Finsights Blog

More Clouds Over the Horizon for Manufacturers in 2017

The coming year is full of uncertainty for pharmaceutical manufacturers and one critical proposed change may have been overlooked.  While the fate of the Affordable Care Act, and the implications of any repeal or modification have dominated most discussions, relatively little focus has been placed on the potential impact of House Speaker Paul Ryan’s intentions to privatize Medicare, and the possible access challenges it could theoretically cause for physician administered drugs.

Little more than an outline of Ryan’s plan is known at this time, but the key change calls for the Federal government to cease being a payer for services provided to Medicare beneficiaries.  Instead, beneficiaries will purchase policies from private payers, with the Federal government covering a portion of the policy premium.  Payers selling these policies will be under immense pressure to manage healthcare spend if they hope to operate in this market profitably.  While Medicare Part B drug spend only accounted for about 3% of overall Medicare spending in 2014, as a category it has consistently been an area of focus for both the Office of Inspector General and CMS’s Center for Medicare and Medicaid Innovation.  There is little reason to believe it wouldn’t be subject to scrutiny and cost controls by private payers administering the Medicare program.

Payers may require enough leeway to drive down expenditures for physician administered drugs.  It is feasible that they may be allowed to negotiate rebate agreements with manufacturers of physician administered drugs, where market conditions are such that a payer could advantage one drug over another within a therapeutic area.  The future of physician administered drugs under Medicare might call for a manufacturer to contract separately with multiple payers to ensure patients can access its drugs with minimal interference.

Additionally, the vast majority of Medicare beneficiaries are insulated from the cost-sharing burden associated with physician administered drugs.  The typical 20% co-pay for a medical benefit drug is commonly covered in part or in whole by supplemental coverage provided by, say, an employer sponsored or Medigap policy.  Even if a physician-administered drug is relatively immune to contracting pressure from payers due to a lack of credible competing products, it will certainly be susceptible to limitations in a patient’s ability to cover their out-of-pocket contribution to the overall cost of therapy.  If Medicare is reformed in a manner such that supplemental coverage is not ported to the new regime, new access challenges will emerge for manufacturers.

Yet another possible access challenge is the potential for an increase in the Medicare eligibility age from 65 to 67.  Many patients struggle to maintain credible insurance coverage until they or their spouse reach age 65 and can then enroll in Medicare.  Adding another two years to the eligibility age may mean increased access challenges for these patients, especially given the tenuous status of the Affordable Care Act and its requirement that insurance policies meet baseline requirements for essential health benefits, not to mention the ACA’s insurance mandate.

Much of this discussion is based on hypotheses of what the future state of Medicare may look like.  The likelihood of Ryan’s plan coming to be remains uncertain, but is presumably greater now than it was prior to this past November.  What is certain is that manufacturers should at least think through the implications of such changes for their product portfolio and determine any viable mitigation options.

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