On Cost and Competition Among Rheumatoid arthritis therapies.
Good morning,
Background
Medicare has covered outpatient drugs since the creation of Medicare Part D, which first offered coverage in 2006. But certain drugs, particularly those that must be administered by a physician (usually by injection or infusion), have always been covered by Medicare Part B. Rheumatoid arthritis drugs include medications that fall on both sides of this program divide.
Payment for a Part B drug is made to the clinician who administers the drug. Medicare typically pays the clinician 106 percent of the average sales price (ASP) for the drug, an amount that reflects the average price collected by the manufacturer net of most rebates and discounts. n1 The cost to the beneficiary is set at 20 percent coinsurance, the usual Part B coinsurance amount. For many beneficiaries, their coinsurance is covered by supplemental coverage--either privately purchased Medigap insurance, employer-sponsored retiree benefits, or by Medicaid.
Under Part D, drugs are paid by the private Part D plan in which the beneficiary is enrolled. n2 In turn, the plan's costs (which vary across phases of the benefit) are covered by a combination of a federal premium subsidy, beneficiary premiums, and federal reinsurance once a beneficiary reaches the catastrophic phase of the benefit. Plans may negotiate the price of the drug with the manufacturer, often obtaining rebates (discounts) that are paid to the plan but are not reflected at the point of sale. Beneficiary cost sharing varies according to the phase of the Part D benefit. For a high-cost biological, cost sharing in the initial coverage period is typically 25 percent to 33 percent. Cost sharing rises to 35 percent in the coverage gap phase (which will drop to 25 percent in 2020, when the gap if fully phased out) n3 and then drops to 5 percent in the catastrophic coverage phase. Low-income Part D enrollees are eligible for subsidies that cover most of their cost sharing.
Competition for Rheumatoid Arthritis Drugs
The market for rheumatoid arthritis drugs consists of at least ten different biological medications as well as several older traditional medications. These drugs vary in terms of their mode of action and their method of administration, and some are much newer on the market than others. Some RA drugs are approved for other health conditions as well. The drugs in this class that require administration by a clinician are covered under Medicare Part B. Those which can be self-administered are covered under Part D. This coverage split in the RA drug class has implications for the method of payment used and the determination of out-of-pocket costs. It also affects the extent to which market forces work.
At present, three biological drugs dominate the RA market. Together Enbrel, Humira, and Remicade represent over two-thirds of the RA market. Enbrel and Humira are covered under Medicare Part D and Remicade by Part B. Between 50,000 and 60,000 beneficiaries use each of these drugs, based on the most recent CMS data. n4
The presence of multiple competing drugs in this class might be expected to help keep prices from growing rapidly. But evidence suggests otherwise. For context on the trend in drug prices, we can refer to MedPAC's annual calculation of a Part D price index. n5
MedPAC's index data show that overall Part D drug prices rose cumulatively by 57 percent from 2007 through 2014. However, MedPAC's separate index calculation for the same timespan taking generic substitution into account was only up by a cumulative 8 percent. The difference is explained because many traditional drugs have seen patent expirations that allowed brand drug users to switch to much cheaper generic alternatives.
Notably, prices for biological drugs have grown far more rapidly--up by a cumulative 119 percent over the same years (2007-2014), compared to the 57 percent growth for all Part D drugs. These high-cost drugs include the rheumatoid arthritis drugs that are covered under Part D.
It should be noted that these price indexes exclude manufacturer rebates. CMS reports that rebates have increased generally over this same period (though data are not available for specific drugs or drug classes), so price increases net of rebates may be somewhat lower.
Cost to Medicare and the Beneficiary for Rheumatoid Arthritis Drugs
Looking specifically at the costs of the three most common RA drugs, they are expensive for both the Medicare program and the beneficiaries who take these drugs. And the costs continue to rise.
In 2015, Remicade was one of the top five Part B drugs in terms of annual costs to Medicare--at
On the Part D side, Humira had the largest market share and a total cost for Medicare beneficiaries of
The numbers for Enbrel are similar:
It is worth noting that price increases have been more modest on the Part B side, in part because most rebates are incorporated into the Part B pricing system and in part because the ASP system may be more effective in controlling price increases than the tools available to Part D plans.
