Here you will find the latest news and policy updates concerning Health Reform. The Patient Protection and Affordable Care Act (PPACA) signed into law by President Obama in 2010 is designed to ensure that American families and businesses have quality, affordable health care coverage options through new Health Insurance Exchanges to be established in every state by 2014.
In 2014, new competitive, private Health Insurance Exchanges will give small businesses and individuals the ability to pool together to purchase affordable, quality health insurance coverage. Consumers will be able to shop, compare and enroll online and will be able to purchase policies at the same rates offered to large corporations. The primary goal of these Exchanges is to make it easier for small businesses and consumers to purchase private insurance policies, make the market more competitive and reduce the number of Americans who are uninsured.
On the occasion of the 32nd annual World AIDS Day, December 1, 2020, HHS Secretary Alex Azar issued the following statement:
“Even as COVID-19 has exacerbated so many health challenges, the Trump Administration remains deeply committed to the global fight against HIV/AIDS and our goal of ending the HIV epidemic in America by 2030. This year, the HIV community has come together in remarkable and courageous ways to ensure that treatment and prevention services continue to reach those who need them most. COVID-19 has been a challenge for many living with or at risk for HIV, but the groundbreaking public health work led by the HIV community over the past three decades has helped us fight back against this new threat.
“In 2020, we awarded the first funds to start the implementation of our End the HIV Epidemic (EHE) initiative in the 57 jurisdictions that account for more than half of new HIV infections in the U.S. each year. By engaging closely with communities most affected by HIV, we can bring this terrible epidemic in America to an end in America within the decade and continue helping more countries around the world bring their epidemics under control.”
Learn more about Ending the HIV Epidemic: A Plan for America: https://www.hiv.gov/federal-response/ending-the-hiv-epidemic/overview
Today, the Department of Health and Human Services (HHS) through a Notice published in the Federal Register announced a policy to enhance transparency at HHS by requiring that all assumptions, working papers, models, and other information used as part of any impact analysis associated with a rule or demonstration project are shared at the time the results of that analysis are publicly disclosed. HHS Chief of Staff Brian Harrison issued the following statement:
“We are providing needed transparency by requiring the Department to show its math so the American people can know and challenge the methods government uses to calculate effects of regulations it imposes on them.”
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The U.S. Department of Health and Human Services (HHS) and the U.S. Department of Defense (DOD) have jointly awarded an $11.6 million contract to Puritan Medical Products Company, LLC, to expand domestic production capacity of Cue Sample Wands, the nasal swabs used exclusively with the COVID-19 cartridge-based molecular testing system developed and manufactured by Cue Health, Inc. The test generates results in about 20 minutes at the point-of-care (POC).
Awarded November 19, the new contract will allow Puritan Medical to expedite upgrades at its Maine facility and increase production capability of Cue’s nasal swabs to 3 million per month by March 2021. These efforts support the federal government’s procurement of 6 million Cue test kits – which include the Cue Sample Wand as well as Cue COVID-19 Test Cartridges – as part of a $481 million contract awarded to Cue October 13 to increase production to 100,000 test kits per day by March 2021. During the week of November 9, HHS began a pilot distribution of the test kits, shipping 27,000 test kits to five states.
These expansion contracts are just some of the ways that the federal government is addressing the growing demand for testing supplies while also supporting industrial capacity in the U.S. In April 2020, under the Defense Production Act, the federal government awarded a $75.5 million contract to Puritan to increase the company’s capacity to manufacture non-proprietary foam specimen collection swabs – the preferred COVID-19 testing swab – to 20 million swabs per month by July 2020.
To further address capacity restraints, HHS and DOD awarded in July a second expansion contract for $51.51 million for Puritan Medical to establish a new production facility in Maine, increasing production capacity of flock-tip swabs to an additional 45 million swabs per month or more by March 2021. The expansion was funded by the CARES Act to meet demand for the swabs for testing both COVID-19 and the seasonal flu. Puritan Medical is the only U.S.-based manufacturer of flock tip swabs.
Funded by the Health Care Enhancement Act, the new contract was led by the Department of Defense Assisted Acquisition Cell in coordination with the HHS Office of the Assistant Secretary for Health to support domestic industrial base expansion for critical medical resources.
The Cue COVID-19 Test received Emergency Use Authorization (EUA) from the U.S. Food and Drug Administration (FDA) on June 10, 2020. The test is performed by a health professional under the supervision of an authorized laboratory operating under a CLIA Certificate of Waiver, Certificate of Compliance, or Certificate of Accreditation. The test has been authorized only for the detection of nucleic acid from SARSCoV-2, not for any other viruses or pathogens, and only for the duration of emergency use declaration.
