[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
PRESCRIPTION DRUG COVERAGE IN THE MEDICARE PROGRAM
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON HEALTH
OF THE
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
APRIL 30, 2019
__________
Serial No. 116-27
GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Printed for the use of the Committee on Energy and Commerce
govinfo.gov/committee/house-energy
energycommerce.house.gov
______
U.S. GOVERNMENT PUBLISHING OFFICE
39-904 PDF WASHINGTON : 2022
COMMITTEE ON ENERGY AND COMMERCE
FRANK PALLONE, Jr., New Jersey
Chairman
BOBBY L. RUSH, Illinois GREG WALDEN, Oregon
ANNA G. ESHOO, California Ranking Member
ELIOT L. ENGEL, New York FRED UPTON, Michigan
DIANA DeGETTE, Colorado JOHN SHIMKUS, Illinois
MIKE DOYLE, Pennsylvania MICHAEL C. BURGESS, Texas
JAN SCHAKOWSKY, Illinois STEVE SCALISE, Louisiana
G. K. BUTTERFIELD, North Carolina ROBERT E. LATTA, Ohio
DORIS O. MATSUI, California CATHY McMORRIS RODGERS, Washington
KATHY CASTOR, Florida BRETT GUTHRIE, Kentucky
JOHN P. SARBANES, Maryland PETE OLSON, Texas
JERRY McNERNEY, California DAVID B. McKINLEY, West Virginia
PETER WELCH, Vermont ADAM KINZINGER, Illinois
BEN RAY LUJAN, New Mexico H. MORGAN GRIFFITH, Virginia
PAUL TONKO, New York GUS M. BILIRAKIS, Florida
YVETTE D. CLARKE, New York, Vice BILL JOHNSON, Ohio
Chair BILLY LONG, Missouri
DAVID LOEBSACK, Iowa LARRY BUCSHON, Indiana
KURT SCHRADER, Oregon BILL FLORES, Texas
JOSEPH P. KENNEDY III, SUSAN W. BROOKS, Indiana
Massachusetts MARKWAYNE MULLIN, Oklahoma
TONY CARDENAS, California RICHARD HUDSON, North Carolina
RAUL RUIZ, California TIM WALBERG, Michigan
SCOTT H. PETERS, California EARL L. ``BUDDY'' CARTER, Georgia
DEBBIE DINGELL, Michigan JEFF DUNCAN, South Carolina
MARC A. VEASEY, Texas GREG GIANFORTE, Montana
ANN M. KUSTER, New Hampshire
ROBIN L. KELLY, Illinois
NANETTE DIAZ BARRAGAN, California
A. DONALD McEACHIN, Virginia
LISA BLUNT ROCHESTER, Delaware
DARREN SOTO, Florida
TOM O'HALLERAN, Arizona
------
Professional Staff
JEFFREY C. CARROLL, Staff Director
TIFFANY GUARASCIO, Deputy Staff Director
MIKE BLOOMQUIST, Minority Staff Director
Subcommittee on Health
ANNA G. ESHOO, California
Chairwoman
ELIOT L. ENGEL, New York MICHAEL C. BURGESS, Texas
G. K. BUTTERFIELD, North Carolina, Ranking Member
Vice Chair FRED UPTON, Michigan
DORIS O. MATSUI, California JOHN SHIMKUS, Illinois
KATHY CASTOR, Florida BRETT GUTHRIE, Kentucky
JOHN P. SARBANES, Maryland H. MORGAN GRIFFITH, Virginia
BEN RAY LUJAN, New Mexico GUS M. BILIRAKIS, Florida
KURT SCHRADER, Oregon BILLY LONG, Missouri
JOSEPH P. KENNEDY III, LARRY BUCSHON, Indiana
Massachusetts SUSAN W. BROOKS, Indiana
TONY CARDENAS, California MARKWAYNE MULLIN, Oklahoma
PETER WELCH, Vermont RICHARD HUDSON, North Carolina
RAUL RUIZ, California EARL L. ``BUDDY'' CARTER, Georgia
DEBBIE DINGELL, Michigan GREG GIANFORTE, Montana
ANN M. KUSTER, New Hampshire GREG WALDEN, Oregon (ex officio)
ROBIN L. KELLY, Illinois
NANETTE DIAZ BARRAGAN, California
LISA BLUNT ROCHESTER, Delaware
BOBBY L. RUSH, Illinois
FRANK PALLONE, Jr., New Jersey (ex
officio)
C O N T E N T S
----------
Page
Hon. Anna G. Eshoo, a Representative in Congress from the State
of California, opening statement............................... 1
Prepared statement........................................... 2
Hon. Larry Bucshon, a Representative in Congress from the State
of Indiana, opening statement.................................. 3
Prepared statement........................................... 4
Hon. Frank Pallone, Jr., a Representative in Congress from the
State of New Jersey, opening statement......................... 5
Prepared statement........................................... 7
Hon. Greg Walden, a Representative in Congress from the State of
Oregon, opening statement...................................... 8
Prepared statement........................................... 9
Hon. Eliot L. Engel, a Representative in Congress from the State
of New York, prepared statement................................ 66
Witnesses
James E. Matthews, Ph.D., Executive Director, Medicare Payment
Advisory Commission............................................ 10
Prepared statement........................................... 12
Answers to submitted questions............................... 67
PRESCRIPTION DRUG COVERAGE IN THE MEDICARE PROGRAM
----------
TUESDAY, APRIL 30, 2019
House of Representatives,
Subcommittee on Health,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to call, at 10:30 a.m., in
room 2322 Rayburn House Office Building, Hon. Anna G. Eshoo
(chairwoman of the subcommittee) presiding.
Members present: Representatives Eshoo, Engel, Butterfield,
Matsui, Castor, Sarbanes, Lujan, Schrader, Kennedy, Cardenas,
Welch, Ruiz, Dingell, Kuster, Kelly, Barragan, Blunt Rochester,
Rush, Pallone (ex officio), Burgess (subcommittee ranking
member), Upton, Shimkus, Guthrie, Griffith, Bilirakis, Long,
Bucshon, Brooks, Mullin, Hudson, Carter, Gianforte, and Walden
(ex officio).
Staff present: Jacquelyn Bolen, Counsel; Waverly Gordon,
Deputy Chief Counsel; Tiffany Guarascio, Deputy Staff Director;
Josh Krantz, Policy Analyst; Una Lee, Chief Health Counsel;
Aisling McDonough, Policy Coordinator; Joe Orlando, Staff
Assistant; Kaitlyn Peel, Digital Director; Samantha Satchell,
Professional Staff Member; C. J. Young, Press Secretary; Mike
Bloomquist, Minority Staff Director; Jordan Davis, Minority
senior Advisor; Caleb Graff, Minority Professional Staff
Member, Health; Peter Kielty, Minority General Counsel; Ryan
Long, Minority Deputy Staff Director; Brannon Rains, Minority
Staff Assistant.
Ms. Eshoo. The Subcommittee on Health will now come to
order.
Good morning, everyone. I am going to recognize myself for
five minutes for an opening statement.
OPENING STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Our subcommittee continues its work to lower drug prices
for seniors and for families across our country. Last month the
members of the subcommittee passed six bipartisan bills to make
prescription drugs more affordable by increasing market
competition. Today, we are going to take a close look at the
Medicare program to understand what is leading to high
prescription drug costs for the 60 million Americans who get
their drugs through Medicare.
To inform our work, we have present at hand, Dr. Matthews,
the Executive Director of MedPAC, the Medicare Payment Advisory
Commission. MedPAC provides valuable nonpartisan advice to
Congress on the Medicare program.
We need expert advice. Drug prices are skyrocketing and
Congress must act, and wants to act. Before we do, we have to,
I believe, do as best we can to do a deep dive to understand
the Medicare program and its challenges.
Medicare accounts for one out of every three dollars spent
on prescription drugs, and drug spending is growing rapidly
each year. Whether a patient gets their drugs at the hospital
under the Part B program, or the pharmacy counter through the
Part D program, costs are rising.
In the Part B program, Medicare drug spending doubled from
2009 to 2017. We spent $32 billion, that's with a B, on Part B
drugs in 2017. Part D drug spending has also nearly doubled
over the past ten years. We spent $80 billion in the Part D
program in 2017.
These rising costs are putting, I believe, unsustainable
pressure on the Medicare program and on America's families. In
a recent Kaiser Family Foundation poll, 23 percent of seniors
say it is difficult to afford their medications. I know it is
true for my constituents, and for all of my colleagues
constituents as well.
We hear from people on a consistent basis. They are worried
that when they leave their doctors' office appointments with a
new prescription written out for them, they are not sure
whether they can pay for it, afford it or not.
America leads the world in innovative healthcare, but soon,
few people will be able to afford this cutting-edge care. This
committee, through our work on the 21st Century Cures Act,
promoted development of novel, breakthrough treatments. But,
with the development of these treatments has come increased
spending.
Spending on drugs in specialty tiers has grown nearly 1,000
percent over ten years, from $3.4 billion in 2007 to $37.1
billion in 2017.
Because Medicare has no limit on out-of-pocket spending,
people who rely on specialty drugs are hit especially hard. One
study found needing a single specialty drug could cause people
on Medicare to spend anywhere from $2,000 to $16,000 out-of-
pocket annually.
Every senior deserves high-value, innovative medicine to
improve their lives, but rapidly increasing costs affect their
ability to get the drugs they need. We need solutions.
Today's hearing is yet another step closer to our, well, I
would say it is a very important step towards our bringing
forward solutions to what I just described.
Welcome to Dr. Matthews. I look forward to your expert
advice on improving the Medicare Part D program.
[The prepared statement of Ms. Eshoo follows:]
Prepared Statement of Hon. Anna G. Eshoo
Today, this Subcommittee continues its work to lower drug
prices for seniors and families.
Last month, the members of this Subcommittee passed six
bipartisan bills to make prescription drugs more affordable by
increasing market competition.
Today, we are taking a close look at the Medicare program
to understand what is leading to high prescription drug costs
for the 60 million Americans who get their drugs through
Medicare.
To inform our work, we have Dr. Mathews, the executive
director of MedPAC, the Medicare Payment Advisory Commission.
MedPAC provides valuable nonpartisan advice to Congress on the
Medicare program.
We need expert advice--drug prices are skyrocketing, and
Congress must act.
Before we do, we must understand the Medicare program and
its challenges.
Medicare accounts for one out of every three dollars spent
on prescription drugs, and drug spending is growing rapidly
each year.
Whether a patient gets their drugs at the hospital under
the Part B program or the pharmacy counter through the Part D
program, costs are rising.
In the Part B program, Medicare drug spending doubled from
2009 to 2017. We spent $32 billion on Part B drugs in 2017.
Part D drug spending has also nearly doubled over the past ten
years. We spent $80 billion in the Part D program in 2017.
