Health Policy Report

The Week in Review

Voters in Ohio’s 12th Congressional District went to the polls in the last special election prior to November’s midterm elections, as Republican Troy Balderson squared off against Democrat Danny O'Connor for a House seat that the GOP has held for 35 years. As of today, Balderson still holds a 1,500-vote lead, however, the race is still too close to call as 3,435 provisional ballots that have yet to be counted. The tight margin in this reliably red district — previously represented by former Rep. Pat Tiberi (R-OH) and Ohio Governor John Kasich — suggests that Democratic House candidates are a threat to compete this fall in districts that have traditional been held by Republicans.

On the Hill, both chambers of Congress were out of session last week. The Senate will reconvene for legislative business this Wednesday, August 15th, while the House is expected to reconvene on Tuesday, September 4th.

The Week Ahead

Senate lawmakers will return from a brief recess on Wednesday and will turn its attention to the nominations of Marvin Quattlebaum Jr. and Julius Ness Richardson to be judges on the Fourth U.S. Circuit Court. The Senate is also expected to begin consideration of a major appropriations minibus (H.R. 6157) that combines defense spending and Labor, Health and Human Services (HHS), and Education appropriations.

Hatch and Walden Call for Robust Economic Analysis of HHS Drug Rebate Safe Harbor Rule

On Thursday, senior congressional Republicans sent a letter to Office of Management and Budget (OMB) Director Mick Mulvaney asking for OMB to conduct a robust regulatory impact analysis of the Department of Health and Human Services’ (HHS) proposed rule on safe harbor provisions for drug rebates. Sent by Senate Finance Committee Chairman Orrin Hatch (R-UT) and House Energy and Commerce Committee Chairman Greg Walden (R-OR), the letter marks the first sign of congressional interest in the proposed rule.

While the agency’s proposed rule on rebates is stil pending OMB review, it is possible that the rule will eliminate or limit many of the safe harbor protections used in drug rebates today while keeping safe harbor provisions in effect in value-based arrangements. In its drug pricing blueprint released earlier this year, the Trump Administration said that it would consider “restrict[ing] the use of rebates, including revisiting the safe harbor under the Anti-Kickback statute for drug rebates.”

In the letter, Sen. Hatch and Rep. Walden emphasized that changes to the rebate system could have ripple effects across the health care system and “dramatically change the process by which prescription drugs are purchased within the supply chain.” They clarified that the removal of safe harbor protections for rebates used to purchase drugs would alter any federal, taxpayer-financed program to which it applies, and change regulations and practices that have been in place for decades. The authors noted that rules that are deemed to be “economically significant” — those that would have an annual impact of $100 million or more or would have material adverse affect on the economy — are required to undergo comprehensive OMB analysis quantifying likely costs and benefits and identifying potential alternatives.

CMS Encourages MA Plans to Use ‘Step Therapy’ for Part B Drugs

The Centers for Medicare and Medicaid Services (CMS) has issued a new memo encouraging Medicare Advantage (MA) plans to use “step therapy” for physician-administered drugs under Medicare Part B beginning in January 2019 — a reversal of a 2012 memo that explicitly precluded plans from imposing step therapy requirements. Step therapy is a type of utilization management for drugs that, as CMS explains, “begins medication for a medical condition with the most preferred drug therapy and progresses to other therapies only if necessary.” The agency also says they will consider rulemaking related to step therapy for 2020 and future years.

CMS asserts that step therapy will allow MA plans to steer patients towards cheaper drugs or negotiate lower rates with branded drug makers. But such utilization management tools have historically been unpopular with providers, patient groups, and drug manufacturers, who say step therapy could prevent patients from getting the treatments that their doctor’s think is most appropriate. There will likely be some resistance to this policy change — particularly from oncology stakeholders and others that rely heavily on drugs reimbursed under Part B.

In a press release, the agency highlighted the announcement as a part of President Trump’s promise to “negotiate better deals” in Medicare, suggesting that it will provide plans with the same tools used by plans in the private market. CMS notes that Part B drugs constitute around $12 billion per year in spending by MA plans, and Dan Best, Senior Advisor to the CMS Secretary for Drug Pricing Reform, estimated on a press call this afternoon that the policy could help save “15 to 20 percent” on those drugs.

FDA Seeks to Encourage New MAT Opioid Use Disorder Treatments 

Last week, the Food & Drug Administration (FDA) released draft guidance aimed at encouraging the development of new medication-assisted treatment (MAT) drugs for the treatment of opioid use disorder (OUD). The recommendations outline new ways for drug developers to measure and demonstrate the effectiveness and benefits of new or existing MAT drugs. FDA Commissioner Scott Gottlieb, M.D. announced the agency will consider additional factors beyond whether a drug simply reduces opioid use, such as a treatment’s ability to reduce overdose rates or the transmission of infectious diseases.

In an accompanying press release, the FDA said this new draft guidance is part of the FDA’s ongoing commitment to promote more widespread development, access to and adoption of MAT. The draft guidance builds on another draft guidance released by the administration in April, which outlined the FDA’s current thinking about drug development and trial design issues relevant to the study of depot buprenorphine products. The FDA also recently published a paper with the National Institute on Drug Abuse that describes efforts to overcome some of the barriers to new drug development and the issues with determining effectiveness.