The Cue Health platform was developed and validated with funding from BARDA, starting in 2018 for the development of a molecular influenza test, with the option to expand the effort to include coronaviruses. On March 31, 2020, BARDA announced its $13.6 million collaboration with Cue to accelerate the development, validation and manufacturing of Cue’s COVID-19 test.
To learn more about federal support for the all-of-America COVID-19 response, visit coronavirus.gov.
The U.S. Department of Health and Human Services today announced plans to allocate initial doses of Regeneron’s investigational monoclonal antibody therapeutic, casirivimab and imdevimab, which received emergency use authorization from the U.S. Food and Drug Administration on November 21, 2020, for treatment of non-hospitalized patients with mild or moderate confirmed cases of COVID-19 at high risk of hospitalization.
In July, the federal government announced federal funding to support large-scale manufacturing of casirivimab and imdevimab with approximately 300,000 doses of the medicine expected to result from the project. HHS will allocate these government-owned doses to state and territorial health departments which, in turn, will determine which healthcare facilities receive the infusion drug.
“Authorization and distribution of this new Regeneron antibody treatment is another significant step forward in treating patients and bridging us to the rollout of safe and effective vaccines, with all of these efforts made possible by Operation Warp Speed,” said HHS Secretary Alex Azar. “Federal allocation of therapeutics like Regeneron’s, in cooperation with our state and local government partners, will help ensure that they go to the patients who need them the most, just days after the product is authorized.”
“We are committed to the equitable and efficient distribution of resources like casirivimab and imdevimab to help prevent hospitalization from COVID-19 as much as possible,” said HHS Assistant Secretary for Preparedness and Response Robert Kadlec, M.D. “To that end, we are coordinating with Regeneron, its distributor, and state and territorial health departments to get therapeutics into the hands of healthcare providers quickly, with a focus on areas of the country currently hardest hit by the pandemic.”
A data-driven system will ensure continued fair and equitable distribution of these new products. Beginning immediately, weekly allocations to state and territorial health departments will be proportionally based on confirmed COVID-19 cases in each state and territory over the previous seven days, based on data hospitals and state health departments enter into the HHS Protect data collection platform.
“We have worked with state and territory partners to refine the process based on experience with previous therapeutics and diagnostics and now expect that after pulling this weekly data, shipments can be on their way within hours,” Dr. Kadlec added.
The intravenous administration of therapeutics to non-hospitalized patients with confirmed mild to moderate COVID-19 presents unique challenges. To accommodate IV infusions, outpatient facilities must have appropriate healthcare staffing, training and equipment. As such, additional preparation time may be required for some treatment facilities before they can administer the drug to patients.
The infusion process takes approximately one hour and may followed by an observation period. Under the EUA, casirivimab and imdevimab must be administered together and in settings where health care providers have immediate access to medications to treat a severe infusion reaction, such as anaphylaxis, and the ability to activate the emergency medical system (EMS), as necessary. Facilities also must have space available to administer the medication in a manner that minimizes infection transmission.
Possible locations include hospital outpatient facilities, hospital emergency departments, and alternate care sites set up by hospitals and health departments under the ‘hospital without walls’, flexibility provided by the Centers for Medicare and Medicaid Services to support a surge of hospitalized patients. The government-owned doses will be available at no cost to patients, although healthcare facilities could charge for administering the medicine – as is customary with such government-purchased products. CMS created a billing code for reimbursement of these costs for Medicare patients.
Regeneron developed casirivimab and imdevimab with preclinical and clinical development support through a long-standing flexible agreement with the Biomedical Advanced Research and Development Authority (BARDA), part of the HHS Office of the Assistant Secretary for Preparedness and Response. Regeneron used the same proprietary technology platforms and cocktail approach to develop a novel triple antibody treatment for Ebola that is now under regulatory review by the FDA.
Currently, casirivimab and imdevimab is being evaluated in an ongoing clinical trial as part of the Accelerating COVID-19 Therapeutic Interventions and Vaccines (ACTIV) public-private partnership led by the National Institutes of Health with funding and other support from the BARDA. ACTIV is part of a coordinated research strategy to prioritize and speed development of the most promising treatments and vaccines.
The medicine is a combination of two virus-neutralizing monoclonal antibodies. Monoclonal antibodies, which mimic the human immune system, are produced outside of the body by a single clone of cells or a cell line with identical antibody molecules and then delivered to patients by injection or infusion. The antibodies bind to certain proteins of a virus, reducing the ability of the virus to infect human cells.
Allocation of casirivimab and imdevimab will be allocated to specific states, territories, and jurisdictions this week and in subsequent weeks. The allocation dashboard will be updated each distribution week.
