President Obama Introduces Evidence Generation Strategy to Reduce High Drug Costs

By Elizabeth Guo

Addressing the high cost of drugs was at the top of President Obama’s list in his fiscal year 2017 budget, released last week. Many of his proposals were familiar. The President hoped to increase manufacturer contributions to prescription drug coverage under Medicare Part D and wanted to shorten the length of biologic market exclusivity from twelve to seven years. These proposals were also in the President’s fiscal year 2016 budget but were not put into place.

However, the budget also included a number of surprising, new proposals that underscore how post-market evidence might play an increasing role in controlling drug prices in coming years. Rachel Sachs has written about the role that the Centers for Medicare and Medicaid Services (CMS) can play in keeping down drug prices, and it seems like some of these ideas are gaining traction:

Modify reimbursement of Part B drugs. The White House estimates that changes to Medicare Part B payments could save the country $7.75 billion over ten years. Medicare Part B covers drugs and services dispensed in an outpatient setting. Many of the most expensive biologic drugs are currently covered under Medicare Part B. The budget proposal did not elaborate on how the White House hopes to change Part B payments, but the proposal likely refers to recommendations released by the Medicare Payment Advisory Commission (MedPAC) last June. MedPAC’s 2015 report recommended that Congress link Part B payments to clinical effectiveness evidence. For example, the government could group drugs with similar health effects and pay all drugs in each group the rate of least costly product in the group. This approach relies on having reliable clinical effectiveness data so that researchers can easily compare the relative effectiveness of two or more drugs.

Require evidence development for coverage of high cost drugs. The budget proposes to increase data collection to demonstrate the effectiveness of high-cost medications, including medications covered under Medicare Part D. It is unclear whether the White House wants to increase government funding for effectiveness research or to mandate that drug companies must produce additional evidence before receiving Medicare or Medicaid reimbursement. For example, the proposal refers to increased funding for the Patient-Centered Outcomes Research Institute (PCORI), an organization that funds comparative clinical effectiveness research, including research on prescription drugs. On the other hand, the proposal could also require post-approval evidence review for all high-cost drugs, similar to the type of review it requires for certain Medicare Part A and Part B drugs. CMS subjects some Part A and Part B drugs to a National Coverage Determination (NCD) review before it decides to cover a drug. During the review, CMS examines the clinical evidence to determine whether an item or service is “reasonable and necessary” to diagnose or treat an illness or injury. Often, this review requires the manufacturer to present post-approval evidence about the drug’s effectiveness in a Medicare population. The government could institute a similar type of review before deciding to cover high-cost drugs.

Establish transparency and reporting requirements in pharmaceutical drug pricing. The budget proposes to allow the Department of Health and Human Services to require drug manufacturers to publicly disclose research and development costs, discounts, and other data. With rising health care costs, consumer groups, employers, and researchers are increasingly calling on manufacturers to report how they price their drugs. Drug pricing transparency was one of the main topics of the House Committee Oversight Hearing on Drug Pricing held earlier this month. Though pricing disclosures may not directly cut down on drug costs, these disclosures can facilitate research that compares similarly effective drugs based on costs.

It’s worth keeping an eye on these evidence-generation proposals. While Congress is unlikely to act on the President’s legislative proposals in an election year, the administration can still implement policy changes that do not require Congressional approval. More importantly, depending on the outcome of the 2016 presidential election, the President’s policy proposals could reemerge in the health care agenda of the new administration.

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