Curbing Medicare Drug Costs
Prescription drug spend in the U.S. is the highest in the world. Americans pay up to three times the amount per capita of other countries. This is problematic for our growing aging population since their income becomes limited. While Medicare covers prescription drug costs, there are policy gaps that make it unaffordable. One major barrier to price controls is part D of title XVIII of the Social Security Act, in which explicitly prohibits the federal government “from negotiating directly with pharmaceutical companies to lower drug prices”. President Donald Trump proposed several policies to reduce the cost burden of prescription drugs on consumers through free-market competition approach, focusing mainly on cost transparency and promoting use of biosimilar or generic drugs. The policies are praised as a “small step in the right direction”. Yet, many Americans are dissatisfied since the proposals do not include direct Medicare negotiations with drug manufacturers. Pharmaceuticals argue that price controls would strain their investments in research and development (R&D) of new drugs. After taking a closer look, that is not fully the case. Greater price control measures can be taken, but there must be political will to support it. For now, the President’s policies are a small victory for seniors across America.
Medicare Coverage Today
Prescription drugs are covered under Medicare Part A, B, and C plans, but to a limited capacity. Part A is hospital insurance, part B is traditional medical insurance, and part C (Medicare Advantage) is like a health maintenance organization (HMO) or preferred provider organization (PPO) plan type. Only drugs administered within these respective settings are covered. Because of these limitations, the Medicare Modernization Act of 2003 was enacted, creating Medicare part D drug benefit.
Part D is an “optional” supplemental insurance that can be purchased with any of the other Medicare plans. It, however, is severely flawed. First, Congress did not commit any financing for part D, leaving costs falling on the recipient. Second, and most notoriously, is the “donut hole” coverage gap between initial enrollment and a “catastrophic coverage threshold”. The entry-point coverage limit is currently $3,750. Once this amount is reached, the patient is then responsible for fully paying for their medication until the maximum amount of the out-of-pocket (OOP) costs have been paid, or the annual time period lapsed. The OOP threshold now is $5,100, unaffordable for many seniors that suffer multiple chronic conditions.
Additionally, the plan disincentivizes patients from purchasing brand name drugs by increasing patient coinsurance payments. Provisions of the Affordable Care Act attempted to close this gap by 2020 by limiting patient payments to 25% of the gap. Under the Trump Administration, the Bipartisan Budget Act of 2018 advanced that date to 2019. Another caveat to Part D is that it is not really “optional”. If an individual fails to sign up once qualified and decides to enroll later, they will pay penalty fees for as long as they are on part D, with the exception of a few circumstances, such as having drug coverage from an employer.
The President’s Policies
To mitigate the Medicare drug coverage issues, the Trump Administration released his “blueprint” rules and policies, supplemental to the Bipartisan Budget Act. Provisions that went into effect include:
- “Step therapy” rule within the Medicare Advantage plans- clinicians are to prescribe cheaper drugs and monitor patient progress closely. If the drug is found to be ineffective, then a clinician can prescribe the next expensive drug. Clinicians in the Advantage plan get commission for the drugs they provide. The rationale is to curb physicians from “gaming” for greater profits. This rule is now in effect.
- Taking harder action, the President recently signed legislation to ban “gag clauses” that prevented pharmacists from disclosing the best drug prices with customers. This is helpful for those who may be in the coverage gap of part D and would have to pay full price of the drug.
Other policies proposed and will likely be revisited for the upcoming session include:
- Limiting doctor’s offices to charge consumer price index (CPI) of drugs administered in their office.
- Shifting drugs from part B to D to promote greater market competition among drug makers to lower prices.
- Allowing drug rebates to go to the consumer rather than the healthcare provider or health plan.
- Promoting the use of biosimilars and generic biotechnology drugs.
- Closing loopholes, such as the 180-day exclusivity that allow brand-name drug companies to “game” Food and Drug Administration (FDA) rules in ways that hinder generic competition.
- Requiring drug manufacturers to disclose list prices in their advertisements.
These policies are a great step towards drug price controls. Yet, many argue that true price controls could only be achieved by allowing Medicare to directly negotiate drug prices. Perhaps that may be the case, as demonstrated by many other rich democracies. Pharmaceuticals, however, dispute this on the grounds that it would limit R&D investments.