These rising costs are putting unsustainable pressure on
the Medicare program and American families. In a recent Kaiser
Family Foundation poll, 23 percent of seniors say it is
difficult to afford their medications.
I know it's true for my constituents. I've heard from
people that are worried when they leave their doctors
appointment with a new prescription and no way to pay for it.
America leads the world in innovative healthcare, but soon,
few people will be able to afford cutting-edge care.
This Committee, through our work on the 21st Century Cures
Act, promoted the development of novel, breakthrough
treatments. But, with the development of these treatments has
come increased spending.
Spending on drugs in specialty tiers has grown nearly 1,000
percent over ten years--from $3.4 billion in 2007 to $37.1
billion in 2017.
Because Medicare has no limit on out-of-pocket spending,
people who rely on specialty drugs are hit especially hard.
One study found needing a single specialty drug could cause
people on Medicare to spend anywhere from $2,000 to $16,000
out-of-pocket annually.
Every senior deserves high-value, innovative medicine to
improve their lives, but rapidly increasing costs affect their
ability to get the drugs they need.
We need solutions. Today's hearing will get us another step
closer.
Welcome to Dr. Mathews and I look forward to your expert
advice on improving the Medicare Part B and D programs.
Ms. Eshoo And with that, I will now recognize Mr. Bucshon,
who will--is taking the place of Mr. Burgess this morning, who
has to be at the Rules Committee.
Ms. Eshoo Welcome. It is nice to sit next to you.
Mr. Bucshon. Thank you. It is nice to sit next to you,
also.
OPENING STATEMENT OF HON. LARRY BUCSHON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF INDIANA
Madam Chairwoman, thank you for holding this important
hearing today. I appreciate this opportunity to members to take
a deeper look at the drug coverage offered to seniors under
Medicare Part B and Part D. These programs provide critical
healthcare coverage for American seniors. And getting a better
understanding of where these programs are today will help
ensure that we can--they can meet the needs of seniors
tomorrow.
As we have been exploring drug pricing in this subcommittee
and in the committee, this is an important opportunity to hear
from the Medicare Payment Advisory Commission, a nonpartisan
organization that is tasked with providing technical advice to
Congress. MedPAC is an important resource for Congress as we
look to address challenging issues, such as Medicare's ability
to provide adequate and affordable drug coverage to seniors,
and the impacts any programmatic changes may have on
beneficiaries, providers, and taxpayers.
Medicare Part B covers drugs that are administered by a
physician through infusion or injection in an office or
outpatient setting. These drugs include many high-cost
chemotherapy agents, and other critical lifesaving medications.
Medicare Part D provides a prescription drug benefit to
beneficiaries, and participation is voluntary. The Part D
program has been a success. According to a recent MedPAC
report, it has improved beneficiaries' access to prescription
drugs.
Generic drugs now account for nearly 90 percent of the
prescriptions filled. Enrollees' average premiums for basic
benefits have remained around $30 per month for many years.
More than 8 in 10 Part D enrollees reported they are satisfied
with the program. Furthermore, because of the deliberate
structure of Part D, which incentivizes private health insurers
to compete against one another, the program has been wildly
successful in holding down costs to taxpayers.
In 2016, Part D expenditures were approximately $100
billion, which was less than half of the $205.5 billion
projected by the CBO in 2006. In fact, over the first ten years
that Part D was in operation, CBO data shows that the program
cost taxpayers $555.8 billion less than originally projected.
While Part B and Part D operate differently and cover
different medications, they both provide seniors with access to
necessary treatments and lifesaving drugs. It is important that
any suggested changes to these program be well understood, and
the impacts on patients, providers, and taxpayers be carefully
considered.
The Trump administration has made a vow to lower costs of
drugs, and has proposed changes to both Medicare Part B and D,
to address the rising list prices, out-of-pocket costs for
patients, and costs to the Federal Government. These proposed
changes to how Medicare operates and provides drugs under Part
B and D should be carefully analyzed to understand their full
impact.
It is important that members of Congress on both sides of
the aisle work together and, with the Administration, find
solutions to lower list prices and out-of-pocket costs while
maintaining robust access to seniors, without penalizing
physicians, taxpayers, or stifling innovation.
As the Energy and Commerce Committee considers legislative
proposals to address the high cost of drugs, I appreciate the
important resource that MedPAC provides Congress. I want to
thank our witness Dr. Matthews for being here today and I look
forward to your testimony.
I yield back.
[The prepared statement of Mr. Bucshon follows:]
Prepared Statement of Hon. Larry Bucshon
Madame Chairwoman, Thank you for holding this important
hearing today.
I appreciate this opportunity for members to take a deeper
look at the drug coverage offered to seniors under Medicare
Part B and D. These programs provide critical healthcare
coverage for American seniors and getting a better
understanding of where these programs are today will help
ensure that that can meet the needs of seniors tomorrow.
As we have been exploring drug pricing in this committee,
this is an important opportunity to hear from the Medicare
Payment Advisory Commission, a nonpartisan organization that is
tasked with providing technical advice to Congress. MedPac is
an important resource for Congress as we look to address
challenging issues, such as Medicare's ability to provide
adequate and affordable drug coverage to seniors, and the
impacts any programmatic changes may have on beneficiaries,
providers, and taxpayers.
Medicare Part B covers drugs that are administered by a
physician through infusion or injection in an office or
outpatient setting. These drugs include many high cost
chemotherapy agents, and other critical life-saving
medications.
Medicare Part D provides a prescription drug benefit to
beneficiaries, and participation is voluntary. The Part D
program has been a success, according to a recent MedPac
report,``It has improved beneficiaries' access to prescription
drugs. Generic drugs now account for nearly 90 percent of the
prescriptions filled. Enrollees' average premiums for basic
benefits have remained around $30 per month for many years.
More than 8 in 10 Part D enrollees report they are satisfied
with the program." Furthermore, because of the deliberate
structure of Part D--which incentivizes private health insurers
to compete against one another--the program has been wildly
successfully in holding down costs to taxpayers. In 2016, Part
D expenditures were approximately $100 billion--which was less
than half the $205.5 billion projected by CBO in 2006. In fact,
over the first ten years that Part D was in operation, CBO data
shows that the program cost taxpayers $555.8 billion less than
originally projected. \1\
---------------------------------------------------------------------------
\1\ https://www.americanactionforum.org/research/medicare-part-d-
advancing-patient-health-private-sectorinnovation/
---------------------------------------------------------------------------
While Part B and Part D operate differently and cover
different medications, they both provide seniors with access to
necessary treatments and life-saving drugs. It is important
that any suggested changes to these programs be well
understood, and the impacts on patients, providers, and
taxpayers be carefully considered.
The Trump Administration has made a vow to lower the cost
of drugs and has proposed changes to both Medicare Part B and D
to address the rising list prices, out-of-pocket costs for
patients, and cost to the Federal Government. These proposed
changes to how Medicare operates and provides drugs under Part
B and D should be carefully analyzed to understand their full
impact. It is important that Members of Congress on both sides
of the aisle work together, and with the Administration to find
solutions to lower list prices and out-of-pocket costs while
maintaining robust access for seniors without penalizing
physicians and taxpayers, or stifling innovation.
As the Energy and Commerce Committee considers legislative
proposals to address the high cost of drugs, I appreciate the
important resource that MedPac provides to Congress.
I thank our witness, Mr. Matthews for being here today, and
I look forward to your testimony. I yield back.
Ms. Eshoo. I thank the gentleman for his statement, and now
I recognize Mr. Pallone, chairman of the full committee, for
five minutes for his opening statement.
OPENING STATEMENT OF HON. FRANK PALLONE, Jr., A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF NEW JERSEY
Mr. Pallone. Thank you, Madam Chair.
Today we are continuing this committee's important work in
providing Americans relief when it comes to the skyrocketing
price of prescription drugs. We have already passed several
bills that will remove barriers that delay cheaper generic
drugs from coming to market. Today we are focusing on the
rising costs of prescription drugs in the Medicare program so
we can begin to think about solutions to drive down costs for
America's seniors and for the Federal Government.
We have all heard the stories about Americans who cannot
afford their medications, who are rationing their life-saving
therapies, or choosing not to fill their prescriptions because
they instead need to put food on the table. At the same time,
we have watched as prescription drug spending continues to cost
the Federal Government more and more each year. And we simply
can't afford to wait any longer to fix this broken system.
The way drug prices are set, and the opaque drug supply
chain, has fostered a system that can be gamed for profit at
the expense of seniors who need access to affordable medicines.
I want to thank James Matthews, the Executive Director of
MedPAC, for testifying. MedPAC is a critical resource to
Congress and provides invaluable nonpartisan policy
recommendations on how to improve the Medicare program for
beneficiaries. MedPAC has conducted significant work on
prescription drug pricing in the Medicare program. I look
forward to hearing from Dr. Matthews on how we pay for drugs
under Parts B and D, and how we can lower drug costs.
But this is particularly concerning in the Part D program,
where high cost specialty drugs represent a large and growing
share of Part D spending. According to MedPAC, spending for
specialty drugs has grown more than ten times since the
beginning of the Part D program. That growth resulted in
specialty drug claims making up nearly a quarter of all gross
Part D spending in 2017. It is now estimated that between 2019
and 2023, nearly two-thirds of newly-launched drugs will be
considered specialty drugs.
These high cost specialty drugs are partly responsible for
the fact that each year more beneficiaries are reaching the
catastrophic phase of the Part D benefit. In 2016, over 360,000
Medicare beneficiaries reached the catastrophic limit of $4,850
out-of-pocket, that threshold, in just one visit to the
pharmacy. That's a significant jump from only 33,000
beneficiaries in 2010, and this leaves beneficiaries,
particularly those with serious, chronic, or life-threatening
diseases at risk for substantial out-of-pocket costs.
I look forward to hearing from Dr. Matthews about MedPAC's
proposal to add an out-of-pocket limit to the Part D program. I
hope we can work together on a bipartisan basisto implement
some of these ideas in order to provide seniors with peace of
mind that they will be protected if they need these high-cost
therapies.
MedPAC has also noted that the current structure of the
Part D program may be eroding incentives for Prescription Drug
Plans to control costs. Currently, the Federal Government pays
80 percent of the costs for Part D benefits in the catastrophic
phase of coverage. This means that payors may not be
incentivized to effectively manage costs for their most
expensive enrollees since the Government is footing most of the
bill.
We will also discuss Part B drug spending, which has
increased at an average rate of almost 10 percent annually for
the past decade. These increases are primarily driven by rising
drug prices, which have a direct impact on out-of-pocket costs
for beneficiaries, because most beneficiaries are responsible
for paying a 20 percent coinsurance on their Part D drug--Part
B drugs. I look forward to examining proposals to slow rapid
price growth and increase competition in the Part B drug
program as well.