The drug is the third COVID-19 therapeutic for which HHS has provided allocation oversight. The first, Veklury (remdesivir), gained FDA approval and is now widely available, and earlier this month HHS began allocation oversight of the second, bamlanivimab from Eli Lilly and Company. Working with the Department of Defense, HHS is partnering with multiple other companies to develop, manufacture and make available therapeutics to treat COVID-19.
About HHS, ASPR, and BARDA:
HHS works to enhance and protect the health and well-being of all Americans, providing for effective health and human services and fostering advances in medicine, public health, and social services. The mission of ASPR is to save lives and protect Americans from 21st century health security threats. Within ASPR, BARDA invests in the innovation, advanced research and development, acquisition, and manufacturing of medical countermeasures – vaccines, drugs, therapeutics, diagnostic tools, and non-pharmaceutical products needed to combat health security threats. To date, 56 BARDA-supported products have achieved FDA approval, licensure or clearance. For more on BARDA’s portfolio for COVID-19 diagnostics, vaccines and treatments and about partnering with BARDA, visit medicalcountermeasures.gov. To learn more about federal support for the all-of-America COVID-19 response, visit coronavirus.gov.
Today, the Department of Health and Human Services, through the Centers for Medicare & Medicaid Services (CMS), is finalizing a rule that is designed to increase the supply of lifesaving organs available for transplant in the United States by requiring that the organizations responsible for organ procurement be transparent in their performance, highlighting the best and worst performers, and requiring them to compete on their ability to successfully facilitate transplants.
HHS Secretary Alex Azar issued the following statement:
“There are few more transformative interventions for someone’s health than an organ transplant, but thousands of Americans are deprived of this lifesaving opportunity every year by a broken system. By making overdue reforms to hold organ procurement organizations accountable, we’re giving thousands of Americans waiting for organ transplants a chance at better, longer, and healthier lives.”
To read Secretary Azar’s remarks on Trump Administration actions in September to support living donations and promote transplants, please visit: https://www.hhs.gov/about/leadership/secretary/speeches/2020-speeches/remarks-press-steps-advance-american-kidney-health.html
For more on the progress on President Trump’s Advancing American Kidney Health initiative, please visit: https://www.hhs.gov/about/news/2020/08/17/hhs-reports-progress-on-president-trumps-advancing-american-kidney-health-initiative.html
For the full press release on the final organ procurement rule, please visit: https://www.cms.gov/newsroom/press-releases/cms-finalizes-policy-will-increase-number-available-lifesavings-organs-holding-organ-procurement
For a fact sheet on the final rule, please visit: https://www.cms.gov/newsroom/fact-sheets/organ-procurement-organization-opo-conditions-coverage-final-rule-revisions-outcome-measures-opos
To view the final rule, please visit: https://www.cms.gov/files/document/112020-opo-final-rule-cms-3380-f.pdf
Today, the Department of Health and Human Services (HHS) published two final rules that aim to reduce regulatory barriers to care coordination and accelerate the transformation of the healthcare system into one that pays for value and promotes the delivery of coordinated care.
The rules provide greater flexibility for healthcare providers to participate in value-based arrangements and to provide coordinated care for patients. The final rules also ease unnecessary compliance burden for healthcare providers and other stakeholders across the industry, while maintaining strong safeguards to protect patients and programs from fraud and abuse.
The HHS Office of Inspector General (OIG) issued the final rule “Revisions to the Safe Harbors Under the Anti-Kickback Statute and Civil Monetary Penalty Rules Regarding Beneficiary Inducements,” and the Centers for Medicare and Medicaid Services (CMS) issued the final rule “Modernizing and Clarifying the Physician Self-Referral Regulations.” These rules are part of HHS’s Regulatory Sprint to Coordinated Care, which has examined federal regulations that potentially impede healthcare providers’ efforts that otherwise would advance the transition to value-based care and improve the coordination of patient care across care settings in Federal healthcare programs and the commercial sector. In addition to advancing value-based care, the CMS final rule clarifies and modifies existing policies to ease unnecessary regulatory burden on physicians and other healthcare providers while reinforcing the physician self-referral law’s (often called the “Stark Law”) goal of protecting patients from unnecessary services and being steered to less convenient, lower quality, or more expensive services because of a physician’s financial self-interest.
“When I launched the Trump Administration’s agenda for value-based transformation of healthcare in 2018, I identified regulatory reform to support coordinated care as one of the four key strategies for delivering a system that pays for outcomes rather than procedures,” said HHS Secretary Alex Azar. “Today, we’ve completed historic reforms to regulations that have stood in the way of creativity and innovation by American healthcare providers for far too long. These new regulatory reforms will mean better care, including innovative arrangements with digital technology that may help patients receive care during the COVID-19 pandemic.”