In a recent study, Yu et al. evaluated the “top 15 drug companies in 2015” and found that the inflated prices are not justified by the R&D costs. Securities and Exchange Commission (SEC) laws and regulations require all public holding companies to publically disclose their financial statements. Knowing this, I reviewed the 2017 financial report of the largest pharmaceutical company in the world, Pfizer. Their R&D costs were $7.7 billion and accounted for 14.7% of their reported revenue of $52.5 billion. After discounting other expenses, their net income was $21.4 billion, allowing them to maintain 40.6% in profits. These figures are not uncommon. According to the International Trade Association, 15-20% of gross revenues is how much U.S. pharmaceutical companies spend on average on R&D (with the exception of the few that price gouged). In other countries, the R&D investments are much less, but drug costs are also lower.
Given these figures, it is of no surprise that advocates for better price controls are not convinced that R&Ds should be the main reason to maintain the inflated drug costs. Cost-effectiveness analysis (CEAs) may help determine the value of the drug, however it would likely, by default, favor biosimilars and generic drugs. In that case, the promotion of these drugs employed by the Federal government serve as a cost-effectiveness measure to some extent. For drugs that treat severe progressive conditions, such as Alzheimer’s disease or multiple sclerosis, it may be difficult to ascertain a value on new treatments since outcomes are unique to a patient’s condition. Moreover, measures involved in formal CEAs are derived from nationally administered quality/disability-adjusted life-year (Q/D-ALY) surveys of healthy people, thus not capturing the value of the treatment for those who are ill.
The President’s policies may not be perfect, but it is an experiment worth trying. Prior policies that attempted to “assist” our elderly population have failed, leaving those with chronic conditions and limited incomes forgoing treatment due to the high cost. For advocates of government price-fixing, it is important to keep in mind how much will prices be limited to, and it would likely require government to subsidize a portion of R&Ds. It is difficult to imagine that government would be willing to make such an investment if they are barely subsidizing part D costs.
Sarah Zahakos, MPH is working toward a PhD in Health Law, Policy & Management at the Boston University School of Public Health.
AHRQ T32 Research Fellow
Training in Health Services Research for Vulnerable Populations
Grant # 2T32HS022242
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Raising the Blinds – Gaining Meaningful Insight into Pharmaceutical Pricing through Legislation
Rising healthcare costs are a growing concern across the United States; in 2016 U.S. health care spending was $10,348 per person – or 17.9 % of the nation’s Gross Domestic Product (GDP). To counter this alarming rise in healthcare costs, states are addressing one of the largest factors in rising healthcare costs – high drug prices.
Many factors contribute to the high price of healthcare in our country, some of which are natural to an aging populace due to the baby boom of the 1950’s as the proportion of the population that is 65 and over is projected to experience a large increase in the coming years. An increase in costs is natural with a larger number of consumers – addressing this change is an important, but avoidable, challenge to overcome.
One avoidable factor of increasing healthcare costs is rapidly increasing pharmaceutical prices. Variance in drug prices may be geographic; based on where the drug is sold , or whom the drug is being sold to (pharmacy v. government). Many factors contribute to price differences, but an important factor are Pharmacy Benefit Managers (PBMs) as an intermediate in the market. States have been working to roll back the PBM layer of the market for the pharmaceutical industry.
Pharmaceutical pricing has long been the target of legislators, but with a lot of talk and a surprising lack of action. Drug pricing is discussed in both major party’s campaign platforms of the major parties and has been featured prominently in speeches by President Trump, and has featured in initiatives by previous administrations. There has been an uptick of legislation passed in the past decade, at all levels of government, with state action against pharmacy benefit managers and President Trump’s signing the Know the Lowest Price Act and the Patient Right to Know Drug Prices Act. A common thread in the legislation is increased transparency because a big factor in the high drug prices — and medical care generally—is the lack of information for consumers and purchasers. Since 2015, California, Oregon, Louisiana, Nevada, Vermont, Connecticut, and Maryland imposed reporting requirements on pharmaceutical manufacturers who increase prices over an established threshold in a set time period. For example, California requires reporting when a drug that costs more than $40 and its wholesale acquisition cost (WAC) increases by more than 16% over two calendar years. The WAC is similar to a “list” price for pharmaceuticals to wholesalers and direct purchasers. The WAC, however, does not include discounts or rebates offered by pharmacy benefit managers.
The new transparency offers insight to price increases; if there are no legitimate reason for the increase other than higher profits due to market control, state officials, drug customers and the public can take action.
The states with transparency statutes have imposed different methodologies with manufacturers reporting to different government officials such as the Department of Health and Human Services, creation of new departments, or to the state’s Attorney General.
