Panel Would Make Insurers Help Contain Rising Drug Costs

An influential federal advisory panel is calling for Congress to force private insurers to rein in rapid increases in prescription drug costs — by cutting some Medicare payments to insurance companies while shielding older Americans from higher out-of-pocket expenses.

The recommendations by the nonpartisanMedicare Payment Advisory Commissionwould squeeze private insurers and drug makers alike, creating strong new incentives for insurance companies to manage the use of prescription medicines by beneficiaries and negotiate larger price discounts with pharmaceutical manufacturers. The Obama administration agrees with the reasoning.

Since its start a decade ago, the Medicare drug program, known as Part D of Medicare, has been hailed as a success: a benefit delivered entirely by private insurance companies and subsidized by the government at a cost far below expectations.

But with drug prices increasing, Medicare beneficiaries now find that they may have thousands of dollars in out-of-pocket costs, even with prescription coverage, and the government is subsidizing more of the benefit than originally intended.

Federal spending on prescription drugs under Part D rose 16.6 percent last year, to $75 billion, in part because of new drugs to treat hepatitis C. The Congressional Budget Office expects similar growth this year.

Beneficiaries are feeling the pinch. Barbara N. DalPonte, 67, who lives in a suburb of Salem, Ore., takes six drugs, including one for chronic lung problems and another, Nexium, for excess stomach acid. She was in a Humana plan last year, but when she learned that the costs to her would total $7,400 this year, she switched to one offered by another company — EnvisionRx, a unit of Rite Aid — with out-of-pocket costs of $3,400.

“The costs are distressing,” she said, “but the drugs are effective, they work for me, and I don’t know what I would do if I did not have coverage for them.”

The government currently reimburses insurers for 80 percent of a Medicare beneficiary’s drug costs exceeding a certain “catastrophic” level — roughly $7,500 this year. The Medicare Payment Advisory Commission voted this month to recommend that Congress cut the federal share of catastrophic drug costs to 20 percent.

At the same time, the panel said, Congress should eliminate Medicare beneficiaries’ 5 percent share of drug costs above the threshold.

John F. Hoadley, a research professor at Georgetown University and a commission member, said this change would be “a huge benefit” for people with very high drug costs.

The recommendations will be included in a June report to Congress, which often heeds the panel’s advice.

More than 40 million of the 56 million Medicare beneficiaries have drug coverage through Part D, and national surveys indicate that most are satisfied with the coverage. But out-of-pocket costs for some beneficiaries have increased in recent years as insurers require them to pay 25 percent or more of the cost for expensive specialty drugs to treat chronic or complex illnesses, including cancer, rheumatoid arthritis, multiple sclerosis and hepatitis C.

“Out-of-pocket costs can exceed thousands of dollars for beneficiaries who take just one specialty drug or a large number of less costly brands and generics,” the Kaiser Family Foundation, which tracks the health insurancemarket, said in a recent report.

Dr. Rita F. Redberg, a commission member and cardiologist at the University of California, San Francisco, noted that many of the medicines approved recently by the Food and Drug Administration were costly specialty drugs.

Pharmaceutical companies and advocates for beneficiaries said some of the panel’s recommendations could harm patients’ access to certain medicines and raise costs for some low-income people.

From the inception of the drug benefit in 2006 to 2014, the basic premium for Medicare drug coverage rose by less than a dollar. But in their annual report last July, Medicare trustees, including top administration officials, predicted the monthly premium would double from 2014 to 2024, reaching $64.

Opinion polls show that a majority of Americans of both political parties support government action to keep down drug costs. Those costs have become an issue in the presidential campaign, with Donald J. Trump, Hillary Clinton and Senator Bernie Sanders all saying Medicare should directly negotiate prices with drug manufacturers, a practice now forbidden in Part D.

Senator Ron Wyden of Oregon, the senior Democrat on the Finance Committee, said he was drafting legislation to cap certain drug costs in Part D. Most types of health insurance, other than the traditional fee-for-service Medicare program, have limits on out-of-pocket costs, he noted.

“It defies common sense that a similar protection has not been put in place for seniors, especially with the rise of high-cost prescription drugs,” he said.

The commission would give insurers new tools to manage Medicare drug benefits. It would, for example, grant insurers more discretion in coveringantidepressants and immunosuppressants, used in transplants. Medicare now requires insurers to cover “all or substantially all” drugs in those “protected” classes.

It would also require some beneficiaries to pay more for brand-name drugs before qualifying for so-called catastrophic coverage. And it would create financial incentives for greater use of generics by low-income people, who, the commission says, account for about 70 percent of Part D spending.

“These recommendations will significantly harm beneficiaries by eroding coverage and protections for some of the most vulnerable enrollees,” said Allyson Funk, a spokeswoman for the Pharmaceutical Research and Manufacturers of America, a trade group.

Andrew Sperling, a lobbyist at the National Alliance on Mental Illness, said the proposals “could adversely affect people with serious mental illness who are below the poverty level.”

Clare Krusing, a spokeswoman for America’s Health Insurance Plans, a trade group, criticized the proposed cut in Medicare payments, saying this change could lead to higher premiums for beneficiaries.

Medicare beneficiaries with incomes less than 150 percent of the poverty level — under $17,820 a year for an individual — can often obtain extra help with drug costs through Medicare Part D. But Jocelyne Watrous, who works with clients at the nonprofit Center for Medicare Advocacy in Willimantic, Conn., said that for people with somewhat higher incomes, the out-of-pocket costs could be unmanageable.

“As a result,” she said, “people are still skipping doses, cutting pills in two or taking them every other day just to get by.”

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