Global Insight Perspective | |
Significance | Democrats have reintroduced a bill to the House and Senate that would require the federal government to negotiate with pharma companies on drug prices under Medicare Part D. Meanwhile, independent pharmacies are seeking an anti-trust exemption to allow them to collaboratively negotiate reimbursements with health insurers and pharmacy benefit managers (PBMs). |
Implications | Both initiatives will have an impact on U.S. pharmaceutical spending—the former by reducing ex-manufacturer prices of select drugs under Medicare and the latter by allowing pharmacies to negotiate better reimbursement terms, which in turn would force PBMs to seek lower prices from pharma companies. |
Outlook | The pharma industry is expected to exert its lobbying power in a bid to prevent drastic changes in existing policies. Pharmacies' ability to secure an anti-trust waiver is linked to the outcome of separate policy revision initiatives on the new formula for calculating generic reimbursement under Medicaid. |
Democrats Resurrect Federal Negotiations Bill
Democrats Richard Durbin (Senator; Illinois), Marion Berry (Representative; Arkansas) and Jan Schakowsky (Representative; Illinois) have reintroduced legislation that would require the federal government to negotiate directly with pharmaceutical companies on the price of medicines provided under the Medicare Part D prescription drug benefit programme, reports Congress Daily. Similar legislation was considered earlier in the year but was put on hold ahead of the summer recess and congressional debates on reauthorising the Prescription Drug User Fee Act (PDUFA).
In its current form, the bill would allow Medicare to set up a formulary at federal level which would in turn provide the Department of Health and Human Services (HHS) with the leverage it needs to negotiate pricing discounts with the pharma industry. Negotiations are expected to work in a similar manner to those currently involving pharma companies and pharmaceutical benefit managers (PBMs) or health insurers, whereby higher discounts are given in exchange for placing a drug on the formulary.
Pharmacies Seek Anti-Trust Exemptions
Meanwhile, pharmacists continue to pile pressure on legislators to allow independent pharmacies to negotiate reimbursement rates together with PBMs and health insurers. Last week a House Judiciary Committee antitrust task force heard the arguments of pharmacists and PBMs. Robert Dozier, executive director of the Mississippi Independent Pharmacists Association, claims the competitive environment has worsened for small independent U.S. pharmacies since the 2006 launch of Medicare Part D. This has resulted in the closure of some 1,152 independent pharmacies, reports CQ HealthBeat. The proposed bill HR 971 aims to allow small pharmacies to group together to negotiate better reimbursement and payment deadline terms with PBMs.
Outlook and Implications
Both proposed policy changes are expected to have an impact on U.S. pharmaceutical spending. Allowing direct federal negotiations for Medicare drugs would end the ban on direct federal interference in pharmaceutical price setting. The measure, if approved in its current form, would allow the government to exert direct influence on pharmaceutical ex-manufacturer prices through the formulary system. As is the current case with PBMs' formularies, the negotiating leverage will be higher for single-source (i.e., branded drugs), particularly when there are only a handful of alternative branded treatments. Negotiations will be less effective for orphan drugs (i.e., where no other treatment is available) or for generics where multiple relatively cheap copies are available on the market.
The generics reimbursement issue will also indirectly come into play with regards to the second policy initiative. Pharmacists' ability to negotiate an exemption from anti-trust laws to collaborate on PBM reimbursement negotiations depends partly on the outcome of a separate policy currently under review by Congress. The new formula for calculating pharmacy reimbursement for generics under Medicaid is based on a newly-defined Average Manufacturer Price (AMP). This is expected to reduce reimbursement to pharmacies for affected drugs to 36% below pharmacy acquisition costs. Proposed legislation in the House of Representatives (bill number HR 3700) and in the Senate (S 1951) calls for a change in the controversial formula for calculating the AMP which could alleviate the potential financial burden on independent pharmacies (see United States: 11 July 2007: Final Ruling on AMP Calculation for Generics is Approved by CMS and United States: 3 October 2007: Support Builds in U.S. Congress for Independent Pharmacies as new AMP Calculation Proposed). Should proposals to revise the AMP calculation fail, there is a high chance that Congress will approve other means to help out independent pharmacies—and allowing them to negotiate reimbursements with PBMs as a group could be one of them. Lifting the anti-trust restrictions on joint pharmacy negotiations will significantly boost the power of independent pharmacies to negotiate favourable terms with PBMs and health insurers. In turn, PBMs are likely to attempt to secure higher pricing discounts from the pharma industry in a bid to boost their newly-shrunk profit margins.