While most groundbreaking drugs are coming to market, they
really are saving lives, increasing quality of life, and
helping seniors to better manage diseases; but these therapies
often come with price tags that are unaffordable for the
average American. And these prices represent a significant
long-term financial challenge to the Federal Government and to
the Medicare program. We have to find solutions that promote
greater affordability and access. I look forward to that
discussion today.
I don't think anybody else wants my time, Madam Chair, I
yield back. Thank you.
[The prepared statement of Mr. Pallone follows:]
Prepared Statement of Hon. Frank Pallone, Jr.
Today we are continuing this Committee's important work in
providing Americans relief when it comes to the skyrocketing
price of prescription drugs. We have already passed several
bills that will remove barriers that delay cheaper, generic
drugs from coming to market. And today we're focusing on the
rising costs of prescription drugs in the Medicare program, so
we can begin to think about solutions to drive down costs for
America's seniors and for the Federal Government.
We have all heard the stories about Americans who cannot
afford their medications, who are rationing their life-saving
therapies, or choosing not to fill their prescriptions because
they instead need to put food on the table. At the same time,
we have watched as prescription drug spending continues to cost
the Federal Government more and more each year. We cannot
afford to wait any longer to fix this broken system.
The way drug prices are set, and the opaque drug supply
chain, has fostered a system that can be gamed for profit at
the expense of seniors who need access to affordable medicines.
I'd like to thank James Mathews, the Executive Director of
the Medicare Payment Advisory Commission, for testifying today
on this important issue. MedPAC is a critical resource to
Congress and provides invaluable nonpartisan policy
recommendations onhow to improve the Medicare program for
beneficiaries. MedPAC has conductedsignificant work on
prescription drug pricing in the Medicare program, and I look
forward to hearing from Dr. Mathews on how we pay for drugs
under Parts B and D and how we can lower drug costs.
This is particularly concerning in the Part D program,
where high cost specialty drugs represent a large and growing
share of Part D spending. According to MedPAC, spending for
specialty drugs has grown more than ten times since the
beginning of the Part D program. That growth resulted in
specialty drug claims making up nearly a quarter of all gross
Part D spending in 2017. It is now estimated that between 2019
and 2023, nearly two-thirds of newly launched drugs will be
considered specialty drugs.
These high cost specialty drugs are partly responsible for
the fact that each year more beneficiaries are reaching the
catastrophic phase of the Part D benefit. In 2016, over 360,000
Medicare beneficiaries reached the catastrophic limit of $4,850
out-of-pocket threshold in just one visit to the pharmacy.
That's a significant jump from only 33,000 beneficiaries in
2010. This leaves beneficiaries, particularly those with
serious, chronic, or life-threatening diseases at risk for
substantial out-of-pocket costs.
I look forward to hearing from Dr. Mathews about MedPAC's
proposal to add an out-of-pocket limit to the Part D program. I
hope we can work together on a bipartisan basisto implement
some of these ideas in order to provide seniors with peace of
mind that they will be protected if they need these high cost
therapies.
MedPAC has also noted that the current structure of the
Medicare Part D program may be eroding incentives for
Prescription Drug Plans (PDPs) to control costs. Currently, the
Federal Government pays 80 percent of the costs for Part D
benefits in the catastrophic phase of coverage. This means that
payors may not be incentivized to effectively manage costs for
their most expensive enrollees since the Government is footing
most of the bill.
We'll also discuss Part B drug spending, which has
increased at an average rate of almost 10 percent annually for
the past decade. These increases are primarily driven by rising
drug prices, which have a direct impact on out-of-pocket costs
for beneficiaries because most beneficiaries are responsible
for paying a 20 percent coinsurance on their Part B drugs. I
look forward to examining proposals to slow rapid price growth
and increase competition in the Part B drug program.
While more groundbreaking drugs are coming to market that
are saving lives, increasing quality of life, and helping
seniors to better manage diseases, these therapies often come
with price tags that are unaffordable for the average American.
These prices also represent a significant, long-term financial
challenge to the Federal Government and to the Medicare
Program. We must find solutions that promote greater
affordability and access, and I look forward to the discussion
today.
Ms. Eshoo. The gentleman yield back, and now I'm pleased to
recognize Mr. Walden, the ranking member of the full committee,
for five minutes for his opening statement.
OPENING STATEMENT OF HON. GREG WALDEN A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF OREGON
Mr. Walden. Thank you, Madam Chairman. Thank you for
holding this hearing.
This hearing continues this committee's important work on
bringing down the costs of prescription drugs for seniors,
frankly for all Americans, and patients across thecountry, but
especially seniors in the Medicare program.
I want to thank our witness. Doctor, we are delighted to
have you here as Executive Director of Medicare's Payment
Advisory Commission, more commonly known as MedPAC. The work
you do there, and your team, is really important. MedPAC
provides a really valuable service to lawmakers. As an
independent nonpartisan commission, provides data analysis and
policy recommendations to improve the Medicare system, which we
all care deeply about.
We value this input and we really appreciate the work of
the Commission.
Today, we call on MedPAC's expertise with respect to rising
prescription drug costs in the Medicare system. This committee
has a long history on this issue, including the creation of
Part D, which some of us were on the committee then and did the
full overnight mark-up, and 60 amendments, and a lot of back
and forth, but we got it done. That was back in 2003.
Nearly 44 million Medicare beneficiaries use Medicare Part
D today. I remember there was talk then that nobody would write
one of those plans, it will never get off the ground, it will
cost a fortune. And, actually, it has worked pretty well. Now
there are some tweaks all these years later we need to look at.
It is important to note the overwhelming majority of
seniors who have Part D are satisfied with their plan. The
premiums have remained stable and, frankly, relatively low
throughout the program's history. The program has largely been
a good success, and harnessing the power of competition to
create a working market has given consumers more choices than
anybody thought possible, and has helped keep prices down.
Now, there are challenges to Medicare Part D that have
grown over time and have saddled some beneficiaries with
significant increases in their out-of-pocket costs.
Additionally, the share of Medicare Part D spending
attributable to the catastrophic stage of coverage, has
increased from 14 percent of the program costs in 2006 to 40, 4
zero, percent in 2017. We should confront these issues now to
modernize Part D and keep drugs affordable for seniors and
address misaligned incentives to drive up costs.
The same goes for Part B where a small number of drugs
represent a large percentage of Government and beneficiary
spending on the program. As others have noted, Part B drug
spending has increased almost 10 percent per year since 2009.
While there has been tremendous development, especially drugs,
that can effectively treatcancer and other diseases in amazing
ways, these rising costs must also be confronted.
I look forward to hearing from our witnesses, or our
witness, on whether the current structure of how Part B drugs
are reimbursed--can and should be modified to foster
competition and to lower prices. One consistent concern I hear
about from my constituents in Oregon, and I have done 20 town
halls so far this year, is the high cost of prescription drugs.
I know that my colleagues on both sides of the aisle have heard
similar concerns in their districts as well.
We have worked in a bipartisan manner on lowering drug
costs over the last several years. During my tenure as chairman
of this committee and during the first few months of this year
we have continued those efforts. I believe that that should
continue. This hearing will help us further our bipartisan work
to lower drug costs for American consumers and seniors who rely
upon Medicare.
Thanks again, Doctor, for being here today and the good
work you do at MedPAC.
With that, Madam Chair, I yield back.
[The prepared statement of Mr. Walden follows:]
Prepared Statement of Hon. Greg Walden
Thank you, Chairwoman Eshoo for holding this hearing today.
This hearing continues this committee's important work on
bringing down the cost of prescription drugs for patients
across the country, including seniors in the Medicare program.
I'd like to thank our witness, Dr. James Matthews,
Executive Director for theMedicare Payment Advisory Commission,
more commonly known as MedPAC. MedPAC provides a valuable
service to lawmakers in Congress, as an independent,
nonpartisan commission providing data analysis and policy
recommendations to improve the Medicare system. We value this
input and appreciate the work of the Commission.
Today, we call on MedPAC's expertise with respect to rising
prescription drug costsin the Medicare system. This Committee
has a long history on the issue, including the creation of the
Part D benefit back in 2003 that nearly 44 million Medicare
beneficiariesuse today. It's important to note that the
overwhelming majority of seniors who have Part D are satisfied
with their plan, and premiums have remained stable and
relatively low throughout the program's history. The program
has largely been a success, harnessing the power of competition
to create a working market that gives consumers choice and
keeps prices down.
There are challenges in Part D, however, that have grown
over time and have saddled some beneficiaries with significant
increases in their out-of-pocket costs. Additionally, the share
of Part D spending attributable to the catastrophic stage of
coverage has increased from 14% of program costs in 2006 to 40%
in 2017. We should confront these issues now to modernize the
Part D benefit, keep drugs affordable for seniors and address
misaligned incentives that drive up costs.
The same goes for Part B, where a small number of drugs
represent a large percentage of Government and beneficiary
spending on the program. As others have noted, Part B drug
spending has increased almost 10% per year since 2009. While
there has been tremendous development of specialty drugs that
can effectively treat cancer and other diseases in amazing
ways, these rising costs must also be confronted. I look
forward to hearing from our witness on whether the current
structure of how Part B drugs are reimbursed can be modified to
foster competition and lower prices.
One consistent concern I hear about from my constituents in
Oregon as I hold town halls and other meetings is the high cost
of prescription drugs. I know that my colleagues on both sides
of the aisle have heard similar concerns in their districts as
well.
We have worked in a bipartisan manner on lowering drug
costs over the past several years, during my tenure as Chairman
and during the first few months of this year. I believe that
should continue, and this hearing will help us further our
bipartisan work to lower drug costs for American consumers and
seniors who rely on Medicare.
Thank you again to our witness for being here today, and I
look forward to a productive hearing.
Ms. Eshoo. The gentleman yield back.
Now I would like to remind Members that, pursuant to
committee rules, all Members' written opening statements shall
be made part of the record. So, get them in.
I would now like to introduce our witness for today's
hearing, Dr. Jim Matthews. He serves as the Executive Director
of the Medicare Payment Advisory Committee, and a very
important position, a very important commission. And once
again, thank you for being here today to be instructive to us.
And we certainly look forward to your testimony.
You have testified many times in Congress, so I don't think
I need to explain the lighting system to you. The most
important one is when it turns red, because that is when your
five minutes are up.
So, Dr. Matthews, thank you again. You are now recognized
for five minutes of testimony.
STATEMENT OF JAMES E. MATTHEWS, PH.D., EXECUTIVE DIRECTOR,
MEDICARE PAYMENT ADVISORY COMMISSION
Mr. Matthews. Thank you. Good morning, Chairwoman Eshoo,
Dr. Bucshon, and distinguished committee members. On behalf of
MedPAC, a nonpartisan, independent congressional advisory
agency, I am here to convey information on Medicare's payments
for prescription drugs.