Biosimilars: Potential for Savings and Barriers
Over the last decade, one of the largest checks on drug spending growth has been the emergence of generic alternatives for many of the most used traditional drugs, together with the absence of significant new medications to compete with these drugs. A key question is whether biosimilars can play the same role in bringing down prices for biologicals, such as those that treat RA. Many observers anticipate that prices should drop, perhaps in the range of 35 percent, as biosimilars penetrate the RA market. n10 Notably, even if prices drop, total spending on biologicals is likely to grow as more of these medications enter the market.
On the Part B side, two biosimilars for Remicade have entered the market. But their impact to date has been modest. When the first biosimilar (
In its report to
The MedPAC recommendations also calls on
No biosimilars have reached the market yet for the two major Part D RA drugs. A biosimilar for Humira has been approved by the
The future for RA and other biosimilars depends on the drugs reaching the market and gaining broad acceptance. Their timely launch on the market will rely on resolving patent cases and other legal issues. Once launched, the path to widespread acceptance and substantial market penetration will rely on several factors: (1) the establishment of interchangeability status by the
Additional Ways to Protect Beneficiaries
The most important steps to achieving lower costs for biologicals, including expensive RA drugs, are likely to be those that increase the role of biosimilars in the market. But there are other measures that can also bring savings in both Part B and Part D for beneficiaries and the Medicare program.
The Part B ASP system that was put in place by the Medicare Modernization Act of 2003 has had some success in moderating price increases compared to the previous system. Nevertheless, prices for some drugs have gone up well beyond inflation. Earlier, I discussed the set of MedPAC recommendations addressing Part B drugs that were published in the Commission's
According to the MedPAC report, these recommendations represent a balanced approach to improving the payment system for Part B drugs, including RA drugs like Remicade. If enacted and implemented, these measures could lower Part B drug prices in a way that should save money for both beneficiaries and the Medicare program. n16
Just as in Part B, Part D presents opportunities for reducing costs. In
The recommendations in the
As noted above, the 2016 MedPAC recommendations were supplemented by an additional recommendation approved in
The Commission's Part D recommendations address potential program improvements that go beyond the specific RA drugs under consideration in this hearing. If enacted, however, they should help lower costs for beneficiaries who take RA drugs.
The Bottom Line
Today, the biological medications used to treat rheumatoid arthritis are expensive for both the beneficiary and the taxpayer. Biosimilars bring the potential for a more competitive market and lower prices. But current policies create barriers to accomplishing these ends. In addition to considering actions that could lower those barriers, the
n1 MedPAC, "Part B Drugs Payment Systems,"
n2 MedPAC, "Part D Payment System,"
n3 As enacted in the Patient Protection and Affordable Care Act, beneficiary coinsurance is reduced gradually until reaching 25 percent in 2020.
n4 CMS, 2015 Medicare Drug Spending Dashboard. https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/Information-on-Prescription-Drugs/2015Medicare.html.
n5 MedPAC, "Report to the
n6 CMS, 2015 Medicare Drug Spending Dashboard.
n7 CMS, 2015 Medicare Drug Spending Dashboard.
n8 J Hoadley, J Cubanski, and T Neuman, "It Pays to Shop: Variation in Out-of-Pocket Costs for Medicare Part D Enrollees in 2016,"
n9 CMS, 2015 Medicare Drug Spending Dashboard.
n10 A Mulcahy, Z Predmore, and S Mattke, "The Cost Savings Potential of Biosimilar Drugs in
n11 MedPAC, "Report to the
n12 MedPAC, "Report to the
n13 MedPAC, "Report to the
n14
n15 MedPAC, "Report to the
n16 MedPAC, "Report to the
n17 MedPAC, "Report to the
Read this original document at: https://www.aging.senate.gov/download/?id=C497F1FF-3446-423B-9CD3-08A365ED6617&download=1
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