SPEECH: Remarks by Administrator Seema Verma at the FT Pharma Pricing and Value Summit
(As prepared for delivery – September 13, 2018)
Good afternoon, and thank you for the kind introduction. It’s a pleasure to be with you today. I know it’s commonly said that you “save the best for last,” but let’s be real, that’s not always true. Who here watches the closing ceremony of the Olympics? Don’t worry, I’m not going to take up much of your time, I know that I’m standing in between you and cocktail hour, plus you’ve already heard from a handful of great speakers, including my boss Secretary Azar. However there are some things we are doing at CMS that I would like to share with you this afternoon.
It’s no secret that lowering prescription drug prices is a top priority for President Trump and Secretary Azar. America is the world’s leader in biopharmaceutical innovation. But life-saving medicines do not mean anything if patients cannot afford them – 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.”
For those of you who may not know, CMS, the agency I have been given the honor to lead, serves over 130 million Americans on Medicare, Medicaid, and the healthcare exchanges, making us the nation’s largest insurer.
Our footprint on the US healthcare system is so significant, that everything we do has a large effect on every American, whether they are a beneficiary of one of our programs or not. This is why, in every action we take, we examine the impact that it will have on the entire healthcare system.
I wake up every morning concerned that our nation’s healthcare spending is growing at an unsustainable rate. By 2026, 1 in every 5 dollars spent in our economy will be spent on healthcare. Imagine what that means.
Healthcare spending will crowd out funding for other public priorities like national defense, education, infrastructure and public safety. For small businesses, it means that they won’t be able to invest in growing their companies and creating jobs, and for all of us it means that our household budgets will be stretched thin by higher copays and premiums.
We must change this unsustainable trajectory. Our country’s future depends on it. And in order to do that, we have to change how and how much we pay for prescription drugs.
In Medicare, in the aggregate, spending on prescription drugs is growing faster than spending on any other area. 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% of the total budget… or $174 billion. Lowering the cost of prescription drugs isn’t just something we would like to do; it is something that we must do in order to get better outcomes at a lower cost overall. There is a particular issue in drug prices, but as I’ve mentioned, we are looking at cost growth across-the-board.
New and innovative drugs are coming to market, which represent revolutionary advances in medical science but which also have steep price tags. While it is wonderful news that there are hundreds of gene therapies in development, the two CAR-T cancer therapies that have reached the market have been priced at $373,000 and $475,000, and a new gene therapy for certain forms of blindness has been priced at $850,000.
Unfortunately, a speaker earlier today criticized our tone as inadequately respectful of innovation. This is a tired talking point, and one that we have refuted. We are supportive of innovation, but innovation cannot be an excuse for exploitation. Prices have to come down, so that all Americans can benefit.
To address this issue, earlier this year President Trump and Secretary Azar outlined the most sweeping set of policies to lower drug prices ever proposed by an Administration, in the American Patients First Blueprint.
The market for prescription drugs is complex, but we are bringing the same principles of competition and choice that have worked in other markets to tackle challenges in this one. It’s no coincidence that the President’s Blueprint is organized around competition as a key pillar, and Secretary Azar spoke to the importance of competition and market-based negotiation this morning.
Take for example the cures that have been developed for Hepatitis C. When the very first of these treatments arrived on the market in 2014, the drug had no competitors and was priced at $1,000 per pill. Over the next few years, several more drugs came to market and by 2016, the cost of the lowest price competitor was about 45% less than the original product. And thanks to President Trump and Secretary Azar’s efforts, Merck recently announced a price reduction of 60% for one of their drugs for Hepatitis C, which is good because these drugs are still expensive. Once generic competitors emerge, patients will see even more relief.
Generic competition is critical, and CMS applauds the outstanding work that the FDA has done, under the leadership of Commissioner Scott Gottlieb, to accelerate the approval of generic and biosimilar products.
In 2017 the FDA approved a record number of generic drugs, and July saw the highest number of approvals in history for any single month. To take one example, the FDA’s recent approval of the first generic competitor to EpiPen was groundbreaking. This approval will provide much-needed competition for Medicare and Medicaid patients who rely on this life-saving product – generic competition should generate savings for the programs and for states. CMS’s new drug dashboards show that Medicaid spent $337 million on EpiPens in 2016, and Medicare Part D spent $164 million.
Last year, CMS reached a settlement with the manufacturer of EpiPen around their classification of the drug, which returned $465 million to the Medicaid program. CMS is committed to ensuring that manufacturers pay their fair share in Medicaid rebates; this is also why we have called on Congress to lift the cap imposed by the Affordable Care Act on the total amount of Medicaid rebates that manufacturers pay when they increase their prices. This part of Obamacare was a giveaway to drug companies. We must ensure that our policies are creating incentives for lower, and not higher, list prices.