First, I will describe how Medicare pays for drugs under
Part B and discuss recent trends in spending and utilization.
Second, I will do the same with Part D.
Lastly, I will touch briefly on commission recommendations
that address these trends.
I will start with Part B. Part B covers drugs that are
typically administered by a provider, such as infused
chemotherapy drugs. Medicare pays for Part B drugs based on the
average sales price that manufacturers report for a drug, net
of most rebates and discounts. Medicare pays providers the
actual sales price, plus a six percent add-on, regardless of
how much the individual provider has spent to purchase the
drug. Medicare makes a separate payment to the provider for
administering the drug.
Part B spending has grown roughly 10 percent a year since
2009, reaching $32 billion in 2017. Growth in Medicare spending
for drugs under Part B is driven largely by rising prices,
which account for two-thirds of overall spending growth, and
which reflect manufacturers' significant pricing leverage.
Under the current payment system, as drug prices rise,
Medicare's payments will follow. And Medicare has few tools to
affect prices under Part B.
Part D uses private plans to deliver Medicare's outpatient
prescription drug benefit. Part D plans negotiate with
pharmacies over payment rates for filling prescriptions, and
with drug manufacturers for post-sale rebates. Medicare is
prohibited from interfering in these negotiations.
There are two components of Medicare's payments to plans
for Part D basic benefits.
First, there is a per-enrollee payment based on plans'
bids, which reflects their expected costs for the Part D
benefit for an average enrollee.
The second is individual reinsurance, which are cost-based
payments to plans for which Medicare covers 80 percent of the
costs in the catastrophic phase of the benefit.
Part B--Part D spending grew at about 7 percent annually
between 2010 and 2017, reaching $80 billion. But Medicare's
reinsurance payments for Part D enrollees who had drug spending
high enough to reach the catastrophic phase grew almost 20
percent annually over the same period. Again, high cost
therapies drive these trends. Part D spending for high-priced
specialty tier drugs grew tenfold between 2007 and 2017. And,
again, this growth is driven by price.
In 2017, 370,000 beneficiaries filled a single prescription
that was so expensive it would push them into the catastrophic
phase of the benefit, up from just 33,000 such beneficiaries in
2010.
When plans have financial responsibility for insurance
risk, they face greater incentives to manage costs. However,
growth in reinsurance, recent changes to the coverage gap, and
the growth in high-cost medicines may be eroding plans'
incentives to and ability to control costs. In fact, Part D's
benefit structure may give plans a financial incentive to play
certain high-cost, high-rebate drugs on their formularies, even
when lower cost alternatives are available.
Growth in drug prices substantially affects Medicare drug
spending. This growth reflects both higher prices for existing
products and the launch of new high-price drugs. Yet, again,
Medicare has very limited influence over drug prices.
Recent commission recommendations attempt to address the
growth in Medicare drug spending. In Part B we would give
clinicians an alternative to the ``buy and bill'' environment,
and provide incentives for them to use this approach.
In Part D we would shift more liability for costs in the
catastrophic phase of the benefit to plans. In exchange, we
would give plans more tools and flexibility to manage
enrollees' utilization. We would also eliminate beneficiary
cost-sharing in the catastrophic phase.
In sum, prescription drugs are essential to treating many
medical conditions, and Medicare must ensure that beneficiaries
have access to appropriate medication therapies. At the same
time, high prices for drugs make it difficult to ensure this
access, while protecting the taxpayers and beneficiaries who
funds the program. We hope the committee regards the Commission
as a resource as you develop policies to address these critical
issues.
Thank you.
[The prepared statement of Mr. Matthews follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Ms. Eshoo. Thank you, Dr. Matthews.
We have now concluded the opening statements and we will
move to member questions. Each Member will have five minutes to
ask questions of Dr. Matthews. I will start by recognizing
myself for five minutes.
Again, thank you, Dr. Matthews. In my opening statement I
spoke about the increase in spending on specialty drugs. And
you, you also have spent part of your testimony on specialty
drugs in the Medicare Part D program, and what that means for
seniors.
You point out that plans may not have the incentive or the
ability to control the costs of specialty drugs. So, what, can
you restate for us what exactly MedPAC believes what plans can
do to better manage the costs of the new specialty drugs?
And, of course it is not just Medicare being hit by the
trend in high-cost drugs. We have--well, I have some other
questions, too. Maybe I should just put all my questions out
and you can answer them.
Veterans' Affairs, Medicaid, and private plans, how are
they managing this trend?
How to other Federal programs like the VA and TRICARE
leverage their buying power for these products?
And what is the effect of high-cost drugs--well, we know
what the effect of high-cost drugs on beneficiaries is. Does
MedPAC have a recommendation relative to an out-of-pocket cap
needed for Medicare drug costs?
I know that you said that Medicare has very little
authority relative to pricing but, you know, we want to examine
everything, every angle of this Rubik's Cube. And so, if we
were to implement such a cap, how would that affect the
incentive for drug makers in Part D plans that we have
discussed?
So, those are my questions. And have at it.
Mr. Matthews. Sure. So, and again thank you for the
invitation to testify and to clarify. This is my first
testimony before Congress.
Ms. Eshoo. Oh. Well, bravo. It is not so bad, is it?
Mr. Matthews. Not yet.
[Laughter.]
Ms. Eshoo. This is a friendlier hearing room. It is
smaller, it is more personal. So, share your wisdom and your
expertise with us.
Mr. Matthews. Sure. So, your question has multiple
components and I am going to try and get to all of them.
First, as you know, Medicare has made a recommendation in
2016, and slightly modified that recommendation in 2018, to
modify the structure of the Part D benefits. And the motivation
behind this recommendation hinges on the entry of high-cost,
high-rebate drugs into the Part D program, and the incentives
that the plans have to place those drugs on their formularies,
even when lower cost alternatives are available.
And the incentives are such that the plan can move a
beneficiary into the catastrophic phase of the benefits where
the plan only has 15 percent liability for those costs under
current law. The Medicare program is liable for 80 percent,
which it makes on a retrospective cost basis. So, it is counter
to the incentives that the plans have to actually manage the
benefit above the catastrophic limit.
Plans are not the only actor that might have a role in
managing costs at that level. We have started to evaluate
additional reforms to the structure of the Medicare Part D
benefit that would contemplate a role for the manufacturer to
have some financial responsibility above that catastrophic
phase, in contrast to current law where the manufacturer is
liable for a 70 percent discount on brand name drugs within the
coverage gap.
We are contemplating whether or not the incentives might be
better for beneficiaries and the program as a whole by shifting
that liability above the catastrophic threshold.
Ms. Eshoo. Is there any benefit to the beneficiaries
relative to rebates in this?
Mr. Matthews. So, we think that by aligning the incentives
for the plans and manufacturers to bargain hard for costs and
to manage utilization that that would probably have a more
direct and immediate effect on the majority or the totality of
Part D enrollees relative to rebates that have distorted
effects with respect to any individual beneficiary's
utilization and costs.
Ms. Eshoo. And the other, how the other programs, private
plans, Medicaid, VA, how are they managing this trend? How do
they leverage their buying power for these products?
Mr. Matthews. So, so Medicaid has a couple of tools
available to the program. And, again, I am not deep on Medicaid
because my expertise is primarily Title 18, so I don't want to
stray too far out of what I am able to talk about. But Medicaid
benefits from a statutory discount and also from a certain
inflation rebate that governs how much manufacturers can
increase their prices.
Veterans' Affairs is able to contract directly with
manufacturers and suppliers under the Federal Supply Schedule.
They can do so because they actually take delivery of products
and can guarantee utilization. But it is my understanding that
sometimes VA has been criticized in that they have a closed
formulary that in some cases has precluded access to certain
innovative medications.
Ms. Eshoo. Well, my time has certainly expired. So now I
would like to recognize Mr. Bucshon, who is standing in for the
subcommittee ranking member, for his five minutes of questions.
Mr. Bucshon. Thank you, Madam Chairwoman.
Dr. Matthews, MedPAC in the past has recommended a
voluntary market-based program for doctors to use third party
vendors to obtain drugs in Part D. The Administration, in its
advanced notice of proposed rulemaking, proposes setting up a
similar system but would make it mandatory for physicians to
participate.
I have heard concerns from providers that requiring them to
switch to vendors could be very disruptive. Can you discuss why
MedPAC opted for a voluntary program, and what features you
included to foster competition on drug pricing?
Mr. Matthews. Sure. One of the main reasons that led us to
recommend a vendor-based approach to Part D drugs was the
potential inflationary incentives inherent in Part B. Where the
higher the cost of the drug, the higher the six percent add-on
that the provider who administers the drug receives from the
program.
And the research is fairly limited as to whether or not
providers are actively acting on those incentives but,
nonetheless, the incentives are still there. And we feel that
getting providers out of the financial incentives related to
``buy and bill'' would be better served by having them focus
more on selecting the drugs that are most appropriate to the
given patient.
And so, we have recommended a modernization of the prior
competitive acquisition program that Medicare used several
years back under which a vendor would be responsible for
negotiating prices with manufacturers, and the vendor would be
able to pass on those prices to the individual clinicians or
providers who prescribe drugs under Part B.
Mr. Bucshon. Can I ask a question there?
Mr. Matthews. Sure.
Mr. Bucshon. Because if you add another middle person, just
so you are going to--you might, there might be some savings but
you are going to eat some of that up; right?
Mr. Matthews. Under our construct there would be a couple
of parameters that would govern the ability of a provider to
eat up those savings.
One, under our construct savings would accrue to the
vendor, and savings wouldalso accrue to the clinicians who
voluntarily elected to participate in that vendor's negotiated
prices.
The second thing that we would do----
Mr. Bucshon. So that would be the difference between
voluntary and mandatory then essentially; right?
Mr. Matthews. Yes, sir, that's correct.
Mr. Bucshon. OK.
Mr. Matthews. The second thing we would do is under our
recommendation we would have a requirement that the vendor
negotiate prices no higher than 100 percent of ASP as currently
pertains to the market. So, there would be a couple of ways to
govern any potential price increases on the Medicare----
Mr. Bucshon. Well, couldn't you, couldn't you just do that?
Couldn't we just do that without a vendor in the middle? We
could just say we are--I mean, that has been tried, right?
There was a demonstration project?
Mr. Matthews. Yes, sir.
Mr. Bucshon. In a previous administration cutting it down
to ASP plus I think two point some percent. I can't remember.
Mr. Matthews. So, the current sequester effectively reduces
Medicare payments for Part B drugs from the statutory ASP plus
six to ASP plus 4.3 percent.
Mr. Bucshon. Yes, yes. OK, the demonstration project, which
didn't happen----
Mr. Matthews. Right.
