October 2024

From the President's Desk:

Shaping the Future of Drug Price Negotiations

Jim Scott,

President and CEO

The Centers for Medicare & Medicaid Services (CMS) released the long-awaited results of its negotiations over the price of ten widely used Medicare Part D drugs in August.

Attention now turns to how these new prices will be enforced, what we can expect from the next round of negotiations and beyond, and what benefit, if any, Medicare beneficiaries will ultimately realize as a result of these actions.

At Applied Policy, we literally make it our business to follow CMS’s actions, to help shape CMS policies, and to interpret and apply those policies to our clients’ specific situations. The first round of government and drug company negotiations certainly gave us new information about the effort to control prices. But there is still a lot that we don’t know about this process and how it will play out moving forward.   

The Applied Policy team and I are keeping a close watch on several issues as drug price negotiations progress.

Pharmaceutical companies agreed to the negotiated prices under the threat of a 65% excise tax that increases up to 95% for companies that do not comply with the negotiation process. We will have to wait until 2026 to see whether the negotiated prices result in lower costs to patients at the pharmacy or whether the savings only benefit the Medicare Trust Funds.  

The next round of negotiations—for prices that take effect in 2027—will start in February for a longer list of Part D drugs. CMS will follow the mandated pattern set in the first round of negotiations, targeting the most expensive and widely prescribed drugs, but will be negotiating with some new manufacturers. Both CMS and the manufacturers will have the benefit of experience from getting through the first round. However, if CMS waits until the statutory deadline of March 1, 2025, to release its explanation of the Maximum Fair Price for the first round of drugs, patients, researchers, and other interested parties will be forced to submit information on selected drugs for CMS to consider in this round of negotiation without this background. 

For the following round—for Maximum Fair Prices taking effect in 2028—the list of drugs will probably include Part B, or physician-administered, drugs as well as Part D medications. Given these parameters, we expect more oncology drugs to be included than there are now, both from Part B and Part D. 

Even though 2028 seems far off, CMS needs to develop its approach to negotiating the Maximum Fair Price for physician-administered Part B drugs now.   

Part B drugs are handled differently under the new law than Part D drugs because instead of being managed through health plan formularies, pharmaceutical benefit managers, and retail pharmacies, they are purchased by physicians, commonly from specialty distributors. CMS reimburses physicians at the Maximum Fair Price plus 6% after they administer the drug to their patient. However, the manufacturer (and perhaps the physician) does not know at the time the drug is purchased whether it will be administered to a Medicare beneficiary and therefore subject to the negotiated Maximum Fair Price, or whether it will be administered under another kind of health insurance. Therefore, absent a different approach by CMS, the manufacturers are likely to address this through a rebate to ensure the physician only receives the benefit of Medicare’s Maximum Fair Price for drugs administered to Medicare beneficiaries.   

While this sounds fair, it fails to consider the cash the physician will have to spend above the Maximum Fair Price to acquire the drug while they wait, perhaps months, for the rebate from the manufacturer. This puts physicians in a position where they must finance the government’s drug price negotiation program, aimed at lowering drug manufacturer prices, at potentially significant financial risk due to an increased cash flow burden if the physician’s drug acquisition price is higher than the negotiated Maximum Fair Price.  

Now is the time to offer CMS suggestions on how they should implement this provision instead of waiting for CMS to publish a proposal that many may be unhappy with. 

We won’t know until the 2026 plans are made available in the fall of 2025 how (or whether) the negotiated prices announced in August will affect patient costs. Patients in Medicare Part D may pay a percentage of the cost as coinsurance, but they often pay a fixed dollar copay for the drugs they receive. Each plan sets its formularies and cost-sharing requirements, so the cost and savings from the negotiated drugs from a patient perspective will likely vary based on what plan they select.    

Given the complexity of the moving parts in this process and the importance of the issue, one thing is certain: now is the time to engage CMS on these issues as processes are put in place that will become a lasting part of our healthcare system.  

Alison Falb, J.D., Health Policy Vice President at Applied Policy, will participate in a panel on October 15 at the Academy of Managed Care Pharmacy (AMCP) Nexus conference in Las Vegas, Nevada.

The session, "What You Need to Know About Copay Accumulators, Maximizers, and Alternative Funding Programs," will discuss the implications of these programs on cost-sharing, access, and employer strategies.

Other panelists include Laura Rudder Huff, VP at Arthur J. Gallagher & Company; Cody Midlam, Pharm.D., Director at WTW; and Kimberly Westrich, MA, Chief Strategy Officer at the National Pharmaceutical Council.

Alison Falb,

Health Policy

Vice President

The ongoing negotiations between CMS and pharmaceutical companies over drug prices could bring about landmark changes for healthcare in the United States. Two experts in drug pricing will join the Northern Virginia Health Policy Forum on October 22 to discuss where we are now and detail what might be ahead for consumers and industry alike.

We hope that you will join us.

This is a virtual event.

Watch Highlights from ACA: Past, Present, and Future

In the first installment in our series on topics in rural health, we consider critical access hospitals.

Critical access hospitals (CAHs) play a vital role in delivering healthcare services to the approximately 60 million Americans living in rural areas. Through their provision of essential inpatient, outpatient, and emergency services, CAHs often become the main point of care for underserved communities located far from larger medical centers. 

They also operate under different Medicare Conditions of Participation than their urban counterparts and receive specific benefits under Medicare reimbursement policies.

