Medicare Part B changes are dead and that’s good for pharma: report

The 2016 U.S. presidential election is concluded, and we are left with a new leader and a country still divided. But hotel operators are taking a swing at optimism.
Proposed changes to Medicare Part B that CMS abandoned are not expected to be revived by Donald Trump's administration.

Earlier this year, the Centers for Medicare and Medicaid Services (CMS) unveiled a plan to test a new payment model for Medicare Part B that would incentivize healthcare providers to use low-cost drugs at hospitals and other facilities. The plan drew intense ire from just about everyone, including physicians, politicians and especially the drug industry. On December 16, CMS backed off, saying it would not finalize the proposed model during President Obama’s Administration. So is it finally dead?

One analyst said yes, and that can only spell good news for Big Pharma. The revised Part B payment model “will not be resuscitated by the new Trump Administration. This is another small market positive for pharma and bio, particularly for name brand manufacturers,” declared Terry Haines, an analyst for Evercore ISI, in a note circulated to investors.

It’s no surprise that the drug industry was against the proposed Part B payment model, seeing as it was designed to discourage the use of expensive new medicines. But it also drew widespread concern from medical groups like the American Hospital Association—a longtime critic of high drug prices—which worried that hospitals wouldn’t be able to influence physicians’ drug choices. Other detractors blasted CMS for encouraging prescribing practices that would prioritize cost over quality.

CMS issued a statement to the AHA and several publications explaining that it decided to hold off finalizing the model because of the backlash.

“The proposal was intended to test whether alternative drug payment structures would improve the quality of patient care and the value of Medicare drug spending,” CMS said in the statement. “While there was a great deal of support from some, a number of stakeholders expressed strong concerns about the Model. While CMS was working to address these concerns, the complexity of the issues and the limited time available led to the decision not to finalize the rule at this time.”

As for Donald Trump’s propensity to reconsider the proposed payment model, Haines pointed out that his decisions will likely be shaped by U.S. Representative Tom Price, R-Ga., who he nominated to be the incoming secretary of Health & Human Services. Price, the current House budget committee chair, has been a strong opponent of the proposed Part B changes.

“We thought Price would have stopped any final Part B rules upon taking his place in the Trump Administration,” Haines wrote in his note to investors. He added that further clarity on Price’s stance on drug pricing will come during his confirmation hearings in January, but that his thoughts thus far “have been generally deregulatory.”

The demise of the Part B model change is the second positive to emerge from the incoming Trump administration, Haines said. The first was the widely reported speculation that his promise to repeal the Affordable Care Act (ACA) would be delayed by two to 4 years.

What’s less clear is whether Trump will find other ways to crack down on high drug prices. Though he was initially viewed as a pro-pharma pick, he spooked investors earlier this month when he told Time magazine, “I don’t like what has happened with drug prices.”