Mr. Bucshon [continuing]. Was even lower than that.
Mr. Matthews. Right.
Mr. Bucshon. I have another question, so I will move on
from there.
But first of all, as a physician I think there
automatically is an assumption that physicians out there will
choose higher price, a higher priced product to make more
money. And I will just push back on that and say that I think
there are maybe people that would do that. But I would argue
that the vast majority of physicians make decisions on which
medications to use for patients based on known clinical
knowledge based on standard of care in their community. I just
want to say that up front.
But we do, but there are incentives. Not disagreeing with
that.
In MedPAC's recommendation for Part D it suggests that plan
sponsors be given more financial incentives to manage the
benefits of high-cost enrollees by shifting more of the plan
payments from open-ended reinsurance to capitated payments. As
part of a--part of this suggestion, plan sponsors would be
given more flexibility to use ``formulary tools.''
As a physician I have had some problems with those
``formulary tools'' such as step therapy and prior
authorization for many years. That could delay patient access
to timely medications, disrupt treatment regimens for stable
patients and create unnecessary physician burden.
Did MedPAC consider these potential impacts to patients and
physicians before providing this recommendation?
Mr. Matthews. Yes, sir, we did. And, as always, there is a
balance or set of tradeoffs involved in these kinds of
decisions where you want to give the plans the leverage with
manufacturers to negotiate prices and incentive to manage
utilization versus any potential speed bumps that those tools
put in front of providers and patients in terms of timely
access to the medications.
So, we have talked with stakeholders in the course of
developing our recommendations. And we do understand the
frustration that some of these utilization management tools
create. But, at the same time it is a question of the tradeoffs
and the balance that we are trying to achieve for the program
as a whole.
Mr. Bucshon. OK, great. Thank you. My time has expired, and
I yield back.
Ms. Eshoo. I thank the gentleman and he yield back.
The Chair now recognizes Mr. Pallone, the full committee
chairman, for his five minutes of questioning.
Mr. Pallone. Thank you. Thank you, Madam Chair. And I
wanted to kind of follow up on some of those things that you
mentioned, Madam Chair.
Let me start with Part D. MedPAC has analyzed that between
2007 and 2017, Part D program spending increased from $46
billion to about $80 billion, for an average increase of 5.6
percent per year, which I think is unsustainable. So, Dr.
Matthews, can you explain why we are seeing these steep
spending increases in Part D?
And it is my understanding that a smaller portion of high-
cost beneficiaries are driving the majority of Part D spending;
and is that correct?
Mr. Matthews. Yes, sir, that is correct.
As one of the members said in the opening statements, Part
D has been successful in shifting a substantial amount of
utilization among Part D enrollees to generics, which the
Commission has supported. But at the same time, we are seeing
the entry of new high-cost specialty drugs into the program.
And over the last several years it is those drugs that have
been predominantly driving the increases in spending that we
have documented.
Mr. Pallone. Now, I know you talked a little bit about some
of MedPAC's solutions to control spending in response to
Chairman Eshoo. But would you, would you develop that a little
more? What are some of MedPAC's solutions to control spending
inthe future?
Mr. Matthews. OK. So, again, under Part D one of the key
elements that we would do is restructure the benefit to give
plans more of an incentive to manage utilization above the
catastrophic limit. We feel that having the program be
responsible for 80 percent of those costs above the
catastrophic limit is inconsistent with the notion that Part D
was founded on, which was that Part D plans would compete with
manufacturers in order to generate the best possible price for
the enrollees in order to keep premiums low.
So, we feel that the incentives currently has negated
plans' ability to do that somewhat.
As we have been discussing the growth in Medicare spending
for drugs under Parts B and D since then, we have become more
attuned to the influence of these new, high cost therapies. And
we are starting, as I said earlier, to contemplate whether or
not manufacturers, who do indeed control the price, should have
a greater liability for spending in the catastrophic phase of
the benefit.
Again, the Commission has not made any formal
recommendation there yet, but it is something that we are very
actively engaged in doing.
Mr. Pallone. Let me get into two more questions. This is
the last one on Part D, then I want to ask about Part B.
You talked about generics. You know, we are very proud of
the fact that on a bipartisan basis we reported out a package
of generic competition bills that I think are going to go to
the floor soon. But, of course, if you have these single source
drug therapies, there is no competition. Right? So, we know
often that these innovative products can change lives, the
single source. But without competition how difficult is it to
control the cost of those therapies in particular?
Mr. Matthews. We believe it is difficult. And that is one
factor that has led us to contemplate going further than our
2016 benefit restructuring recommendation. And again, here the
recommendation was to have plans liable for 80 percent of those
costs.
But, if we are talking about true sole-source products for
which there are no competitors, the plans are going to have
fairly limited negotiating leverage with which to negotiate
hard on price with the manufacturers.
And that is why we are starting to contemplate whether or
not the manufacturers should have some liability for costs
above the catastrophic phase.
Mr. Pallone. All right. Now let me address Part D.
I was struck by the rate of rapid annual growth in Part D
drugs mentioned in your testimony, almost 10 percent spending
increases annually for the past decade. So, one question.
Could you provide some examples of the most expensive drugs
in the Part D program and the conditions they treat? And what
are some of the annual per-user costs for these drugs? And what
is the beneficiary's responsibility for these costs?
Mr. Matthews. Sure. And just to clarify, this is D?
Mr. Pallone. D now. This is my only question about D, yes.
Mr. Matthews. Yes, of course.
So, a lot of the high-cost drugs that we have been seeing
over the last several years are high-cost specialty drugs,
predominantly biologics. All of the top ten drugs for Part Din
terms of spending are biologics. They are used to treat
conditions such as cancer and its side effects, rheumatoid
arthritis, and ocular conditions such as macular degeneration.
Mr. Pallone. All right. Thank you so much.
Thank you, Madam Chair.
Ms. Eshoo. I thank the gentleman, and he yield back.
The Chair now recognizes Mr. Walden, the full committee
ranking member for his five minutes.
Mr. Walden. Thank you, Madam Chairwoman.
And again, Doctor, thank you for the work you do, and your
team.
We know that a lot of surveys show seniors like Medicare
Part D, like a 90 percent approval rating. But we also see some
disturbing trends. I wanted to ask you about some of that.
I hear a lot about the rising out-of-pocket costs for
seniors. And I have some concerns that some of the changes to
the Part D program provide incentives to use brands over
generics, and particularly as it relates to true out-of-pocket
cost, the acronym TrOOP, calculations.
So, if a senior used only generics they would have to spend
about $5,100 to reach the catastrophic stage of coverage;
correct?
Mr. Matthews. Yes, sir. That sounds about right.
Mr. Walden. And so, due to the way TrOOP is calculated, I
am told a senior would have to spend only $2,275 in a year to
reach catastrophic coverage if they use only brands. Is that?
Mr. Matthews. Without commenting on the specific dollar
amounts, I believe the proportions are correct.
Mr. Walden. OK. And how have these incentives then affected
Part D formularies and plan design? What is happening in this?
Mr. Matthews. So, we do see a trend where plans have in
certain instances included high-cost, high-rebate drugs on
their formularies even when lower cost alternatives are
available.
And the idea here is that the high-cost drug is going to
get the beneficiary into the coverage gap sooner than a lower
cost brand name drug, or a lower cost generic. And it is above
the coverage gap in the current construct where the plan only
has 15 percent liability for those costs.
And so, arguably, there are instances where the size of the
rebate for certain drugs can be so great as to even begin to
offset their 15 percent liability above that catastrophic
limit.
Mr. Walden. So, what is the effect for taxpayers, and what
is the effect for consumers for that?
Mr. Matthews. So, for taxpayers then the fastest growing
component of Medicare spending for Part D is the reinsurance
payments that the program makes to plans. And these are
payments that reflect plans' costs for these extremely high-
cost enrollees. But these payments are also funded directly by
the Medicare program.
So, the fact that these reinsurance payments have been
growing for 20 percent year over year for the last ten years is
detrimental to taxpayers. And to the extent that these costs
are reflected in the calculation of Part B premiums, it is
detrimental for the beneficiaries who are paying for these
premiums.
Mr. Walden. All right, thank you very much. I will yield
back, Madam Chair.
Ms. Eshoo. I thank the gentleman. He yield back.
The Chair now recognizes the gentlewoman from California,
my friend Congresswoman Matsui.
Ms. Matsui. Thank you so much, Madam Chair.
And thank you, Dr. Matthews for joining us today.
While it is important to focus on lowering the price of
prescription drugs to patients and to ensure the sustainability
of the Medicare program, we can't lose site of the need to
protect beneficiaries' access to necessary medications. As you
know, the Administrationlast fall proposed changes to the
protected class policy that would allow Part D plan sponsors to
add restrictions or otherwise limit prescription medications in
the six protected classes.
The protected class policy is an important safety net for
patients who absolutely need potentially life-saving
medications to treat a complex medical condition. I am
particularly concerned that changing protected class policy
will jeopardize Medicare beneficiaries' access to the full
range of medicines for treating mental illness.
For example, antidepressant medication impacts individuals
differently and, as such, can take time to find the right
treatment that works for any given individual. And earlier this
month I wrote a letter to my colleagues to CMS expressing this
concern.
Dr. Matthews, I understand that MedPAC has recently
considered similar changes to two of the six protected classes,
including antidepressants. Given my concern around access for
Medicare's most vulnerable beneficiaries, I am interested in
your thoughts on how we can continue to ensure the availability
of needed medications while making changes to protect the
classes?
Mr. Matthews. Sure. Yes, ma'am, I'm happy to address that.
As part of our 2016 recommendations on Part D, we did
recommend removing two categories of drugs from the protected
classes, one of which was antidepressants. The second one was
immunosuppresives used after transplant surgery.
The rationale here was that there do seem to be enough
alternatives in those two categories that plans could be able
to put together a formulary that accommodated the clinical
needs of most beneficiaries needing those drugs without being
constrained by having to cover every drug on those protected
classes.
The Administration's proposal is a little bit different. I
don't think they have recommended eliminating any of the
protected classes, but have proposed giving plans more ability
to use utilization management within those classes.
Again, you know, the balance here is beneficiary access
relative to plans' ability to negotiate with manufacturers for
price. And if the plan has to cover every single drug in a
protected class, they have virtually no leverage in order to
negotiate with a manufacturer. So, it is those tradeoffs that
led us to the recommendation.
The last thing I would say is we would, in either instance,
in our recommendation or with respect to the Administration's
proposal, we would believe that there is a strong need for a
well-functioning appeals process that beneficiaries can avail
themselves of.
Ms. Matsui. I agree. Yes, that would be good.
But on the other hand, you know, we have had experience
with people with mental illness. And in particular, as you
know, the therapy involved there is very difficult to get the
right medication. And then to have to go back again to start
over since there we know that is not going to work anyway. And
I just really hope that whatever process you decide to
implement is really going to be very sensitive to that.