“These reforms under the Stark Law and Anti-Kickback Statutes are historic reforms and come as part of the regulatory sprint to coordinated care that I led over the past few years,” said HHS Deputy Secretary Eric Hargan. “Too often, ‘sorry, Stark’ or ‘can’t do it, AKS’ have been watchwords in American healthcare. Under President Trump, we’re finally breaking down barriers to patient-centered, value-based healthcare innovation. As Chief Regulatory Officer of HHS, it has been an honor for me to work with the talented staff at OIG and CMS to create platforms to allow innovative uses of a whole array of new ideas, such as value-based enterprises and patient engagement tools.”
“This rule is emblematic of the Trump Administration’s commitment to addressing longstanding problems and developing innovative solutions to outdated regulations that add administrative costs and rob health care providers of time from patients.” said CMS Administrator Seema Verma “When CMS launched our nationwide tour to kick off our Patients Over Paperwork initiative in 2017, one of the top things we heard from front-line providers was how the outdated Stark regulations impeded them from moving toward a more value-driven reimbursement model. Our team listened and took action, and today’s final rule is the historic result.”
“OIG’s new safe harbor regulations are designed to facilitate better coordinated care for patients, value-based care, and improved cybersecurity, while also protecting against fraudulent or abusive conduct,” said Christi A. Grimm, Principal Deputy Inspector General. “Providers and the health care system are still on the front lines against COVID-19, and this rule establishes flexibilities for remote patient monitoring or other arrangements to assist in the ongoing response and recovery efforts.”
The new and amended regulations related to the federal Anti-Kickback statute and the civil monetary penalties law issued by OIG address stakeholder concerns that these laws unnecessarily limit the ways in which healthcare providers can coordinate care with and for federal healthcare program beneficiaries. OIG’s final rule modifies and clarifies the agency’s proposed rule in response to comments, as explained in the preamble to the final rule.
For example, OIG’s final rule clarifies how medical device manufacturers and durable medical equipment companies may participate in protected care coordination arrangements that involve digital health technology, and the final rule lowers the level of “downside” financial risk parties must assume to qualify under the new safe harbor for value-based arrangements that involve substantial downside financial risk. In recognition of the urgent problem of cyber threats to the healthcare industry, the rule also broadens the new safe harbor for cybersecurity technology and services to protect cybersecurity-related hardware.
OIG’s final rule, and the CMS final rule to the extent the Stark Law is applicable, would facilitate a range of arrangements to improve the coordination and management of patient care and the engagement of patients in their treatment if all applicable regulatory conditions are met, including the following examples:
Today, the Department of Health and Human Services (HHS) through a Notice published in the Federal Register announced the withdrawal of guidance documents issued as part of the Unapproved Drugs Initiative. HHS Chief of Staff Brian Harrison issued the following statement:
“We are committed to putting American patients first by ending government programs like the Unapproved Drugs Initiative that, while well-intentioned, have distorted markets and produced the unintended consequences of price spikes and drug shortages.” – HHS Chief of Staff Brian Harrison
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In support of President Trump's historic commitment to lowering drug prices for American patients, HHS Secretary Alex Azar announced a drug payment model through the Center for Medicare and Medicaid Innovation at the Centers for Medicare & Medicaid Services that will lower Medicare Part B payments for certain drugs to the lowest price for similar countries and save American taxpayers and beneficiaries more than $85 billion over seven years.
Starting in January, the model, known as the Most Favored Nation (MFN) Model, will test an innovative way for Medicare to pay no more for high cost, physician-administered Medicare Part B drugs than the lowest price charged in other similar countries. Following the President's recent Executive Orders to lower drug prices and improve access to life-saving medications, the MFN Model will protect current beneficiary access to Medicare Part B drugs, make them more affordable, and address the disparity of drug costs between the U.S. and other countries.
"The way we pay for some of the most costly drugs in Medicare today puts American patients last; the President's Most Favored Nation Model will put American patients first," said HHS Secretary Alex Azar. "By dramatically lowering prices and potentially delivering more than $28 billion in out-of-pocket savings for patients, the Most Favored Nation Model will be the most significant single action any administration has ever taken to lower American drug costs."
"President Trump has proven time and again that he is unafraid of taking on the entrenched special interests that have stymied patient-centered reforms in Washington for generations," said CMS Administrator Seema Verma. "The current system creates incentives for drug manufacturers to price Medicare Part B drugs as high as they can in the U.S. system because the program pays doctors more when they prescribe more expensive drugs, even when a lower cost, clinically-equivalent alternative is available. The Most Favored Nation Model will lead to lower drug prices for seniors."
