Much of the presentation, offered during the commission’s March meeting, was general ideas with more work to come in terms of fleshing out the details. An ambitious goal of having something ready for the commission’s June 2019 report to Congress was set.
The policy recommendations for reference pricing, to be used when multiple similar drugs are available, and binding arbitration, to be used on new entrants to the market with limited or no competition, are being designed to work with the previously recommended drug value program, but could be implemented on their own.
In general, the reference pricing policy would set a maximum payment rate for a group of drugs with similar health effects based on the minimum, median, or other point along the range of prices for all drugs in that group. Providers would be incentivized to choose a lower-cost alternative when clinically appropriate.
Beneficiaries who still want access to a higher-cost drug would be on the hook for the difference through cost-sharing mechanisms.
MedPAC staff presented two options for setting the reference price. One would be to establish the price based on internal Medicare data. The other would take international pricing into consideration.
Binding arbitration, which is already a component of the drug value program, would be expanded. In the program described by staff, Medicare and the manufacturer would each come to the table with a price and the arbitrator (either an individual or a panel) would set one price.
Potential cost savings from one or both programs was not addressed
“It seems like an important thing for us to understand in order to know the potential impact ... through these two levers that work on different parts of the spend problem,” said Commissioner Dana Safran, head of measurement for the health care venture formed by Amazon, Berkshire Hathaway, and JPMorgan Chase.
Staff said it would work on making that determination.
Commissioners raised additional questions on operational details.
Marjorie Ginsburg, founding executive director of the Center for Healthcare Decisions Inc. in Sacramento, Calif., questioned what would happen if a manufacturer declined to participate in the arbitration process and whether that would mean Medicare would not cover a drug in that circumstance.
Jay Crosson, MD, noted that “Congress would have to … figure out how to deal with that circumstance. ... We would not want to end up with a system that would deny coverage” of effective medications for Medicare beneficiaries.
Another area affecting both issues was the potential for cross subsidization of drugs.
Jonathan Perlin, MD, president of clinical services and chief medical officer of HCA Healthcare of Nashville, Tenn., questioned whether this could open a door for a provider buying at a cheaper government price and using the drugs across patients not from Medicare or whether it could lead to higher prices being charged to commercial payers.
MedPAC staff member Kim Neuman said that “there would need to be some back end reconciliations that would happen to ensure that the stock that was then administered to Medicare patients was provided at a price that was no higher than that ceiling. ... We haven’t scoped out implications for other payers.”
Commissioner Kathy Buto, independent consultant and former vice president of global health policy at Johnson & Johnson, inquired about whether a drug would be made available upon launch while reference pricing or arbitration processes were in progress.
Commissioners also inquired as to how the reference pricing aspects will be operationalized into conversations between the doctor and the patient.
Ms. Buto also cautioned that using a reference pricing scheme could alter the dynamic of pricing competition that has companies competing against a reference price rather than doing what they can to lower prices beyond that.