Because we would hate to lose the ability for individuals
who already found a therapy to be able to continue in some way.
Mr. Matthews. Yes. We are keenly aware of the unique nature
of treatments for behavioral disorders.
Ms. Matsui. OK. I want to talk a little bit about out-of-
pocket spending for beneficiaries in Medicare Part D. And I am
concerned about patient access issues created by the fact the
Part D program does not currently have an out-of-pocket limit.
It means that some seniors who have significant drug spending,
often those with chronic diseases or those who are severely
ill, will continue to pay a cost-sharing obligation even in the
catastrophic phase, and even after spending thousands of
dollars out-of-pocket.
I know that MedPAC has recommended reforming the Part D
benefit to eliminate cost sharing above the out-of-pocket
threshold. Can you explain MedPAC's recommendations to cap out-
of-pocket expenses for Part D beneficiaries, and how this
change might impact premiums and other aspects of the benefit
design?
And I only have about 15 seconds here.
Mr. Matthews. Sure. So, we did indeed recommend in 2016
capping the beneficiary's financial obligation above the
catastrophic phase. The motivation was that if the beneficiary
is incurring that kind of cost, coinsurance is not a drag on
inappropriate utilization but it is potentially punitive at
that point from the beneficiary's financial perspective.
Ms. Matsui. OK. I yield back my time. Thank you.
Ms. Eshoo. I thank the gentlewoman. She yield back.
I now would like to recognize the gentleman from Illinois,
Mr. Shimkus, for five minutes of questions.
Mr. Shimkus. Thank you, Madam Chairman. And I want to thank
you for having this hearing today.
Dr. Matthews, welcome. We appreciate your input. And it is
very helpful. We just need to take action, and that is what
this hearing is.
I also appreciate your comments on trying to clarify the
how is VA different. I know that is kind of out of your window.
But, that there is a formulary and so the formulary is narrow,
so even our veterans may not get the full scope of drugs
available in our country because they are purchasing and making
contracts. And we always have to try to explain that in this
process because sometimes it gets lumped together and say,
well, why can't you do it that way? And I guess if you have
lower cost, that is good. But if you don't get the drug, the
blockbuster drug, then it is bad. So, then there is--there is
that balance.
I also appreciated, talking just Medicare D, what benefit
was provided to our seniors for health and prescription drugs
prior to Medicare D?
Mr. Matthews. There was no real outpatient prescription
drug benefit.
Mr. Shimkus. There was none. So, I mean, again, for, just
for an instruction purpose, we wrestled with how to get
Medicare. In fact, a lot of conservative Republicans got beat
up quite a bit on this because we expanded in essence an
entitlement and mandatory spending program. But modern medicine
said prescription drugs has to be part of the fix.
I know the chairman has left, but we had some great fights,
and debates, and battles. And Chairman Pallone was most angry
about the donut hole provisions which we placed in there for
budgetary--to make the numbers work.
So, I was surprised when I met with a constituent because I
don't follow this as closely as you all do, and we have a new
world of drugs on the market prior to what we did in 2003. They
are lifesaving drugs, they are biologics, they are especially
new blockbuster drugs are very, very expensive.
So, I had a constituent who provided me with this, a
biologic. It is actually ant--let me look down there. What was
it? Enzyme. Come on, come up here so you can tell me. All
right, enzyme deficiency. So, this is at a cost a year of
$348,000.
So, then I was kind of going through how Medicare D got
established. And I drew the donut hole. I said, you pay here,
you fall into the donut hole, you have to pay it all. And then
it was our intent that once you came out of the donut hole that
you would be covered. So, I think some of your proposals are
trying to address, well, you know, the answers to Doris,
Congresswoman Matsui's concerns about end of out-of-pocket
cost.
And then I was surprised when he provided me information
that the percentage cost. This is 22,000, 348,000 over a year,
22,000 a month. They are still on the hook for a percentage of
that.
Mr. Matthews. Yes, sir. Correct.
Mr. Shimkus. So for those who were in that room in 2003
thought that once they got out of the donut hole they had kind
of gotten home free. That is not true, is it?
Mr. Matthews. No, sir, it is not.
Mr. Shimkus. Yes, and it is not true for my constituent
either. So, I appreciate him meeting me. We actually met in a
bar, you know, as I was traveling through my district, which is
very large. Yes, we did have to have a few drinks after I heard
that cost of that, they were having the burden.
So, we need to address this, you know, this major expense.
And if Medicare D is supposed to be an insurance plan and then
there is a catastrophic portion, there is eventually a time
when--and I think that is your reinsurance provision and those
other proposals, am I correct?
Mr. Matthews. That's correct. Yes, sir.
Mr. Shimkus. So, I just thank you for being here. It is my
understanding that you are an independent agency and you advise
us. So, I would hope, Madam Chairman, that we would take your
counsel and try to address especially this end of the process
because Medicare D does--seniors pay in. I mean, so they are
part of the solution. They are not just, it is just not all
Government solution because it is an insurance plan that they
are partners with and they choose. We need to help them on the
back end.
So, with that I appreciate your time. Thank you, Madam
Chairman. And my time has expired.
Ms. Eshoo. I thank the gentleman. Excellent questions.
I now would like to recognize the gentleman from Oregon,
Mr. Schrader, for five minutes of questions.
Mr. Schrader. Thank you, Madam Chairwoman, I appreciate it.
Dr. Matthews, thanks--I need some medication myself--thank
you for taking time to be here.
As you may or may not know, my State of Oregon is taking
steps to increase the number of payments tied to performance in
Medicaid. Specifically, they are using an 1115 waiver to work
with our coordinated care organizations and network providers
to create a plan to have a value-based payment by 2022. Other
states are also trying to set up these arrangements.
Has MedPAC evaluated either in specific cases or more
broadly whether Medicare may benefit from value-based payments
and tying the reimbursement to actual outcomes? What, if any,
barriers are in the way for that?
Mr. Matthews. So, we are aware of the emergence of these
types of value-based arrangements, both here in the United
States and in European countries. It is my understanding that
the evidence on the long-term effectiveness of these
arrangements simply does not yet exist, that these are new
enough that a broad base of evidence hasn't been generated to
ascertain that they have, they can exercise the potential that
the stakeholders believe is there.
With respect to Medicare, one potential impediment to the
broad use of these sorts of value-based arrangements is the
voluntary nature of Part D. So, a plan may enter into a
manufact--an agreement with a manufacturer that is contingent
on certain beneficiary outcomes that may not manifest
themselves until after the lapse of a period of years. But Part
D is a voluntary benefit, and a beneficiary can move from one
plan to the next year after year. And so, a plan may not see
the benefits of its investment in these arrangements for a
particular enrollee.
So that is one potential logistical obstacle in Part D as
currently designed.
Mr. Schrader. Good point.
With regard to the general Medicare population, you spoke
in your testimony about the long-term beneficiaries
disproportionally selecting brand drugs sometimes over generic,
actually oftentimes brand over generic. What remedy for
increasing utilization of generics by this population would you
recommend? I know that there are administrations out there
trying just to lower the cost of the brands or, excuse me, the
generic to zero to make it appealing. What about increasing the
cost of the brand? Your thoughts.
Mr. Matthews. So, we have gone on record as recommending
that even low income or beneficiaries receiving the low income
subsidy should be given incentives to use generics when they
are available and clinically appropriate.
As you just mentioned, those incentives can take one of two
forms: one is zero copayments or zero financial liability for
generics; the second would be some nominal financial liability
for the use of brand name drugs when generics are available.
And we think that even low income beneficiaries should have to
make those kinds of decisions with respect to the therapies
that they and their clinicians decide on.
Mr. Schrader. So you don't have an opinion as to whether
just reducing one or increasing?
Mr. Matthews. Either would achieve the goal of increasing
benefit--low income beneficiaries' use of generics.
Mr. Schrader. All right. Very good, thank you.
With that, I yield back.
Ms. Eshoo. I thank the gentleman. He yield back.
I now would like to recognize the gentleman from Kentucky,
Mr. Guthrie.
Mr. Guthrie. Thank you, Madam Chair, for holding this
meeting.
And thank you for being here. Doing a good job for your--
good job even though it is your first time. I almost said a
good job for your first job. But a good job. I appreciate it
very much.
And, unfortunately, we should coordinate better with my
neighbor in the hallway Mr. Schrader because he asked almost
word for word one of the questions I was going to ask. So, let
me get to the valued-based. That is interesting to me.
But so, are you supportive of transparency tools like real-
time prescription benefit check that could help beneficiaries
understand the cost of their prescribed medications before they
leave the doctor's office?
Mr. Matthews. Yes, sir. We have been supportive of
clinicians' use of electronic tools like real-time benefit
check.
Mr. Guthrie. So, what policies do you think we should
develop to encourage use of these policies, of these tools?
Mr. Matthews. I would need to think about that, with all
due respect. It is my understanding that the technology does
exist with respect to currently available electronic health
records. But the issue is getting the clinician to actually
purchase the requisite models or modules to do the real-time
benefit check and providing incentives for clinicians to use
those.
The Commission does not have a specific proposal in order
to do that.
Mr. Guthrie. OK. Thank you.
And changing gears, since Mr. Schrader took my thunder, I
am told that the physician charge, I am told that a physician
charges, that a physician charges per administering drugs are
twice as much in hospitals compared to doctors' office. This
drives up Medicare costs but also drives up cost-sharing for
the patients. Can more be done to address this through site
neutral payment reform?
Mr. Matthews. Yes, sir. I believe there is more that can be
done. As you know, the Commission has been concerned about the
incentives or the undesirable incentives that occur with
respect to the differential for a clinician's services in the
physician office versus the hospital outpatient department. And
we have made recommendations to standardize those payments
across settings.
Yet, nevertheless, we think that those incentives still
exist and that there are potential broader remedies that could
be contemplated.
Mr. Guthrie. OK, thank you. And, again, thanks for being
here today, and holding the hearing. And I yield back.
Mr. Bucshon. Will the gentleman yield for a few seconds?
Mr. Guthrie. Yes, I will yield the remainder of my time to
Mr. Bucshon.
Mr. Bucshon. Yes, yes.
Mr. Guthrie. Dr. Bucshon.
Mr. Bucshon. Yes. I just want to make a brief comment on
what he was talking about--about the patients knowing up front
what prices drugs are.
When I was in practice, if I was going to prescribe
something, I knew might cost a lot I actually checked myself
personally before I would prescribe it for the patient, just to
make sure. But I do think in today's electronic world that we
should, physicians should be able to determine that up front.
And sometimes, depending on the patient, that may very well
make you make different decisions on what the options are
because if the out-of-pocket is going to be really high to the
patient there might be therapeutic alternatives.
