In an interview with Pharmacy timesJoey Dizenhouse, senior vice president and chief of pharmacy services at HealthTrust Purchasing Group, discussed the recently signed Inflation Reduction Act and what it means for Medicare Part 2.
Aislinn Antrim: Hi, I’m Aislinn Antrim with Pharmacy times®, and I’m here with Joey Dizenhouse, senior vice president and chief of pharmacy services at Health Trust, to discuss the recent Inflation Reduction Act and how it may affect drug pricing and access, and a number of other issues. So the Inflation Reduction Act had many different parts, but for our purposes, can you look at its impact on Medicare Part D?
Joey Dizenhouse: Thanks for having me today. It’s a pleasure to be here. There was certainly a lot in the law that went beyond pharmacy-related issues or Medicare D-related issues. First, it gives the government the ability to influence pricing for some drugs on a limited basis, and it will increase quite slowly for a limited number of specifically defined products. But it’s something and, so that’s worth exploring, and it’s worth trying to understand from a financial and other perspectives as well.
Second, it had to do with the interestingly named “donut hole” in Medicare Part D. Some of the benefits for beneficiaries in the program where the out-of-pocket cost will be significantly rolled back, where those patients today will pay amounts within that “donut hole,” giving them typically yields up to about $3,000 per year. Then they reach this catastrophic limit, after which they have to pay 5% of their drug costs indefinitely. So it could be $10,000, $15,000, $20,000 a year for a fixed income person.
The Inflation Reduction Act will begin eliminating that catastrophic piece by 2024, which will limit out-of-pocket costs. Then beyond and by 2025, it will cut out-of-pocket costs, no more than $2,000 per person. It will really have a substantial impact on the beneficiaries of the program, and I think it will help reduce the likelihood that patients will not take the drugs they need because of the cost, which of course can have health implications, but it can also have financial implications for exacerbations of disease.
Third, a provision limiting the cost of insulin to Medicare beneficiaries to $35 per month applies to both the pharmacy and medical programs. That will also mean savings, the data I’ve seen suggests the average is closer to about $55. So 35 is a saving in Material savings.
Fourth, there’s a provision related to what we call “price protection,” where Medicare has essentially said that if a manufacturer tries to raise the price of a covered drug by more than inflation, they should scale back that increase or discount that owns it. risk to the plan or sponsor, in this case Medicare. So those are 4 examples of direct impact on the Medicare Part D program that I think are pretty important.
Aislinn Antrim: Absolutely, and we’ll all go into that in a little more detail, but allowing Medicare to negotiate some drug costs has been discussed for as long as I can remember. What does this really mean in practice?
Joey Dizenhouse: It’s going on, it’s been going on for many years, multiple administrations have tried it, on both sides of the aisle. It’s hard to say exactly what it means. I believe it’s a step of momentum, right? It’s something that will open up the dialogue that will start emotional and kind of other visceral responses that will then create more dialogue that will then create more impact. How to predict that impact? There is no crystal ball here. But I do think it is a step in the right direction.
We spend by far more on pharmaceutical and medical device research and development than anyone else. As a result, or at least one of the consequences, is that we spend 17% of our GDP here in the US on health care. If you look at the other countries of the OECD, the averages are half that, maybe a little more than half. No more than I think 12, which I think is Switzerland. We are spending much more on a larger base of GDP.
The data does not suggest that we get better health outcomes than these other countries. For example, our life expectancy at birth, one of those most important measures, is a few years lower than the average of the other OECD countries. Now, there’s a lot of moving parts in those kinds of statements, but for spending all this money, and we don’t have a measurable impact on it, the question becomes, is it sustainable? At what point does such a model fall over? I think that’s part of the impetus for this discussion.
But what does it really mean? Well, I think we’ll find out, because now we kind of have the beginnings of that effect, and we’ll see how it plays out.
Aislinn Antrim: It will be interesting. As you mentioned, the bill allows Medicare to negotiate a number of specific drugs, and that’s these, and do you think it goes far enough to really bring prices down significantly?
Joey Dizenhouse: So the second part of your question, first of all, I don’t think it will have a big impact in the short term. Again, I think it’s an important step. If we look at the scope of the program, it is really limited. Right? And in terms of what drugs will be affected, the 750-odd-page bill doesn’t cover that. It parameters which drugs are affected. It’s talking about expensive drugs, it’s about drugs that have been on the market for a certain amount of time from their approval. When we talk about small molecule drugs, such as oral preparations, we are talking about 9 years from when their patent was opened. So they only made money, with exclusivity a kind of monopoly for 9 years. If we’re talking about biologic drugs, or large molecule drugs, if you will, 13 years later.
So we are only talking about drugs that have been on the market for a while. We’re not talking about drugs that will have biosimilars in the near future. We’re not talking about orphaned products or products that don’t sell a certain volume of Medicare, I think it was 200 million a year.
It starts with a very narrowly defined group of drugs, and it will only be 10 real drugs before year 1, which will be 2026. From there it will grow, and it will grow with a good clip. By 2029, the last year mentioned, you will have a number of both Part D drugs and Part B drugs. The impact will get bigger and bigger.
But I still don’t even think that it will be material to the general economy of this one of these schemes, because it’s still a very small number of products. What I like about it is that it’s sort of a Goldilocks mentality. We look at drugs that have been around for a while, they have made some profit and R&D is starting to pay dividends. They are still very expensive and there is not already inevitable price competition on the way.
I think from that perspective, I think it’s a well-designed kind of codification of what drugs to include.
Aislinn Antrim: Very interesting. I’ve seen some concern that manufacturers might turn around and raise prices for everyone else to offset the cost a little bit. Do you think this is a valid concern?
Joey Dizenhouse: Yes I do. I share the concern and have heard it discussed in a number of circles. I think we should keep a close eye on it. By everyone else, I think the commercially insured group of people representing is the biggest group to focus on, that’s the most likely target, if you will. I would expect manufacturers to review the impact of the law on their budgets and adjust their models accordingly. But how they will react and adapt specifically, your guess is as good as mine at this point.
But I do want to point out that manufacturers don’t want to just raise their price, right? This price protection provision that we talked about in Medicare Part D coming up. These provisions have been around in commercial agreements for much of the time. So in other words, the PBM or intermediary who negotiates on behalf of the plan’s sponsors, they have provisions in place that say something like that. When your medicine price increases, that increase must be repaid to the PBM in a discount. In fact, they are usually referred to as price protection discounts.
The question is where does the money come from? If the PBM holds the money, the PBM passes that money on to the plan, which would be the employer who would then somehow pass it on to the plan participants. And so that impact, the trickle-down effect, is a good talk, maybe for another time, but when it comes to the manufacturer, they don’t hold that money as much as one might initially think. So in that sense, their tools and choices in terms of what they can do are a bit more limited. But having said that, I expect they will, they will try to recoup the losses of the law in any way they can. It’s not to say they don’t have levers at their disposal, just that it’s not as intuitive as you might initially think.
The other thing is that the kinds of drugs we’re talking about here that would be targeted by Act Year 1, are the ones that aren’t new to the market and the only drug that treats a condition, because those are the ones that still have other drugs here. implications of. These are the ones where it makes a little more sense that this provision could work and as a result I don’t think it creates the same level of pressure, but it could. I think that’s important to know.