Oregon currently requires the most detailed reporting; manufacturers must report to the Department of Consumer and Business Services the following:
- Name, price of drug and net increase in price (in %) over previous calendar year
- Length of time on market
- Factors contributing to price increase
- Name(s) of any generic version(s) of the drug
- Research & Develop Costs from Public Funds
- Direct costs to Manufacturer
- Total sales revenue for drug over prev. calendar year
- Profit from drug over previous calendar year
- Drug's price at release and yearly increases over the past 5 years
- 10 highest prices paid for the drug during past year outside of the US
- Any other info relevant to price increase
- Supporting documentation
In contrast, California’s requirements provide for advance notice of price increases and unearthing the reasoning for the increase. The California law requires manufacturers to report (A) Date of increase, current WAC, and future increase in WAC (in dollar amounts); and (B) The change or improvement, if any, that necessitates the price increase. Purchasers then have notice of any forthcoming price changes and if the increase is warranted. California also requires a report for new drugs if its price exceed $670—the 2017 Medicare Part D threshold. California’s reporting scheme has been a model for other states.
Maryland’s approach was more severe, with a provision banning “price gouging” of generic drugs. An “unconscionable price increase” of any “essential off-patent or generic drug” is illegal and Maryland can levy a fine and take action to reverse the price change. The state did not include any limitation of the law to drugs that have come into or passed through Maryland.
The generic drug lobby, the Association for Accessible Medicines, challenged the law and the Fourth Circuit Court of Appeals struck down the law as an unconstitutional regulation of interstate commerce. Maryland has petitioned the Supreme Court to revisit the case.
The Pharmaceutical Research and Manufacturers (PhRMA), one of the largest pharmaceutical lobbying groups, has sued California alleging the law, like Maryland’s, is unconstitutional. Because California’s law is informational—and does not allow forced price changes—it is likely constitutional. In fact, PhRMA’s initial complaint was dismissed, and subsequently filed an amended complaint on Sept. 18, 2018.
It will be imperative for states seeking to regulate pharmaceutical manufacturers to observe where courts determine the extent of reporting they may require when they go after a manufacturer for increasing the price of their drug. For the time being, it appears that information-gathering may be the easiest available avenue for states seeking to curtail increases in drug prices. Seeking justifications and reasoning for large increases in drug prices may create a barrier for pharmacuetical companies seeking to impose unsubstantiated increases in drugs. Going further towards affirmative control of pricing appears to be off limits to states going as far as Maryland, but more careful structuring of the controls to the specific state may be permissible.
Drew Kohlmeier is a student in the Boston University School of Law Class of 2020 and is a native of Manhattan, KS, graduating with a degree in Biology from Kansas State University in 2016. Drew decided on Boston for law school due to his interest in health care and life sciences, and will be practicing in the emerging companies space focused on the life sciences industry following his graduation from BU.
Why Big Pharma Lawsuits Probably Won’t Fix Things
By: Lindsey Pasieka
Pharmaceutical companies are sued every single day. There are literally thousands of drug and medical device-related lawsuits going on right now. And they run the gamut, from things like Pradaxa lawsuits, brought on by victims of side effects, to statewide and regional opioid lawsuits, brought on by mayors and state attorneys general. Even government agencies have been known to take Big Pharma to court over violations like dangerous products, and illicit marketing techniques.
So why don’t things change? Why do drug companies continue to hide side effects, market off-label uses and manage to stay out of jail? Well, there’s a few reasons. First, since individual marketers and CEOs are rarely the defendants, the company as a whole has a chance to absorb any penalties- and there are plenty of loopholes to reduce the effects of a guilty verdict. Second, existing laws and regulations favor companies over consumers. And just like with old laws, new laws are hugely influenced by pharmaceutical companies, and more importantly, their money.
They’re Called “Big” for a Reason
One of the biggest pharmaceutical companies in the world is Pfizer. As of 2014, they owned over 500 subsidiaries, and that number is only growing. In 2016, the company has a revenue of $52.8 billion. To put it simply, it is a monster of a company.
That came in handy back in 2005, when the FDA brought an action against the company for its painkiller Bextra. Bextra was approved in 2001 as an alternative to generic options; as a Cox-2 inhibitor, it was supposed to be safer for patients. However, the drug was specifically rejected for approval for post-surgical pain. Despite this, marketers for Bextra deliberately sought out surgeons and marketed the drug for their patients.
Marketing a drug for off-label or unapproved uses is a direct violation of the Food, Drug, and Cosmetic Act (FDCA). So the FDA brought charges against the company. And if Pfizer had taken the hit, the punishment would have meant exclusion from Medicare/Medicaid programs-- and an almost guaranteed financial collapse.