So, I do think we can get to a place where electronic
records can provide that information at a minimum to the
provider. I think it is when you go to the consumer it is more
confusing, but for the provider I think that can, that could
help, so. Yes, it could pop up on the screen for example when
you go to provide, when you go to send an electronic
prescription.
So, I yield.
Mr. Guthrie. Thanks. I yield back.
Ms. Eshoo. I thank the gentleman. And he yields.
I now would like to recognize the gentleman from
California, Dr. Ruiz, for five minutes of questioning.
Mr. Ruiz. Thank you.
Dr. Matthews, I appreciate the position that the Commission
is in trying to make recommendations that balance the need to
cut down on healthcare costs while also ensuring that patients
are getting the care that they need. And I know that patient
care is important to you.
In your written testimony you identify one of the
Commission's goals is ``achieving a Medicare program that
ensures beneficiary access to high quality, well-coordinated
care.''
Last November, CMS proposed a rule that would allow
Medicare Advantage plans to use step therapy for Medicare Part
B drugs. And, while I understand that step therapy can play an
important role in reducing healthcare costs, it often does not
take into account a patient's medical history, like whether
they have tried the medication previously and failed under a
different insurance plan.
Fred Sangiorgio, one of my constituents from La Quinta,
California, suffers from psoriasis and psoriatic arthritis and
is going through step therapy right now. He has been diagnosed
most of his adult life and has tried several treatments over
the years. Despite the fact that he already tried one treatment
that didn't work, he is currently being forced to go through a
similar treatment that his doctor knows won't be effective.
Instead of being able to prescribe an alternative treatment
that she thinks will be more effective, his doctor has to wait
for this drug to fail, too, despite the fact that both of them
know that what is going--what is going to happen.
That is why I have introduced legislation with my friend
Congressman Wenstrup, a fellow physician, that would help
protect the doctor/patient relationship and help get patients
the care that they need. The Safe Step Act creates a list of
exemptions that will allow patients to bypass step therapy if
their doctor knows that the treatment will not be successful,
as is the case with Fred.
As a physician, I want to ensure that all step therapy
protocols also include safeguards to help ensure that patients
aren't forced to have to try a treatment that their provider
knows is not likely to work for them, or even to take a drug
that may have already failed for them in the past.
So, can you outline some safeguards that CMS can put into
place to protect the patients from unnecessary and potential
harmful treatments?
Mr. Matthews. Yes, sir. Again, the Commission has gone on
record as supporting giving plans more flexibility to
appropriately use these management tools. We do understand that
the circumstances of every patient is unique, and that we would
not support putting a patient through some of these things,
like step therapy, when the clinician knows that they are not
going to be effective for a given patient. Therefore, we have
said that the greater use of these tools has to be accompanied
by a very robust and effective system of grievances and appeals
whereby a clinician can request an expedited----
Mr. Ruiz. What are some of these exceptions that you would
propose to safeguard patient access?
Mr. Matthews. So, if the clinician is able to document that
the patient has previously failed on a therapy that is required
by a plan's formulary or step therapy or----
Mr. Ruiz. What does ``failed'' mean to you?
Mr. Matthews. That the patient's clinical condition has not
responded to the treatment that is being required by the plan.
Mr. Ruiz. Does a lack of compliance due to cumbersome
regiments like a, you know, every 4-hour treatment and,
therefore, that doesn't fit that person's life or work
schedule, would that be considered failure to you?
Mr. Matthews. I do not have the clinical basis to answer
that question, with all due respect. The Commission hasn't
opined at that level of detail.
Mr. Ruiz. Right. In my medical opinion, when it is a
compliance issue it is usually a failure in the system to
provide the best treatment and follow-up for that patient. It
is not the patient's fault per se, which is normally what
happens in the medical world.
What other safeguards could we think of that would provide
these exceptions so that we can preserve the patient's and the
physician's judgment in getting them the medication that is
best for that patient; instead of putting them through a
rigorous bureaucratic step process in order to save the company
money?
Mr. Matthews. Again, if I could ask for the dispensation to
think about that and follow up.
Mr. Ruiz. OK. What's the MedPAC strategy to both monitor
beneficiary impact and to ensure CMS institutes appropriate
safeguards, including those that are lined with number of State
laws which serve as models for the Safe Step Act?
Mr. Matthews. So, we believe that the Medicare program is
currently monitoring beneficiaries' appeals under Part D. There
are a number of steps that patients and their clinicians can go
through, and it is my understanding that the majority of those
appeals are indeed adjudicated in favor of the patients when
clinically warranted.
So, the agency is indeed monitoring whether or not
beneficiaries' access to medications under Part D as being
unduly compromised.
Mr. Ruiz. Thank you.
Ms. Eshoo. The gentleman yield back.
I now would like to recognize the gentleman from Florida,
Mr. Bilirakis, for five minutes of questioning.
Mr. Bilirakis. Thank you, Madam Chair. I appreciate it very
much. Thanks for holding this very important hearing. I
appreciate it.
Dr. Matthews, with Florida's traditionally higher senior
population, lowering prescription drug prices, as you can
imagine, and Medicare is very important to me. As noted in
MedPAC comments on the International Pricing Index, or IPI for
short, last year the drug value program recommended previously
by MedPAC would give vendors tools to negotiate lower prices.
Under the Administration's IPI proposal they don't include
these tools. So it seems like, instead, the Government is just
setting the price directly. Am I correct in concluding that
MedPAC's proposal is more market-based than the
Administration's?
Mr. Matthews. I would not want to comment on whether or not
the competing proposals are more market based, one relative to
the other. We did identify a number of potential logistical
issues with respect to the Administration's proposal that we
believe would make it very difficult to implement. These range
from things such as the one you just mentioned, that the vendor
would not have any tools, such as a formulary, or other
mechanisms by which to negotiate with manufacturers.
The vendor under the Administration's model would take
title to the drugs, but perhaps not actual physical possession.
Then, lastly, the vendor would be paid at a rate determined
by Medicare based on the international price comparison,
whether or not they were able to obtain that rate on the market
or not. We identified a number of issues that would affect the
ability to even calculate that international sales rate, given
available data and given the idiosyncratic arrangements between
manufacturers and, you know, other countries' Governments.
So, we think there are some substantial implementation
difficulties with respect to the IPI proposal that do not
present themselves under our proposal, which would give the
vendor more ability to negotiate on the basis of being able to
help drive manufacturers's volume.
Ms. Eshoo. Excuse me, Doctor. May I please, I just learned
that your voice is not carrying well on T.V. so, can you bring
your microphone much closer.
Mr. Matthews. Sure.
Ms. Eshoo. And then maybe the staff hearing me will come
back in and let us know if you can be heard.
Mr. Matthews. Thank you.
Ms. Eshoo. Thank you.
Mr. Matthews. Sure.
I am sorry, so I was indicating that under our proposal
that some of the difficulties engendered by the IPI proposal
would be mitigated. And we believe that it would have greater
potential to reduce spending for Part B drugs.
Mr. Bilirakis. Very good.
I know there are examples in the market where arbitration
is used, such as baseball. I am a big baseball fan. But
developing breakthrough medicine is a lot different from
developing starting pitching. And legislating a Government-
defined arbitration process is a lot different from negotiating
one through a players' union.
Mr. Matthews. Yes, sir.
Mr. Bilirakis. Are there examples of binding arbitration
between being used in healthcare? Do any of these examples
involve setting prices at a national level or just resolving
disputes at an individual level?
Ms. Eshoo. Move your microphone even closer please. Yes,
pull it right up.
Mr. Matthews. This is, yes, this is not a natural thing for
me to be doing. So I apologize.
Ms. Eshoo. That is all right. We will guide you. It is just
a microphone; get it as close as possible so----
Mr. Matthews. All right.
Ms. Eshoo [continuing]. Anyone in the country that is
listening in can actually hear you.
Mr. Matthews. Yes. That is not helping but I will----
Ms. Eshoo. OK.
[Laughter.]
Mr. Matthews. We will see.
So, we are unaware of the use of baseball arbitration in
the way we have proposed it for Part B.
Mr. Bilirakis. Can you describe how you have proposed it,
the arbitration?
Mr. Matthews. Right. So, so as I mentioned both in my
written testimony and in my oral remarks, one of the
vulnerabilities of the Medicare program is that it has little,
if any, ability to influence the price that the manufacturer
sets for a product and, therefore, the price that Medicare
pays. We believe that binding arbitration would give the
program a means of influencing that price by bringing the
manufacturer to the table with their absolute best offer for a
new product.
And then the secretary would be able to make a competing
offer if he or she did not think that the evidence supported
that manufacturer's price. And that this would be distinct from
a scenario where the secretary is negotiating directly with
manufacturers for price in that only certain drugs that met a
criteria defined under statute or regulation would trigger this
binding arbitration process.
But, currently the Medicare program has virtually no means
whatsoever to influence price. As I have said in my testimony,
under both B and D price is one of the major drivers of
Medicare spending for drugs.
Mr. Bilirakis. Very good. Thank you.
I yield back, Madam Chair.
Ms. Eshoo. The gentleman yield back.
And I now would like to recognize the gentlewoman from New
Hampshire, Congresswoman Kuster.
Ms. Kuster. Thank you very much. I am delighted to be here.
Thank you for your discussion. It is actually very, very
helpful on a complicated topic.
In New Hampshire the nearly 300,000 Medicare beneficiaries,
and most of them, many of them do have Medicare Part D for
complete drug coverage. But the prices that Granite Staters are
facing for prescription drugs are, to say it bluntly,
unacceptable and, frankly, unsustainable. They are
unsustainable for aging communities that rely on Medicare to be
there for them when they turn 65, and for the taxpayers who
hard-earned dollars go toward the different payment mechanisms
that you have walked us through today.
I am going to cut to the chase. I want to understand
specifically on the ``buy and bill'' program.
Under the current Part B system, a provider is reimbursed
at 106 percent of the average sales price, regardless of the
actual price that they pay for the drug. So my question is some
providers may be getting the drug at a price below the average,
and it is possible that some at a price above the average?
Could you explain the original intent behind the 100
percent plus six add-on payment? And what information is
available on the provider's actual acquisition cost, what they
pay for the drug?
Mr. Matthews. OK, sure. I will try to answer without
deigning congressional intent behind the six percent add-on.
But, the answer to the question, in all candor, is not
clear. There are a number of competing alternative explanations
for six percent. One is that the six percent helps compensate
clinicians and providers for the costs of administering the
drug. But, as I mentioned earlier, Medicare pays the clinician
separately for that.
Ms. Kuster. But they get a separate payment for that?
Mr. Matthews. That is correct.
Ms. Kuster. Right.
Mr. Matthews. So, I don't think that explanation is quite
right.
Another explanation is that the six percent compensates for
the provider's costs related to handling and storing the drug
or waste that occurs during the administration of the drug.