The rule tackles a number of issues identified in the American Patients First drug pricing blueprint, released by President Trump in May 2018 and developed by HHS under Secretary Azar's leadership, including high out-of-pocket costs, foreign freeriding, and the need for more biosimilar competition.
Over the last five years, Medicare Part B percent drug costs have grown at an annual rate of 11.5 percent. The 2020 Medicare Trustees report noted that Medicare Part B drugs have consistently been a major contributor to overall Medicare Part B spending trends, accounting for 37 percent of the change in Medicare Fee-for-Service Part B benefit spending from 2015 to 2019. Medicare Part B drug spending of $30 billion in 2019 made up 14 percent of total Medicare Fee-for-Service Part B spending, up from 11 percent in 2015.
Medicare Part B drug spending is growing faster than drug spending in Medicare Part D and the U.S. as a whole. In a new report released today, the HHS Office of the Assistant Secretary for Planning and Evaluation (ASPE) found that between 2006 and 2017, Medicare Part B Fee-For-Service drug spending per enrollee grew at 8.1 percent, more than twice as high as per capita spending on Medicare Part D (3.4 percent) and nearly three times as high as overall retail prescription per capita drug spending (2.9 percent). Moreover, spending and enrollment projections by the CMS Office of the Actuary for the 2021 President's Budget suggest that per capita spending on Medicare Part B physician-administered drugs and separately payable hospital outpatient drugs will grow at a similar annual rate of 8 percent between 2020 and 2027, before consideration of any COVID-19 pandemic impacts.
While state Medicaid programs and Medicare Advantage plans have tools to reduce certain drug costs through price negotiations, current law requires the Medicare Part B program to pay for most drugs administered by physicians at the average sales price in the United States, plus a percentage-based add-on payment. As manufacturers largely have the ability to set these prices independent of market forces, the result is that Americans pay more than twice as much as individuals in other higher-income countries for Medicare Part B drugs, according to a new ASPE study. This anti-competitive system leaves taxpayers and American seniors on the hook for paying the highest drug costs in the world.
For example, the top-selling Part B drug—a common eye drug (Eylea)—was approximately two times as expensive in Medicare Part B as in comparison countries. Because many seniors pay their 20 percent coinsurance obligation out of pocket, this difference costs them thousands of dollars in additional medical expenses a year. These high costs have a real impact: Medicare beneficiaries are often on fixed incomes and paying more for these drugs can hurt them financially, prompt them to take fewer doses of their medications, or lead them to abandon treatment altogether.
The Most Favored Nation Model will operate for seven years. Under the model, CMS will test paying based on the MFN Price for 50 Medicare Part B drugs and biologicals with the highest Medicare Part B spending. These 50 drugs and biologicals encompass approximately 73 percent of Medicare Part B drug spending, despite accounting for fewer than 10 percent of Medicare Part B drugs. All Medicare-participating physicians, hospitals and ambulatory surgical centers in the United States and territories will be paid the model payment for these 50 drugs and biologicals, rather than the current average sales price plus 6 percent add-on. The model payment will include two parts: a drug payment amount that will phase in the lowest price in other similar countries by blending it with the average sales price, and a flat add-on amount per dose that will be the same for each model drug. The model will accelerate the phase-in of the MFN Price if drug manufacturers increase U.S. prices faster than inflation and the lowest price in other similar countries. The model's flat per-dose add-on will remove the incentive for participating physicians, hospitals and other providers to furnish high-cost drugs. Beneficiaries' cost sharing on this add-on payment will be waived.
The model also includes protections for beneficiaries to ensure they will see savings compared to what they would pay if the model were not tested. Additionally, the model includes financial hardship protections for certain MFN participants (physicians, hospitals, and other providers) whose revenue is significantly affected by the model.
For a fact sheet on the Most Favored Nation Model, please visit: https://www.cms.gov/newsroom/fact-sheets/fact-sheet-most-favored-nation-model-medicare-part-b-drugs-and-biologicals-interim-final-rule-0
The Most Favored Nation Model Interim Final Rule with Comment Period (CMS-5528-IFC) can be downloaded here: https://innovation.cms.gov/media/document/mfn-ifc-rule. Public comments on the rule can be submitted through www.regulations.gov and must be received no later than 60 days after publication of the IFC in the Federal Register.