While the FDA has been accelerating the introduction of generic and biosimilar products, CMS has been acting in concert to modernize our payment policies to increase competition. One of our most important priorities is encouraging biosimilar and generic innovation, and I’m excited to walk through our efforts here since it’s rare that I get an audience that is actually excited about this stuff!
Many of the highest-cost medicines that Medicare pays for are biologics. Biosimilars have the potential to introduce competition and drive down costs for patients. However, right now, there are only a few biosimilars available in the US – the FDA has approved 12 biosimilars, but fewer than half of these are currently marketed in the US. To encourage growth, CMS finalized a policy last year that established separate billing codes for each biosimilar product for a given biologic. This will encourage companies to invest in bringing more biosimilars to market and will increase competition to reduce costs.
At CMS, empowering patients and increasing choice are driving factors in virtually every area we oversee. Because when patients have choices, costs and quality improve. I often hear that Medicare should negotiate drug prices with manufacturers. In response, I have to point out we already have negotiators – and these are the Part D plans, which cover drugs that beneficiaries pick up at a pharmacy.
Rather than a government bureaucracy making every decision 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 and the level of cost sharing that they will be required to pay. The patient can choose the plan that is best for them, and make trade-offs between costs and quality. And I assure you that this is better than the government making decisions for them.
Part D is a market-based system – prescription drug plans compete for beneficiaries. History teaches us that competitive pressures drive towards greater value. 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 incentive to do better or go out of business is no longer there. At a time when premiums are rising in virtually every form of health insurance, our Administration has proudly announced that Part D premiums decreased this year and will decrease again next year.
As the Secretary explained this morning, we currently stand at a crossroads. Either we can move to a more dynamic and competitive market, which will lower prices while protecting patient choice, or the market we see today will be eroded by government intervention. I have many tools at my disposal to bolster competition, and I am not waiting – through regulatory changes, CMS has already strengthened competition in the market for prescription drugs, and we are continuing to take action.
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 and increase quality, and our Administration has taken a series of steps to get there.
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 more quickly. So, for example, once the generic version of EpiPen is marketed, Part D plans will immediately be able to put it on their formularies and make it available to beneficiaries.
When it comes to empowering Part D plans to encourage generic utilization, CMS is leaving no stone unturned in looking for savings opportunities. HHS issued a report on the use of branded drugs in Medicare Part D when comparable generics are available. The report’s findings were striking. In 2016, Part D beneficiaries spent over $1.1 billion in out-of-pocket costs for branded drugs that have comparable generics. There are savings for patients being left on the table here.
Once this report was issued, Secretary Azar asked us to look into the issue. CMS immediately took action in response. We issued a memo to Part D plans explaining the tools they have available and the expectation CMS has to ensure that beneficiaries get the best deal. 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.
Similar to encouraging the uptake of generics, we also want to promote biosimilars. We changed a policy around biosimilars to advance this goal. CMS now treats biosimilars as generic drugs for the purposes of determining copays in Part D. This will lower out-of-pocket costs for biosimilars for low-income beneficiaries, thereby removing a barrier to biosimilar use. And President Trump’s budget would go even further, with a proposal to eliminate cost sharing altogether for generics and biosimilars for low-income beneficiaries.
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. The problem of high drug prices is a multi-faceted one, and no single actor is to blame. CMS is examining the entire value chain to identify issues and pinpoint solutions.
One practice that some plans undertake, which I find completely unacceptable, is the imposition of “gag clauses.” Gag clauses are contracting terms that prevent pharmacies from telling customers about the availability of lower prices when patients do not use their insurance. Earlier this summer, CMS sent a letter to all Part D plans explaining that, as I said in the letter, “CMS finds any form of gag clauses unacceptable and contrary to our efforts to promote drug price transparency and lower drug prices.” To that end, I applaud the Senate for passing a bill – and the House for introducing a bill –that would end the practice altogether.
Another practice that we are examining is the practice of manufacturer rebates. As you all know, health insurance plans hire PBMs to manage their drug benefit and negotiate with drug manufacturers. PBMs do this by extracting rebates from manufacturers in exchange for putting their drugs on the formulary.