Currently, three drugs have been approved by the FDA to treat opioid use disorder, including buprenorphine, methadone, and naltrexone. Department of Health and Human Services (HHS) Secretary Alex Azar noted that the new guidances have the potential to bring new medications to market that are more closely tailored to patient needs and help give Americans facing addiction a better chance at recovery. FDA stated that today drug developers generally use reduction in drug-taking behavior as an endpoint to evaluate effectiveness for FDA approval. The new draft guidance identifies additional potential clinical endpoints and other outcome measures that the FDA states drug developers may consider to evaluate effectiveness for the purpose approval. The health agency noted that the expanded pathway may require larger clinical trials, and encouraged pharmaceutical developers to discuss their plans with the FDA early in the development process.

HHS Issues Guidance on New Medicaid Rx 'Line Extension' Penalty

The Department of Health and Human Services (HHS) issued new guidance last week to states and manufacturers that outlines the calculation of the updated ‘line extension’ penalty. The new policy — first introduced via the Bipartisan Budget Act (H.R. 1892) in February — is being championed by the administration as a change that will ensure drug manufactures pay appropriate Medicaid rebates, and discourage companies from abusing line extensions to increase reimbursement for certain prescription drugs.

Under previous statute, changing the formulation of a specific drug — such as launching an extended-release formula of the same pill — would essentially reset the clock used to calculate whether or not a drug company had increased its price above the inflation rate. Congress included a policy in the Bipartisan Budget Act that makes the inflation-adjusted rebate the greater of the line extension drug’s additional rebate or the highest additional rebate for any strength of the original brand-name drug. As a result, manufacturers of line extension drugs will now be required to pay higher rebates for price increases above inflation.

In a speech to the American Legislative Exchange Council (ALEC), HHS Secretary Alex Azar scrutinized the use of line extensions for drugs as he made the announcement that HHS would be issuing guidance. He explained that some drug manufacturers have used the practice in the past to reset the price that’s used to calculate the inflation rebates manufacturers have to pay, calling it the “kind of abusive behavior from drug companies that this administration will not tolerate.” While HHS has touted the move as a cost-saver for states and the federal government, officials are reportedly hopeful that the policy will remove an incentive for drug makers to increase their list prices — a move that could ultimately lower the amount of money patients have to pay across the board. 

CMS Issues Additional Guidance on Risk Adjustment Program for 2018

The Centers for Medicare and Medicaid (CMS) issued a proposed rule (press release) that would move forward with the previously established risk adjustment methodology that retains the use of the statewide average premium for calculating risk adjustment transfers. The proposed rule also justifies the budget-neutral nature of the risk adjustment program, noting that current law does not require the Department of Health and Human Services (HHS) to make states spend their own funds on risk adjustment payments. The rule does not propose any changes to the previously published HHS-operated risk adjustment methodology for the 2018 benefit year, leaving in place the estimated $4.8 billion in risk adjustment transfers that are expected to be made for the 2018 plan year.

The proposed rule has been issued as a result of a court case in New Mexico that challenged CMS’ decision to use the state average premium as a basis for determining transfers and instituting a budget-neutral approach. In February, the United States District Court for the District of New Mexico invalidated the use of the statewide average premium in the risk adjustment formula and remanded the case back to the lower court. CMS filed for a motion for reconsideration and is still awaiting the decision. The court’s decision in February initially led the agency to freeze risk adjustment payments to insurers, but CMS reversed course and reestablished the payments last month, saying it would pay out $10.4 billion to insurers using the risk adjustment methodology for 2017.

CMS explains in the proposed rule that Congress designed the risk adjustment program to be operated by a state if the state chooses to do so, pointing out that the law does not mandate HHS to make a requirement that states spend its own funds on risk adjustment payments. The agency noted that the Affordable Care Act (ACA) provides leeway to implement a budget neutral design, citing the lack statutory of budget authority and appropriations for the risk adjustment program. Additionally, relying on the Congressional appropriations process to administer the program would have created uncertainty for issuers regarding the level of payments they could expect in any given year, according to the proposed rule. Additionally, CMS has included a request for comment on the proposal to use statewide average premium in the risk adjustment methodology for the 2018 benefit year, with feedback due on September 7, 2018.

CMS Proposes ACOs Must Take on Risk After Two Years

The Centers for Medicare and Medicare Services (CMS) is planning significant changes to Accountable Care Organizations (ACOs) in a sweeping proposed rule (fact sheet; blog post) that would give new ACOs just two years before they must start sharing savings and losses with the agency. The proposal was immediately panned by hospital groups and ACO stakeholders, who say the plan will cause many ACOs to leave the program. Comments on the proposed rule are due by October 16, 2018.

Initially, under the program, there were two options offered to entice providers into joining ACOs: one model allowed them to share in whatever savings they accrued for Medicare; the other gave ACOs a bigger share of those savings, but only on the condition that they also accept financial penalties if they missed their savings targets. CMS is saying that from now on, if you want to be in an ACO, you can only stay in the reward-only model for two years before accepting some risk. The agency acknowledged this will lead to a decline in participation, but believes the remaining ACOs will drive the biggest savings.

The update to the so-called Medicare Shared Savings Program (MSSP), which the agency has dubbed ‘Pathways to Success,’ is expected to significantly reduce the number of ACOs that participate in the program — CMS estimates that the overhaul will lead to 109 fewer ACOs in the program at the end of 10 years. “We’d rather work with a [smaller] group of providers that are serious about delivering value, serious about delivering better quality care at a lower cost,” CMS Commissioner Seema Verma said in releasing the plan.