The new ASPE report on rises in Medicare Part B drug spending can be found here: https://aspe.hhs.gov/pdf-report/medicare-part-b-drugs-spending-and-utilization
The ASPE report on Medicare Part B drug spending and international price comparisons can be found here: https://aspe.hhs.gov/pdf-report/medicare-ffs-part-b-and-international-drug-prices
President Trump has made it a priority to decrease the costs of prescription drugs for Americans, and he has never wavered from this commitment. The President has taken bold action from protecting the ability of pharmacists to help patients fill prescriptions at the lowest available cost to fixing loopholes in Medicare that allowed hospitals to keep prescription drug discounts meant for patients. None of these actions was easy, and the President is working each day to stand up for the American people against entrenched interests. On January 31, 2019, we issued a proposal to save even more money for seniors by ensuring they get the full value of prescription drug discounts negotiated on their behalf. Pursuant to Section 4 of the Executive Order on "Lowering Prices for Patients by Eliminating Kickbacks to Middlemen," ("Executive Order") issued on July 24, 2020, I confirm that in my view the Final Rule implementing the Executive Order is not projected to increase Federal spending, Medicare beneficiary premiums, or patients' total out-of-pocket costs.
My views on pricing of prescription drugs and premiums are informed by two decades of deep experience in pharmaceutical pricing, payment, and reimbursement. I helped to establish the Medicare Part D program, and despite its doubters, the program has been more successful than we could have imagined, with Part D costs significantly undercutting projections. I then went on to spend nearly a decade supervising pricing, reimbursement, and access negotiations with plan sponsors and pharmacy benefit managers at a Fortune 500 pharmaceutical company. This experience provided me a front row seat to witness how distorted our drug pricing system has become, and how middlemen and others manipulate the system to patients' detriment. With this experience as a lens, I have reviewed the analyses prepared within the Executive branch, as well as outside expert opinions, including those of Milliman, a highly respected international actuarial and benefit analysis firm that advises many of the nation's health insurers on the design and financing of pharmacy benefits.
Currently, Part D pharmacy benefit managers (PBM), the middlemen between a benefit plan and a pharmaceutical manufacturer, use rebates both to reduce premiums for a plan's beneficiaries and to enhance their own earnings. By requiring that all rebates flow through to the point of sale, PBMs will face pressure on the margins they currently maintain by virtue of their position as middlemen. The question of the effect of the Final Rule implementing the Executive Order on Federal spending, Medicare beneficiary premiums, or patients' total out-of-pocket costs then turns on what happens as a result of this margin pressure. There is a discrete set of possibilities: (i) the middlemen could see their margins decline; (ii) insurers and manufacturers could agree to greater concessions; (iii) insurers could increase beneficiary premiums; or (iv) some combination of these possibilities. In terms of stakeholder analysis, the vigorous opposition of middlemen to regulatory reform that would so clearly benefit patients and allow their client insurers to attract and maintain customers suggests that the middlemen believe the outcome would be compression of their margins.1 In economic terms, we must examine how this policy change will impact the distribution of welfare in the market ("welfare" in this case meaning a measure of the total benefit available from an economic transaction such as the purchase of Part D coverage, comprised of an aggregation of producer and consumer surplus). This distribution will largely be determined by the market power and price sensitivity of each party. For this reason, any reliable analysis of the impacts of the policy must consider and take into account associated behavior changes.
The fifteen-year life of the Part D program has demonstrated that the Part D insurance market is highly competitive, highly efficient, and highly elastic, with research indicating that beneficiaries place a greater weight on premiums than on out-of-pocket costs or the comprehensiveness of the benefit. 2,3 Even the slightest increase in premium compared to one's competitors can erode market share and initiate an adverse selection spiral. Additionally, insurers gain and maintain market share through auto enrollment of beneficiaries receiving a low income subsidy, but only if the insurer's premium is at or below the benchmark. If these beneficiaries are auto-assigned to a plan by CMS, and their plan's premium rises above the benchmark, CMS reassigns them. This means the plan could lose enrollment if the premium rises, while plans would increase enrollment by holding down the premium without incurring any additional marketing expense.4 Insurers' corporate boards also aggressively hold executives to account, and missing the benchmark often leads to a change in leadership. In the context of the high price elasticity of demand in this market, these factors have worked in concert to deter premium increases. Insurers will go to great lengths to avoid increasing Part D beneficiary premiums and placing themselves at a competitive disadvantage.
One behavioral effect that is particularly important to consider, given historical evidence of the behavior, is the persistence of negotiations and the resulting increases in price concessions. Rebates have consistently increased as PBMs have become more and more sophisticated and as negotiations with pharmaceutical companies have intensified. Requiring these price concessions won by PBMs to flow through to the consumer in the future does not alter the current market power of any market participant. The parties negotiating drug prices and formulary placement will not change as a result of the Final Rule implementing the Executive Order. They have full knowledge of the concessions previously made and will likely be iteratively negotiating with each other for several years into the future. The value of PBMs is to shift the distribution of welfare in favor of consumer surplus, and the proposal does not alter the value of this service for their customers, particularly as PBMs themselves compete for business from insurers, continue to gain better negotiating leverage from working on behalf of more covered lives, and are otherwise directed by their insurer customers or owners in the context of a Part D market that is extremely competitive on premiums and total beneficiary costs.