CMS Finalizes Changes to Advance Drug Price Transparency and Promote Efficient Operation of the Medicaid Drug Rebate Program

By Caitlyn Bernard

On September 20, CMS released the Misclassification of Drugs, Program Administration and Program Integrity Updates Under the Medicaid Drug Rebate Program final rule, which finalizes policies that aim to promote efficient operation of the Medicaid Drug Rebate Program.

On September 5, the Medicare Payment Advisory Commission held a virtual public meeting, which included the following sessions:

• Context for Medicare payment policy

• Cost sharing for outpatient services at critical access hospitals

• Medicare's measurement of rural provider quality

On September 19 and 20, the Medicaid and CHIP Payment and Access Commission held a virtual public meeting, which included the following sessions:



• Overview of recent CMS final rules

• Themes from hospital payment index Technical Expert Panel

Applied Policy recently welcomed four new interns: Annalisa King, Edward O'Keefe, Will Olsen, and Blaize Shiebler. 

While these newest team members are already hard at work, their time with the company entails much more than providing extra hands on deck. COO John Voorhees emphasized that Applied Policy's internship program is ultimately designed to give emerging professionals a deeper understanding of how policymaking intersects with healthcare delivery. "Our interns develop a perspective on policy that academics alone can't offer," Voorhees said. "And they aren't just observing—they're contributing to meaningful work."

Shiebler, who is pursuing an MPH with a focus on health equity at the University of Maryland, agreed. She said within two weeks of starting work at Applied Policy, she had "already developed a new appreciation for the importance of policy in realizing health outcomes." Olsen, a graduate of Emory University with a B.A. in political science, remarked that he appreciated being allowed to assist Applied Policy's wide range of clients. For O’Keefe, who holds a B.S. in neuroscience, working at Applied Policy provides an opportunity to consider whether his career path will focus on research, product development, policy, or some combination of the three.

King, who is studying medical anthropology at Stanford, values the mentorship the Applied Policy team offers. "I am excited by how much AP facilitates the education and empowerment of its interns," she said.

Of course, it isn't all work, and everyone plans to make the best use of their free time while working in the Alexandria/D.C. area. Shiebler intends to run a 10K this month. Olsen, 'an avid sports fan' whose mother is a sideline reporter for the Minnesota Timberwolves, will undoubtedly find his way to a Wizards or Mystics game. We hope King, a member of the Stanford figure skating club, will give us a few pointers when the ice rink at the National Gallery of Art's sculpture garden opens next month.

From left: Annalisa King, Edward O'Keefe, Blaize Shiebler, and Will Olsen.

On the Docket/Under Review

Applied Policy is following these rules under review at the Office of Management and Budget:

• Occupational Exposure to COVID-19 in Healthcare Settings 
• Healthcare System Resiliency and Modernization (CMS-3426)
• Telemedicine Prescribing of Controlled Substances When the Practitioner and the Patient Have not had a Prior In-Person Medical Evaluation
• Administrative Simplification: Modifications to NCPDP Retail Pharmacy Standards (CMS-0056)
• Amendments to Rules Governing Organ Procurement Organizations (CMS-3409)
• Enhancing Coverage of Preventive Services under the Affordable Care Act (CMS-9887)
• Alternative Payment Model Updates; Increasing Organ Transplant Access (IOTA) Model (CMS-5535)
• Contract Year 2026 Policy and Technical Changes to the Medicare Advantage, Medicare Prescription Drug Benefit, and Medicare Cost Plan Programs, and PACE (CMS-4208)
• CY 2025 Revisions to Payment Policies under the Physician Fee Schedule and Other Revisions to Medicare Part B (CMS-1807)
• CY 2025 Hospital Outpatient PPS Policy Changes and Payment Rates and Ambulatory Surgical Center Payment System Policy Changes and Payment Rates (CMS-1809)
• CY 2025 Home Health Prospective Payment System Rate Update and Home Infusion Therapy and Home IVIG Services Payment Update (CMS-1803)

See all rules under OMB review here.

October 10-11

MedPAC Public Meeting

October 14-17

AMCP Nexus

October 16-17

STAT Summit

October 22-23

PCORI Annual Meeting

October 31-November 1

MACPAC Public Meeting

Axios

Epic hit with antitrust suit

MIT Technology Review

Two Nobel Prize winners want to cancel their own CRISPR patents in Europe

Regulatory Focus

Califf calls for mandatory reporting of device shortage

Science

Scores of papers by prominent neuroscientist and top NIH official fall under suspicion

The New York Times

That message from your doctor? It may have been drafted by AI

Why was the pediatrician always annoyed?

In Blind Spots: When Medicine Gets it Wrong and What it Means for our Health, Marty Makary, M.D., M.P.H., director of the Laparoscopic Pancreas Surgery Program at Johns Hopkins, argues that medicine has adopted certain practices without scientific evidence and persists in their use despite emerging research. In making his case, he casts a critical eye towards such issues as the increase in peanut allergies in the United States, conflicting views on hormone replacement therapy, and antibiotic overuse.

While Makary's previous book, The Price We Pay, received praise from reviewers on both sides of the aisle, some readers may find the occasionally libertarian tone of Blind Spots offputting. But, the book ultimately maintains its central theme of challenging "medical groupthink." Kirkus Reviews described it as "an eye-opening look at how the American medical industry's rigidity has stunted its reliability." Makary advocates for civility, openmindedness, and humility in medicine observing, "The simple words 'We don't know' can often be the right answer."