Rebates are calculated as a percentage of the manufacturer’s “list price.” Therefore, the higher the manufacturer’s list price, the larger the rebate will be. And the higher the rebate, the more money that plans and PBMs get. The bottom line is that all of the incentives are lined up for manufacturers to set higher and higher prices. But patients usually pay their cost sharing or coinsurance off of this list price – they are having to pay more. And while our Administration is committed to transparency at large, there isn’t always transparency on where the rebate dollars are going. We are looking closely at this issue.
So far I’ve covered Medicare Part D; I’d like to turn our attention now to Part B. In Part B, Medicare pays providers for medicines that are not patient-administered, such as infusions.
We pay Part B providers for drugs at an amount equal to the average price the drug sells for plus a percentage-based add-on fee. There is no negotiation – Medicare merely accepts the average sales price. Moreover, this payment structure creates a perverse incentive for manufacturers to set higher prices, and for providers to pick drugs that are more expensive. While this system may have made sense when it was designed, in today’s world, with some therapies costing over a half a million dollars, just taking the average sales price and then adding an additional percentage doesn’t make sense. We also don’t see the full benefits of competition in Part B… because some drugs within a therapeutic class have a competitor in Part D. Because there are separate programs, the drugs don’t compete.
Last month, CMS took a historic step to address some of these issues in Part B with respect to Medicare Advantage plans. CMS gave Medicare Advantage plans the option of applying step therapy for Part B drugs. These drugs make up around $12 billion in spending per year by Medicare Advantage plans.
This means that starting in 2019, Medicare Advantage plans will be able to ensure that patients receive the most preferred drug therapy first and progress to other therapies only if necessary. For example, plans may ensure that a beneficiary begin treatment with a biosimilar before progressing to a more costly biologic, only if the biosimilar is ineffective.
We’ve taken careful effort to make sure that patients are protected under this policy. Step therapy can only be applied to new prescriptions, and half of the savings must be shared with patients through incentive programs. These incentive programs must be coupled with care coordination services, including implementing adherence strategies for beneficiaries.
Patients will have time to decide whether to participate in a plan that takes advantage of this new flexibility, and patients can switch plans through the end of March of 2019 if they change their mind.
Some Medicare Advantage plans also offer a Part D benefit. CMS’s new policy will enable these plans to implement step therapy across Part B and Part D. So for the first time, competitor drugs will be on a level playing field, and patients will receive the best medicine whether it is physician-administered or patient-administered.
The initiatives that I’ve outlined today will impact drugs with competitors, but our work does not stop there. While we can strengthen competition and negotiation for situations with multiple drugs, there are times when a drug has no competitors. Especially for new drugs that enter the market, CMS will need other approaches.
As we see innovations and advancements in biomedicine, it is incumbent on the agency to innovate on the payment side as well. Our payment systems were built to pay for treatments for chronic diseases, but we want rethink our approach to encourage the development of curative therapies. Granted, it took years for our current systems to develop, and moving to new payment models will also take time.
Treatments and cures are coming to market today that doctors could not have imagined a generation ago, including treatments that are customized to a patient’s unique genetic profile. Many of these treatments are for diseases with very small patient populations. As I mentioned earlier, the price tags for these drugs are exceeding three hundred, four hundred, or even eight hundred thousand dollars.
New payment arrangements could take various forms. They may include making payment for a drug contingent on the patient achieving certain outcomes… paying for a drug over time based on outcomes… paying for a drug through a shared savings approach based on the drug’s impact on total cost of care… or paying for a drug under a subscription approach, with an upfront-fee in exchange for as many doses of the drug as is clinically necessary. When drugs are as expensive as some of the new gene therapies are, we absolutely must hold manufacturers accountable for outcomes.
Payment models cannot change overnight, so we are focusing on taking other actions in the near-term to bring immediate relief. But new payment arrangements do remain a piece of our vision, and we are asking for input on how best to move forward. Last month, CMS issued a request for information on how we can leverage our authority under a program known as the Competitive Acquisition Program… or CAP… to develop new payment approaches and get a better deal for beneficiaries. A CAP-based model would allow CMS to bring on vendors to negotiate payment amounts for physician-administered drugs. As I’ve mentioned before, Medicare is currently a price taker for these medicines, but a CAP model would change that dynamic.
The President’s Blueprint was released on May 11th, and we have been taking swift action since then. But this is just the start… there is more to come. I believe there are additional steps we can take in Part D in the near term to strengthen negotiations and get a better deal for beneficiaries. And I think there is much more to be done on the Part B side, especially in the realm of new payment arrangements for innovative drugs in the future.
Together we can modernize our payment systems to ensure sustainability, encourage access, and foster competition, which will lead to lower prices. That way all Americans will benefit from 21st century advancements in biomedicine.
Thank you and I look forward to the discussion.