But here’s where being big helps out. Instead of being pinned, Pfizer made a deal so that prosecutors charged their subsidiary, Pharmacia & Upjohn Co., Inc. That company went under, and Pfizer was left only with a fine. Again, being big was beneficial. To a small company, a $1.2 billion bill would be crushing; to Pfizer, it was only 2.5% of their revenue at the time.
The Approval Process Favors Them
Many people think the approval process is too long, too full of red tape and that because of this process that new, desirable drugs can’t get to the patients that need them. When you’re on the outside of the process, it’s easy to understand that point of view. On the inside, though, the pitfalls of our process shine through. Most of those pitfalls are because we try to get things to market faster than every other country, and because money plays a role.
Currently, the FDA must respond to any application for drug approval within 10 months. That’s already outpacing most other countries. But did you know that drug companies can pay the FDA to speed up? The FDA actually has several programs like Priority Review and Fast Track, which companies can pay to get into, which shrinks the approval time to as little as 6 months. This doesn’t include the trials they need to complete before applying for approval, but it does make it difficult for the FDA to make a fully informed decision.
Take, for example, Pradaxa. The drug was submitted to a priority process in 2010, and immediately, the problems with the clinical trials became obvious. The RE-LY trial used a broad population, and excluded the older generations and those with medical conditions that would be most likely to experience side effects. A third-party safety group also discovered that the trial was not, in fact, a double-blind study. This means that the results pulled from the study are less reliable.
Despite these issues, the FDA pushed Pradaxa through. Some would say this backfired. Within 3 months, the FDA received more serious incident reports for Pradaxa than any drug before it. In its first five years on the market, Pradaxa caused over 1,000 deaths. And it’s now the target of an onslaught of lawsuits, led by victims and their families, and it’s received a black box warning for severe bleeding risks.
Yet, on the flip side, Pradaxa is still a leader on the market for blood thinners, and it brings in billions of dollars a year. So if the lawsuit charges don’t make a dent in revenue, the FDA doesn’t take away approval, and individual employees aren’t charged, why should Pradaxa’s maker change their tactics?
They’ve got Money in Washington
If pharmaceutical companies have some money in the FDA, they have whole banks of it in lobbying. In the first quarter of 2017 alone, the pharmaceutical industry spent $78 million in lobbying. Again, this is a drop in the bucket for companies making dozens of billions a year; but to lawmakers it speaks volumes.
Our example here is the ongoing opioid crisis. Most opioid addictions begin in the doctor’s office, with a prescription. When the pill bottles run out, addicts turn to illegal opioids for a high, most often to heroin. It’s a national issue, and it’s even been addressed by President Trump on several occasions, and declared it a Public Health Emergency. Yet law and regulation changes regarding opioids and addiction are slow to come about.
A big reason is because opioids make pharmaceutical companies money. OxyContin is one of the most prescribed opioids on the market. It is used by millions of people a year, and for many, it saves them from severe, debilitating pain. Evidence shows, however, that the 12-hour drug starts to wear off after 9 hours, causing patients to experience withdrawal between doses. As Oxycontin sales quadrupled between 1999 and 2016, opioid overdose deaths rose to over 200,000-- and counting.
Still, drug makers stand behind their products, and they expect lawmakers to as well. When laws to limit prescribing behaviors were introduced in the House and Senate, Big Pharma pushed back. They went so far as to fund the Pain Care Forum, a lobbying company that spent upwards of $740 million to curb the legislation, and they continue to lobby every time a new motion is brought forward to fight the epidemic.
What We Can Do
Lawsuits don’t seem to work, the FDA falls short, and Big Pharma has Washington in its pocket. While the outlook seems bleak and none of it will be easy to fix, there are ways to improve the situation. 2018is an election year; get out and vote with consumer safety in mind. Find representatives who promise to combat these issues. If your current reps aren’t following through, hold them accountable by calling or writing in. Donate to lobbyists who represent the people, not just large companies.
You can also ask your doctor if they work with pharma reps. You can ask them to explain their medication choices to you, and bring up your concerns regarding painkillers or other drugs with serious side effects. Use your voice to protect yourself, your family and your neighbors, and together, we can work towards change.
Lindsey Pasieka is an investigator and writer who focuses on public health and safety issues. Through her work, she has become an avid advocate for consumers, fighting for their right to safe products. In her role as Consumer Rights Investigator for ConsumerSafety.org, she focuses on health and legal topics that are essential to protecting consumers. In her spare time, Lindsey enjoys reading and spending time with her cat, Lava.