Medicare Drug Pricing Rules Under the Microscope

Here’s background to help you keep track of two ongoing processes – one by Medicare and one in the courts – that could lead to big changes in the way Medicare charges you for expensive drugs. You’ve likely heard of one but perhaps not the other.

Under Medicare’s complicated rules for Part D drug plans, there is no ceiling on out-of-pocket costs for prescription drugs. There is protection here, but even in what’s called the catastrophic phase of Part D drug coverage, consumers are still responsible for paying 5 percent of the billed price for meds.

As someone who takes a very expensive medicine whose costs exceed $5,000 a month, I can tell you that I reach the catastrophic phase of my Part D plan each year February! For me, at least, 5 percent of that price is still a financial burden.

The price I pay is not so different from the tentative price announced by Biogen for its new dementia drug, aducanumab (the brand name is Aduhelm).

Unlike my situation, however, nearly every older Medicare beneficiary is interested in a drug that could delay the onset of a condition that they find terrifying. The collective bill could overwhelm not only consumers but the entire Part D program, which is heavily subsidized by taxpayers.

The Centers for Medicare & Medicaid Services (CMS) announced last week that it was launching a formal process to explore who should receive Aduhelm and what it should cost. The process is called a National Coverage Determination analysis and is designed to set national policy for how Medicare will cover the drug.

“Alzheimer’s is a devastating illness that has touched the lives of millions of American families and as CMS opens our National Coverage Determination (NCD) analysis, we invite interested stakeholders to participate,” said CMS Administrator Chiquita Brooks-LaSure in a CMS press release. “We want to consider Medicare coverage of new treatments very carefully in light of the evidence available. That’s why our process will include opportunities to hear from many stakeholders, including patient advocacy groups, medical experts, states, issuers, industry professionals, and family members and caregivers of those living with this disease.”

You can track the process of this NCD and submit your own thoughts here. While the NCD is underway, Medicare’s regional administrative contractors – there are 12 across the country – may issue Local Coverage Determinations (LCDs). You can track those determinations here. (Sorry for all the bureaucratic gobbledygook!)

Private insurers aren’t waiting for the CMS to weigh in. Some have already announced they will not cover the drug. Some prominent medical centers said last week they won’t administer it.

The second development involves a legal challenge to Medicare rules that prohibit medical providers, including drug companies, from providing consumers with price discounts and other financial assistance. Doing so would amount to trying to induce consumers to buy that company’s product.

Drug assistance programs are widely offered to non-Medicare consumers covered by private insurance plans. The reasonableness of the price and even the efficacy of the drug or product may never be discussed.

A compelling motivation for drug companies, of course, is to make expensive drugs more affordable and, not incidentally, thus induce more people to use the products. This is precisely why Medicare frowns on the practice.

You might ask why the companies don’t simply lower their prices. Good question. Only a cynic would note that maintaining high list prices helps the companies reap big gains from Medicare beneficiaries. Under the Part D program, the federal government pays 80 per cent of the price of drugs once they’ve reached the catastrophic phase of the program.

According to the Axios news service and reporter Bob Herman, Pfizer has challenged this rule in a court case involving heart medications that cost a whopping $225,000 a year. The case is now before a U.S. District Court.

If the government loses this case, the impact on Medicare users of expensive drugs could be enormous. Even if it wins, the case could add further pressure to legislative efforts to lower drug costs, especially for Medicare users.