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Hikes on Medicare drug premiums could be delayed until after 2020 elections

HHS Secretary Alex Azar arrives to testify before a Senate Appropriations Labor, Health and Human Services, Education and Related Agencies Subcommittee hearing on the proposed budget estimates and justification for FY2020 for the Health and Human Services Department on Capitol Hill in Washington, U.S., April 4, 2019. REUTERS/Yuri Gripas (Yuri Gripas/Reuters)

The Trump administration is taking steps that could delay premium spikes for Medicare prescription drug beneficiaries until after President Trump’s 2020 reelection bid.

The moves could alleviate a looming problem for Trump in key states. Individual premiums for Medicare prescription drug insurance could jump 19 percent next year under the president’s plan to purge Medicare of the rebates that drug manufacturers pay to firms that manage pharmacy insurance.

The monthly cost to individual seniors could rise by about $6, according to government estimates. It is not a large amount but would not go unnoticed by seniors on fixed incomes.

It would also give Democrats an opening to criticize Trump as insensitive to the elderly in places like Florida, Pennsylvania, Ohio and Wisconsin — states that Trump must win to regain the White House.

The administration, citing the long lead times required to put the plan into place, has taken initial steps that could avoid this potential land mine. It indicated that stripping drug rebates out of the Medicare system will be disruptive and could take a year or more. It said it will conduct a “demonstration” to “test an efficient transition” in 2020 and 2021, providing time to figure out the logistics.

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Seema Verma, the administrator of the agency that manages Medicare, also advised pharmacy insurance companies to submit bids to provide Medicare drug coverage in 2020 under the old rebate rules. The new rule prohibiting the rebates is still under review and is not expected to be finalized before bids are due in eight weeks, on June 3.

“This is a huge program. To turn it on its head, without [Medicare and Medicaid] being able to say, ‘This is how we want to move this forward,’ is a real challenge,” said Tara E. Dwyer, a regulatory lawyer at the firm Mintz.

The potential for a delay arose Friday, ahead of a hearing Tuesday in the Senate Finance Committee, where executives from the prescription drug insurance industry warned that wiping out rebates would make premiums jump for all seniors.

They offered similar arguments in public comments Monday on Trump’s rebate rule.

“It will increase premiums for seniors, but do nothing to force drug manufacturers to lower prices,” CVS Health — the umbrella organization of CVS pharmacies, the insurance giant Aetna and CVS Caremark, its “pharmacy benefit manager” (PBM) division — said in its comment letter. CVS said it was not realistic to remove rebates by 2020 and maybe not even by 2022.

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The insurance industry’s trade group, America’s Health Insurance Plans (AHIP), said the size of the premium increase would depend on how much of the rebate money drug manufacturers retain as a windfall. If drug companies keep 50 percent of the money and do not fully lower prices to reflect the end of rebates, premiums on seniors would rise 40 percent, AHIP said.

Rebates are paid by drug manufacturers to PBMs to win favorable coverage for particular brand-name drugs. The rebates, or discounts, have long been a target of health-care reformers who say they are a kickback that distorts incentives and drives up list prices on pharmaceuticals.

Trump sees lowering prescription costs as a centerpiece of his political and policy agenda, and he has derided PBMs as “middlemen” unfairly extracting money from the system.

Health and Human Services Secretary Alex Azar unveiled the proposed rule in January. Drug manufacturers would be allowed to offer discounted prices directly to consumers but would no longer be able to give rebates to PBMs. The ban would apply to rebates in Medicare and Medicaid managed-care plans but not private, employer-based insurance.

PBMs contend they add value to health care by using their expertise to promote the best, most cost-effective drugs for clients. They argue that the proceeds from rebates are used to hold down the costs of beneficiary premiums for Medicare prescription drug coverage. Eliminating rebates means premiums would rise, they say, an assertion confirmed by the Trump administration’s insurance actuaries. The government’s costs also would rise, by an average of $20 billion a year through 2029, or $200 billion in all.

PBMs are under fire in Congress and in statehouses across the country. They are accused of squeezing independent pharmacies and offering virtual monopolies, in the form of favorable coverage for their products, to drug companies that pay big rebates.

At Tuesday’s Senate Finance Committee hearing featuring executives from five PBMs, including the three largest, Sen. Ron Wyden (Ore.), the ranking Democrat, cited an example in which CVS Caremark required patients to gain special approval to purchase an Amgen cholesterol drug with a lower list price than a more costly version of the exact same drug.

CVS Caremark Executive Vice President Derica Rice agreed, during Wyden’s questioning, that Amgen gave a bigger rebate for the more costly version of the drug, Repatha. That made its net price lower than the drug with the cheaper list price.

Wyden countered that many patients pay their share of a drug’s price based on the higher list price. So in that scenario, those patients are getting a worse deal, he said. He cited it as an example of PBM “gouging.’’

“It sure looks like you all are taking deliberate action to pad your bottom line at the expense of patients,’’ Wyden said. He called the way PBMs do business “one of the most confounding, gnarled riddles in American health care.’’