House Affordable Medicines Caucus Has Options

Reps. Peter Welch (D-VT) and Keith Rothfus (R-PA) have officially re-launched a bipartisan caucus in the House looking to promote the use of high-quality, low-cost drugs. The House Affordable Medicines Caucus states in its initial press release that its goal is to "highlight the role of affordable medications and biologics through briefings for Members and staff and promote legislative initiatives to provide high-quality care to patients at a lower cost." Encouraging the use of generic drugs would be a significant part of this because they are often much less expensive than their brand-name counterparts.

Fortunately for the Caucus, it has plenty of options available. One such option from the President's budget would modify cost-sharing for Medicare Part D beneficiaries receiving the Low-Income Subsidy (LIS), lowering co-pays for generic drugs by more than 15 percent and doubling co-pays for brand name drugs with generic, therapeutically equivalent, substitutes. This reform alone would save an estimated $24 billion over ten years. The Urban Institute also proposed to do this by eliminating cost-sharing for generic drugs while raising the co-pay for brand-name drugs with a generic substitute to $6 (compared to $1.20 and $3.60 respectively for beneficiaries at or below the poverty line). This recommendation was also supported in a joint paper by the National Coalition on Health Care and the Moment of Truth Project and in the recommendations of the Medicare Payment Advisory Commission. The Bipartisan Policy Center would go somewhat further by limiting LIS payments to prescription drug plans to the cost of generic drugs when appropriate.

Another way to encourage the use of cheaper drugs is to change the reimbursement of provider-administered drugs reimbursed by Medicare Part B. The President's budget would lower the reimbursement of most Part B drugs from the average sales price (ASP) plus 6 percent to the ASP plus 3 percent, saving $5 billion over ten years, and would also give the Secretary of Health and Human Services authority to convert the add-on payment to a flat amount rather than a percentage of the drug's cost. The Bipartisan Policy Center also made a similar recommendation but exclusively focused on switching the add-on payment to a flat payment.

Policymakers can also increase the availability of generic drugs through other means. One of them is to prohibit agreements between brand-name and generic drug companies to delay the introduction of generic drugs ("pay for delay"). The President's budget recommends this policy, saving an estimated $4 billion over ten years. Another policy, again from the President's budget, would shorten the period of exclusivity for biologic drugs from 12 to 7 years, saving $3 billion. Closing the "REMS" loophole, which establishes limitations on certain high-risk drugs including generics, could save about $1 billion.

Prescription Drug Options (Billions of dollars)
Option Ten-Year Savings
Adjust LIS cost-sharing to encourage use of generic drugs $24
Adjust LIS cost-sharing and limit payments to plans to generic drug cost when applicable $44
Lower reimbursement for Part B drugs by 3% of ASP $5
Prohibit "pay-for-delay" agreements $4
Shorten period of exclusivity for biologic drugs from 12 to 7 years $3
Convert reimbursement of remaining Part B drugs from AWP to ASP $1
Close the REMS "loophole" $1
Encourage state governments to increase utilization of generic drugs Unknown

Source: Congressional Budget Office, Bipartisan Policy Center, Kaiser Family Foundation, CRFB calculations

In short, there are plenty of ways for lawmakers to encourage more efficient use of prescription drugs in Parts B and D. While prescription drug spending has slowed significantly and Part D spending has been revised downward in recent years, lawmakers can do more to weed out inefficiencies in prescription drug use and reimbursement. As always, when considering these types of options, Congress will need to weigh the budgetary impacts with the impact of these provisions on public health and medical innovation.