October 13, 2011

WASHINGTON - U.S. Sen. Herb Kohl today introduced legislation seeking a wide range of drug cost cuts, including a proposal to require drug manufacturers to provide Medicare Part B with the same discounts Medicaid receives.

"The Prescription Drug Cost Reduction Act provides a number of opportunities to significantly reduce the cost of health care without pushing those costs onto consumers or limiting access to care," Kohl said.

Kohl's Prescription Drug Cost Reduction Act includes six cost-cutting policies that were considered as part of a Senate Special Committee on Aging hearing in July as well as language that would require drug manufacturers to provide Medicare Part B with the same rebates Medicaid receives.

According to an analysis done by Department of Health and Human Services Office of Inspector General (HHS OIG) at Kohl's request, up to $2.4 billion would have been saved on just the 20 costliest drugs last year if the manufacturers of Medicare Part B drugs had be required to pay the same rebates required under Medicaid. These savings represent up to 26 percent of the $9.2 billion that Medicare and its beneficiaries paid for the 20 drugs in 2010. The HHS OIG analysis can be found here.

"As we look to cut costs, it only makes sense to extend the kinds of discounts that are holding costs down in Medicaid to Medicare Part B," Kohl said.

Under the current law, the Centers for Medicaid and Medicare Services Office of the Actuary projects the total cost of Medicare Part B drugs at $170.4 billion over the next 10 years.  If a 21 to 26 percent savings was realized for all drugs under Medicare Part B, the resulting rebate savings would total between $36 billion and $44 billion over the next 10 years.

The bill along with a proposal to close a tax loophole on life settlements transactions are included as recommendations to the Joint Select Committee on Deficit Reductions from Kohl in his capacity as chairman of the Committee on Aging. Kohl identifies savings of well over $140 billion to help address the Super Committee's mandate to cut $1.5 trillion. Kohl's letter can be found here.

In addition to the Medicare Part B proposal, Prescription Drug Cost Reduction Act includes six other cost-cutting policies that would:

Allow Medicare to negotiate drug prices in Medicare Part B when it is the majority purchaser.Current law bars the Centers for Medicare and Medicaid Services (CMS) from negotiating the prices for physician-administered drugs within the Medicare Part B program, even when the government is the primary consumer of a specific drug-sometimes over 90 percent of the market share. This policy would allow the federal government to negotiate with a pharmaceutical company when Medicare is the majority purchaser of their drug.  This would end the practice of the federal government being forced to simply accept any price set by a pharmaceutical company.

Allow CMS to pay the same price for drugs that are similar.  For 15 years, Medicare used an authority called "least costly alternative" (LCA) to ensure that CMS, beneficiaries and taxpayers did not pay more for a drug when a similar, cheaper drug produced the same result.  Unfortunately, a recent court decision held that CMS lacked the statutory authority to exercise LCA. This policy would provide CMS with the authority to use the LCA policy for pricing similar drugs in Medicare.  A report by the HHS OIG estimated a savings of $40 million per year with the institution of an LCA for just two drugs used to treat prostate cancer - Lupron and Zoladex. When expanded to include more drug classes, the LCA policy could save even more money - without limiting access to the same life-saving drugs Medicare beneficiaries receive now.

Reduce incentives for doctors to prescribe high cost drugs over safe, effective and cheaper generic drugs.  Currently, doctors receive a payment of 6 percent of the price of a drug administered to a patient under Medicare Part B.  This provides a strong incentive to use the most expensive, brand name drug available instead of the less expensive generic drug, and raises the cost of drugs for Medicare recipients, taxpayers, and the federal government. This policy would create a more equitable payment structure for the drugs that eliminates the disincentive to prescribe lower-cost, equally efficacious drugs.

Minimize costs by requiring transparency from Pharmacy Benefits Mangers (PBMs). By acting as the middlemen between insurers and drug companies, PBMs manage drug benefits for the federal government and most employers.  PBMs negotiate drug prices, formularies and pharmacy payments for health plans.  Drug companies often pay PBMs to promote their drugs within formularies and to increase the utilization of a drug - but PBMs are under no obligation to disclose these payments to their clients.  These payments can lead to higher drug costs for taxpayers and consumers, and some states have already pursued savings in this arena.  For example, Wisconsin saved over $150 million after switching to a more transparent PBM.  In 2006, South Dakota estimated that its state employee plan would save 7 to 8 percent on drug costs by implementing these transparency changes.  One Illinois report estimated a state savings of up to $140 million per year.  This policy would require PBMs to disclose payments received from drug companies to employers or the federal government and would boost transparency and help to minimize costs.

Guard against the unnecessary prescription of dangerous and costly drugs for nursing home residents.  This policy would require physicians to complete a written certification form before prescribing atypical antipsychotics for nursing home residents.  In April 2005, the Food and Drug Administration (FDA) issued "black box" warnings against prescribing atypical antipsychotic drugs for patients with dementia, cautioning that the drugs increased dementia patients' mortality.  According to a recent HHS OIG report, nearly 1.4 million Medicare claims for atypical antipsychotic drugs were prescribed off-label for elderly nursing home residents, costing taxpayers hundreds of millions of dollars for these drugs over a six-month period. 

Expand a current drug discount program (340B) to long term care programs and safety net hospitals.  This policy would allow the federal integrated care program for dually eligible beneficiaries Program of All-Inclusive Care for the Elderly (PACE) to directly purchase pharmaceuticals through the "340B" discount program, which is used by Community Health Centers to purchase drugs.  The program provides drugs at a much lower cost than Medicare and, in some cases, at costs lower than Medicaid.  This policy is structured so that most of the savings would be realized by Medicare, with a portion available for PACE plans meeting certain requirements.