My extensive experience in this field, coupled with the fifteen year history of the program, supports my projection that there will not be an increase in federal spending, patient out-of-pocket costs, or premiums for Part D beneficiaries under the Final Rule implementing the Executive Order. The rule will make beneficiary medications more affordable and lead to lower cost sharing for patients as chargebacks will decrease the costs they ultimately pay at the pharmacy counter by up to thirty percent of the drug's list price.
I look forward to implementing the Final Rule as contemplated by the President's Executive Order so we can put money back in the pockets of Medicare beneficiaries and continue to lower prescription drug prices.
Secretary Alex M. Azar II
Directed by President Trump's July 24, 2020 Executive Order on "Lowering Prices for Patients by Eliminating Kickbacks to Middlemen," the Department of Health and Human Services Secretary Alex Azar and the HHS Office of Inspector General (OIG) have finalized a regulation that encourages lower list prices and reduced out-of-pocket spending on prescription drugs.
This regulation addresses a perverse incentive identified by the Department, by expressly excluding rebates on prescription drugs paid by manufacturers to pharmacy benefit managers (PBMs) and Part D plans from safe harbor protection under the Anti-Kickback Statute (AKS). The rule creates a new safe harbor protecting discounts reflected in the price of the drug at the pharmacy counter. Finally, the rule creates new safe harbor protection for fixed-fee services arrangements between manufacturers and PBMs.
The President's May 2018 drug pricing blueprint identified how the current rebate-based system rewards higher list prices, enriches middlemen, and drives up patients' costs. Now, Secretary Azar is taking action to encourage the drug industry to shift away from the opaque rebate system, and toward a system that offers true discounts reflected at the point of sale.
Point-of sale discounts will lower out-of-pocket costs for patients using drugs with high prices and high rebates, particularly during the deductible or coinsurance phases of their benefits. This rule changes the incentives in our system that reward list price increases.
WHAT'S WRONG WITH TODAY'S SYSTEM
The current rebate-driven system is part of an unacceptable status quo characterized by high prices and backdoor deals. It creates three main problems for patients:
1. Rebates reward ever-increasing list prices. Everyone in today's system, including PBMs and Part D plans, typically negotiate rebates as a percentage of list price. When list prices rise, everyone benefits but taxpayers and the patients paying for the drug.
PBMs play an important role in negotiating with drug companies. But if the negotiation favors higher rebates instead of lower cost drugs, it can lead to higher list prices. Indeed, nearly every drug company taking a January 2019 price increase announced that all or nearly all of the increase was being paid to PBMs or insurers as rebates.
A system that favors higher list prices hurts patients, who often pay a percentage or all of the list price. It also drives up total spending for plans and payers.
By re-designing the AKS safe harbors to protect upfront discounts, this rule counteracts the incentives behind rising list prices. Drug companies will no longer be able to cite their rebate contracts as an excuse to keep raising list prices.
2. Drug companies pay rebates and other payments to PBMs, but these payments are not reflected in patient out-of-pocket drug costs. The average difference between the list price of a drug and the net price after a rebate is nearly 30 percent for brand drugs. These rebates, negotiated in Medicare Part D and private plans, are typically not used to reduce patients' cost sharing for a particular drug.
By amending the safe harbor regulations to offer protection for reductions in price that are reflected at the point of sale, the rule provides a strong incentive for drug manufacturers to offer discounts that directly benefits Medicare patients by lowering their out-of-pocket costs at the pharmacy counter and eliminates the perverse incentives for ever higher list prices for all patients.
3. The current rebate system discourages the use of safe, effective lower-priced generics and biosimilars.
A growing number of Part D plans have moved generic drugs to non-preferred tiers, and we have yet to realize the potential of biosimilar competition for high-cost biologics. Too often, this is because insurers and Part D plan sponsors can extract higher rebates for brand drugs and biologics.
Manufacturers of brand drugs and biologics can prevent generic or biosimilar competition by increasing the size of the rebates they pay for a drug or group of drugs, and condition the payment of those rebates on maintaining their exclusive formulary position. This makes it easier for PBMs and insurers to collect bigger rebates on already-existing sales volume than it is to lower drug spending by using lower costs drugs.
Excluding rival drugs with "rebate walls" distorts competition, discourages generic use and biosimilar adoption, and causes patients to pay more out of pocket.
WHAT THIS MEANS FOR PEOPLE WITH MEDICARE
Replacing safe harbor protections for opaque rebates with transparent discounts is expected to lead to lower Part D spending for Medicare beneficiaries as a whole, because the projected reductions in out-of-pocket costs are larger than potential increases in premiums.
