Sen. Susan Collins, who spearheaded a ban on gag clauses that prevented pharmacists from telling patients the cheapest way to buy their medicines, is continuing the charge to make prescription drugs more affordable. Senior citizens and the disabled are among those who could especially benefit.

Roger Klein

The “Prescription Drug Pricing Reduction Act,” bipartisan legislation which Sen. Collins supports, along with Senate Finance Committee Chair Charles Grassley and ranking member Ron Wyden, reforms and restructures benefits in Medicare Part D — the voluntary outpatient prescription drug program for Medicare beneficiaries. In traditional Medicare (Medicare Parts A and B), the Centers for Medicare and Medicaid Services (CMS) sets prices administratively, generally through complex formulas.

By contrast, Medicare Part D relies on competition between private prescription insurance plans, termed sponsors, who submit bids to CMS that are used to establish Medicare subsidies and beneficiary premium amounts. Plans compete for Medicare enrollees through premium prices calculated from their bids, quality, the drugs they cover, and enhanced benefits, such as cost-sharing amounts lower than the benefits package mandated by law.

The $100 billion Part D prescription drug program that covers 44 million senior citizen and disabled Medicare beneficiaries, equaling 73% of enrollees, needs repair. The product of a legislative compromise, Part D’s benefit design had widely acknowledged flaws at its passage, among which were significant gaps in protection for beneficiaries. The program’s initial deficiencies and subsequent changes to the program’s “doughnut hole” — a temporary gap reached after a certain level of expenditures in which beneficiaries were originally responsible for 100% of drug costs — and mandatory manufacturer discounts, have combined with a rise in importance of costly new specialty drugs to reduce plans’ incentives and decrease their ability to control costs.  Future introductions of new high-priced medicines are expected to worsen this trend.

The Prescription Drug Pricing Reduction Act reduces seniors’ out-of-pocket costs by eliminating patient co-payments in the “catastrophic phase” — reached by those individuals who have the highest drug costs — and placing a cap on out-of-pocket expenditures. This new out-of-pocket maximum brings Part D in line with private insurance.

The catastrophic phase is Part D’s largest and fastest growing component. Beneficiaries who have entered it typically take expensive specialty drugs.  Because they are responsible for 5% on co-payments on medications after exceeding an expenditure threshold, purchasing their medicines can require substantial personal cash outlays. Under Part D’s current structure, beneficiaries who are dependent on the most expensive drugs — many of whom have serious illnesses such as cancer and rheumatoid arthritis — face unlimited financial risks. The bill would protect seniors by eliminating this potential burden.

Under Part D’s present benefit structure, sponsors have limited financial reasons to encourage use of low-cost drugs, including generic and biosimilar versions of brand name pharmaceuticals. Sponsors also have incentives to cooperate with manufacturers to maximize list prices while subsequently reducing actual prices through post-sale rebates, disadvantaging patients through larger co-payments at the pharmacy counter. The legislation simplifies benefit design and creates incentives that encourage plans to better manage spending.

According to the Congressional Budget Office, the Prescription Drug Pricing Reduction Act bill will save taxpayers more than $100 billion and lower beneficiary cost-sharing and premium payments by $31 billion over 10 years. The proposed law is even projected to lower prescription costs for private health plans.

The Prescription Drug Pricing Reduction Act shifts risks from taxpayers, who pay the majority of the Part D program’s cost, and beneficiaries to insurance plans. It lowers and puts a cap on seniors’ out-of-pocket payments, while removing perverse program incentives that drive prices and expenditures higher. It increases incentives for sponsors to manage costs — most notably those of expensive specialty medicines.

Despite the inaction and turmoil that has consumed Washington, D.C., recently, many senators are quietly and steadily working to make life better for America’s senior citizens.

Dr. Roger D. Klein is an attorney and doctor who lives in Cleveland, Ohio. He is a former adviser to U.S. Health and Human Services and the Federal Drug Administration.

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