes more competition, and lower prices.
We have also introduced flexibilities that Part D plans will be able to leverage in the future. Currently, if a Part D plan includes a particular drug on its formulary, the plan must cover that drug for every FDA-approved indication, or patient condition, even if there are other drugs that are more effective for a given indication. The requirement to cover drugs for all indications discourages Part D plans from including more drugs on their formularies.
So, we announced that starting in 2020, plans can tailor their formularies so they can cover drugs by indication. This policy will provide beneficiaries with more drug choices, as plans will be able to cover the most appropriate drug for every condition. We announced the change this year so plans have time to incorporate this flexibility into their negotiations with manufacturers prior to the 2020 plan year.
Part D plans have done a great job in keeping premiums low. However, while plans can be a powerful negotiator, sometimes it is the case that a plan’s incentives are not completely aligned with the patient’s. One practice that some plans have used, which I find completely unacceptable, is the imposition of “gag clauses.” Over the summer, we sent a letter to Part D plans explaining that any form of gag clause is contrary to CMS’s efforts to promote drug price transparency and lower drug prices.
And thanks to President Trump and bipartisan leadership in Congress, gag clauses are now illegal. I was honored to be at the White House recently for the signing of two bills to end the practice. Pharmacists can now help their patients find the best deal on prescription drugs.
And the drumbeat continues. CMS recently proposed to require that prescription drug manufacturers post their list prices for drugs in direct-to-consumer ads. Patients often pay their cost-sharing or deductible off of a drug’s list price. Therefore, this requirement would inject greater transparency into the prices that manufacturers set.
Thank you for having me today as I’ve walked through major drug pricing initiatives in Medicare. I would be remiss if I didn’t also mention at least one significant example of our work to lower drug costs in Medicaid. I’m honored to announce that today CMS is approving a proposal from Michigan to enable the state’s Medicaid program to enter into value-based payment arrangements with drug manufacturers. This is the second proposal of its kind that CMS has approved, following a similar waiver from Oklahoma this summer. Michigan’s waiver will empower the state to demand results from drug manufacturers in exchange for paying for medicines.
I applaud Michigan’s proposal. As we see innovation in biomedicine, it is incumbent on us to also modernize payment policies. And we have heard that the industry is interested in value-based payment. New payment arrangements are needed and could take various forms – including drug payments over time only if the patient achieves certain clinical outcomes; drug payments through a shared savings approach based on the drug’s impact on a patient’s total cost of care; and drug payments under a subscription approach, with an upfront-fee in exchange for as many doses as clinically necessary. Value-based payment is not a panacea, but it is an important part of our strategy to lower drug prices.
These initiatives are ambitious, but we are not stopping here. Expect more from us in the coming weeks and months, as we continue to execute on President Trump’s blueprint, including to encourage value-based purchasing. We look forward to your input – because together we can ensure that all Americans benefit from the advancements in 21st century biomedicine. Thank you.