By removing the incentives that reward list price increases, patients who have out-of-pocket costs based on list price will save. This includes patients who are spending through a deductible, using a drug not covered by their insurance, or who pay co-insurance that is tied to the list price. If drug companies offer discounts that must instead be reflected in the price at the pharmacy counter, patients will save.
A large share of beneficiaries will benefit from such changes. Individual savings will vary based on annual drug costs and type of drugs they take, but sicker beneficiaries or those with higher drug costs are most likely to save the most. The new system will work as insurance is intended to: where those with especially high out-of-pocket drug costs will be most likely to benefit.
The Department believes that Part D plans are likely to choose to cover more generics, improve negotiation with drug companies, and reduce overhead costs in order to hold premiums constant, making savings even greater—as laid out in the President's July Executive Order, which directed that the final rule will not increase premiums. In reaching this conclusion, the Secretary has reviewed analyses prepared by the Office of the Actuary (OACT) at the Centers for Medicare & Medicaid Services (CMS) and the White House Council of Economic Advisors (CEA), as well as outside expert opinions, including those of Milliman, a highly respected international actuarial and benefit analysis firm that advises many of the nation's health insurers on the design and financing of pharmacy benefits. These analyses are included in the rule.
PART OF THE PRESIDENT'S BLUEPRINT
Replacing the rebate system with upfront discounts for patients was one of the ideas put forth in President Trump's "American Patients First" blueprint for lowering prescription drug prices and out-of-pocket costs. As Secretary Azar said in announcing the blueprint, "We believe that the entire system of pharmacy benefit managers negotiating rebates needs to be re-examined. Right now, we're asking a pretty straightforward question: What if, instead of the current system where drug companies get paid rebates and middlemen take a cut, we just had fixed-price discounts? This would fix the situation where even the pharmacy benefit manager, who is hired to help keep prices low, makes money from higher list prices."
Today's rule also enhances other key ideas from the blueprint that have already been implemented or are in the process of implementation, including:
WHAT THIS MEANS FOR PRIVATE PLANS
Longstanding OIG guidance explains that price reductions offered to one payor but not to Medicare may implicate and may violate the Anti-Kickback statute by disguising remuneration for federal healthcare program business through the payment of amounts purportedly related to non-federal healthcare program business. This concern extends to certain pharmaceutical rebate arrangements.
This rule exercises the Department's regulatory authority to address arrangements subject to the AKS, which is limited to federal healthcare programs. Congress has more power to prohibit rebates in commercial insurance.
The National Business Group on Health surveyed large employers and found 3 in 4 employers do not believe drug manufacturer rebates are an effective tool for helping to drive down pharmaceutical costs and more than 90 percent will welcome an alternative to the rebate-driven approach to managing drug costs.
HOW THE RULE WORKS
This rule updates the discount safe harbor at 42 CFR 1001.952(h) to explicitly exclude reductions in price offered by drug manufacturers to PBMs and Part D plans from the safe harbor's definition of a "discount." It also creates a new safe harbor designed specifically for price reductions on pharmaceutical products, but only those that are reflected in the price charged to the patient at the pharmacy counter.
The rule carries out Congress's directive to identify legitimate and beneficial payment practices that should not be subject to prosecution under the AKS, and its expectation that the safe harbor rules will be periodically evaluated and updated to reflect changes in health care delivery and payment practices.
The discount safe harbor as it exists today has evolved to protect both up-front discounts to buyers, as well as "delayed" discounts, or rebates, that are paid to a buyer sometime after the sale. While rebates can function like legitimate reductions in price, the use of rebates in the prescription drug supply chain has had increasingly pernicious effects.
The current discount safe harbor has not been updated since the establishment of the Medicare Part D program, and the regulations we are proposing today are designed to specifically address, for the first time since implementing the Part D program, certain payment arrangements among participants in the prescription drug supply chain.
The finalized rule advances the President's promise outlined in the Administration's blueprint for lowering drug prices and putting American patients first: specifically the intent to investigate "measures to restrict the use of rebates, including revisiting the safe harbor under the anti-kickback statute for drug rebates."
The draft rule was proposed on January 31, 2019. The Department never withdrew the proposal from consideration and is finalizing the proposal today in a way which addresses the comments received.
HOW IS THE FINAL RULE DIFFERENT FROM THE PROPOSED?
The following are the major changes made to the final rule.
WHY NOW
Back in July, the President directed, through an Executive Order with the aim of Lowering Prices for Patients by Eliminating Kickbacks to Middlemen, that we finalize this rule. Since then the team at HHS and OIG have worked to get the rule ready for publication today.