But, again, under both the outpatient perspective payment
system and the physician fee schedule there are components of
those payments that reflect providers' costs of basically
running the operation. So I don't think that is----
Ms. Kuster. The normal overhead.
Mr. Matthews. That is, that is exactly right.
Ms. Kuster. Exactly.
Mr. Matthews. Yes, ma'am.
And so the most compelling explanation, from my
perspective, is that as you just pointed out, not every
purchaser is able to get the drug at the average price. Some
are paying more, some are paying less. And to the extent that
volume is driving a provider's ability to obtain a good price,
some small, independent practitioners, rural physicians,small
hospitals, may not be getting quite a good a deal as larger
health systems. And so, the six percent add-on could be
reflecting the relative purchasing provider base--power based
on volume.
Ms. Kuster. I am glad you brought up volume, and my goal is
to have the lowest price for the senior and the lowest price
for the taxpayer. I think right now it is safe to say seniors
are paying too much, taxpayers are paying too much.
My question is has MedPAC ever examined the impact on the
cost of medications to beneficiaries in the Medicare program by
authorizing Health and Human Service secretary to negotiate a
volume discount on prescription drugs? Have you ever provided
recommendations? Could you tell us?
I just don't understand, everywhere else. I have sat for
six years on the Veterans' Affairs Committee. I know what
Federal employees. I know what Walgreen's. And my constituents
don't understand why wouldn't we have a volume discount for the
purchaseof medication under Medicare?
Mr. Matthews. The Commission has not taken a position on
this issue, nor have we made any recommendations.
Ms. Kuster. So, we don't know, it could bring down the cost
for both the taxpayers and seniors?
Mr. Matthews. I don't know that I would opine on that
myself because the notion of volume discount in some ways
raises the question of the secretary negotiating with
manufacturers and basically saying, I, the Medicare program, am
going to guarantee a certain amount of volume of your drug and,
therefore, you need to give me this volume discount or this
lower price.
And, again, the Commission has not taken a position with
respect to the secretary's ability to influence price through
direct negotiation.
Ms. Kuster. I would simply say, in every other aspect that
is how we bring down the price is negotiating a volume
discount.
I very much appreciate your candor.
Mr. Matthews. Sure.
Ms. Kuster. I yield back.
Ms. Eshoo. The gentlewoman yield back.
I now would like to recognize the gentleman from Georgia,
Mr. Carter, for five minutes of questioning.
Mr. Carter. Thank you very much, Madam Chair. Thank you,
Dr. Matthews, for being here, and thank you for the work that
you in leading MedPAC and helping and doing your best to keep
prices down, as well as providing the best services that we can
to the recipients of Medicare. It is extremely important.
Earlier this month in this committee, in a bipartisan
fashion, I was able to pass legislation that I sponsored,
bipartisan legislation, along with Representative Gianforte,
Representative O'Halleran, Representative Welch, called the
Payment Commission Data Act.
Mr. Matthews. Yes, sir.
Mr. Carter. Which is going to allow MedPAC, as you know, to
be able to get data relating to prescription drug pricing. And
you in turn will be able to use that data to make
recommendations to us here in Congress.
Can you just comment on that firsthand on how that may be
able to help you?
Mr. Matthews. Yes, sir. Before I do, I would want to
express on behalf of the Commission my appreciation to you and
the other cosponsors of this legislation.
One of the ways that the Commission has been hamstrung in
terms of being able to evaluate the effects of the various
rebate structures on the Medicare program and its beneficiaries
is we do not have access to that level of granular data with
respect to rebates on a prescription by prescription or drug by
drug basis.
And so, for example, when we commented on the Office of
Inspector General's recent proposal to eliminate rebates in the
Medicare program, we were only able to evaluate that proposal
through its aggregate impacts on the program, on beneficiaries
and manufacturers. We simply did not have the level of detail
in order to be able to assess; it would affect this group of
beneficiaries who are taking this class of medications for this
variety of conditions. And so, having this more granular data
on rebates would help us do those kinds of analyses and help
inform the kinds of deliberations that the committee is having
on a regular basis.
Mr. Carter. Right. I certainly think both of us would be
remiss if we did not mention that that information is only
going to go to you.
Mr. Matthews. Yes, sir.
Mr. Carter. You are the only ones who are going to see it.
It is not--we get it, it is proprietary information, but it is
not going to be released to the public, it will only go to the
Commission.
Mr. Matthews. That is correct, sir. MedPAC has a sterling
track record in terms of----
Mr. Carter. Right.
Mr. Matthews [continuing]. Handling proprietary and
sensitive data.
Mr. Carter. Right.
I want to ask you about the DIR fees. You are familiar with
DIR fees and you are familiar with what the Administration,
what Health and Human Services, CMS specifically, has proposed
in changing the rules so that--so that DIR fees or discounts
will go directly at the point of sale, as you mentioned
earlier. But there were two things that you mentioned in your
letter to the Administration, or to HHS, about DIR fees, first
of all, that DIR fees had grown from $229 million in 2013 to $4
billion in 2017.
Mr. Matthews. Sure.
Mr. Carter. $229 million to $4 billion.
And, of course, for those people who don't know, DIR fees
are essentially clawback fees that go to the, the PBMs put on,
placed on the pharmacies.
You also mentioned that the amount of the DIR fees that the
plan sponsors were recouping actually exceeded what they had
proposed and what they really had projected. Can you comment on
or explain what that disparity might mean for cost sharing?
Mr. Matthews. Yes. What the short answer is that this means
beneficiaries at the point of sale are paying a much greater
amount in cost sharing than they should be relative to the
effective transaction price between the manufacturer and the
plan.
Mr. Carter. Exactly. Exactly. But and I know that MedPAC
has put out some different solution to the DIR fees, but the
point is that you agree that DIR fees are a problem?
Mr. Matthews. Yes, sir, that is correct.
Mr. Carter. OK, good.
Very quickly in what little time I have left, of course one
of the things that we've been talking on this committee and in
Energy and Commerce, and specifically on the Oversight and
Investigations committee has been insulin pricing. I just
wanted you to comment very quickly that I understand there is a
lot of variability in the different plans on how they cover
insulin, but can you, can you explain how the Medicare plans
cover insulin, particularly for those patients who are in the
donut hole?
Mr. Matthews. If I could get you to ask the question just
slightly differently?
Mr. Carter. Well, in other words, I know the different
Medicare Part B plans cover it in different ways. But making it
affordable, making it accessible is something we are very
concerned with, particularly on this committee. How can we do
that? How can those plans do that in a better way?
Mr. Matthews. Again, our recommendation to restructure the
Part D benefit would mitigate the incentives for plans to use
these high-cost, high-rebate drugs, and insulin is one example
of those kinds of things. And by better aligning the plans'
incentives it would potentially reduce the influence of DIR on
the cost that the beneficiary faces.
Mr. Carter. Right. Again I want to thank you for your work
on transparency and accountability within the system,
particularly with the third party, the pharmacy benefit
managers, the middleman, that is what is going to help us. And,
you know, transparency is the best disinfectant out there, and
sunlight is, and that is why we need it so bad.
Thank you for your work on this, and I yield back.
Ms. Eshoo. The gentleman yield back.
I now would like to recognize the gentleman from North
Carolina, George Butterfield, and happy birthday to you again.
Mr. Butterfield. I have been multitasking today and I don't
have any questions.
Ms. Eshoo. You don't?
Mr. Butterfield. If you can believe that.
Ms. Eshoo. Isn't that something.
Mr. Butterfield. Yes.
Ms. Eshoo. Well, a lot of good ones have been asked, so
stay tuned.
All right. Well, with that we will move to the gentlewoman
from Delaware, Ms. Blunt Rochester, for five minutes of
questioning.
Ms. Blunt Rochester. Thank you, Madam Chairwoman. I would
also like to thank you, Dr. Matthews, I am trying to speak into
the mike now I am cognizant of it.
Today's hearing is an opportunity for the subcommittee to
continue our bipartisan work on lowering prescription drug
costs by turning our attention to how skyrocketing prices are
impacting Medicare Part B and D. And it couldn't happen at a
more important time. Prescription drug spending accounts for
nearly one dollar out of every five spent on Medicare and,
according to the Kaiser Family Foundation, was 19 percent of
overall Medicare spending in 2016.
The Office of the Actuary at CMS found that the national
health expenditures will continue to increase by an annual
average of 5.5 percent until 2027. These spending trends mean
that it is not just the Federal Government that is paying more
but Medicare beneficiaries. In my State that means growing
costs for the almost 200,000 Medicare beneficiaries.
Dr. Matthews, I would like to discuss Part B's, Medicare
Part B's low-income subsidy which helps provide beneficiaries
with limited incomes assistance with their Part D premiums and
out-of-pocket expenses.
In 2018, 12.5 million beneficiaries with incomes at or
below 100 percent of the Federal poverty level received Federal
assistance. In Delaware, 23 percent of beneficiaries received
the low-income subsidy. However, MedPAC has found that relative
to other Part D enrollees, a higher proportion of LIS enrollees
use brand name drugs.
Can you explain why this is happening?
Mr. Matthews. OK. The dominant hypothesis that has guided
our thinking here is that the low-income beneficiary whose
costs are heavily subsidized is not as sensitive to cost
sharing, or the price of the drugs that they take relative to a
beneficiary who is paying, you know, the full coinsurance and
their full out-of-pocket liability. And so, given the choice
between a brand name drug and a generic, many Medicare patients
who regard generics as not as good, a low-income beneficiary
who is facing zero or minimal cost sharing is going to opt for
the brand name when it is available.
Ms. Blunt Rochester. Right. Opt for the one that they
rationally think is the better----
Mr. Matthews. Yes.
Ms. Blunt Rochester [continuing]. Product.
Additionally, MedPAC found that in 2016, about 8 percent of
Part D enrollees reached the out-of-pocket threshold. And of
that 8 percent of high cost enrollees, over 70 percent were LIS
beneficiaries. Given that it is the Medicare program that pays
the largest share of costs out of--above the out-of-pocket
threshold, I am concerned that plans may be structuring their
benefits in ways that shift costs to Medicare for these, these
enrollees in order to shield plans from risk.
Does MedPAC share these concerns?
Mr. Matthews. Our concerns are more with, are even larger
than that, not limited just to the low-income beneficiaries.
But, again, given the growth in the cost-based reinsurance
payments for all Part D enrollees, we believe that is an
extremely pressing problem for the program. While in the
earlier phases of the Part D benefit LIS enrollees did reach
the catastrophic phase at faster rates and in greater
proportions, in recent years it is the non-LIS population who
is now hitting that cap at much higher rates.
Ms. Blunt Rochester. I know one of the things that you
discussed before were the incentives, you know, to incentivize
beneficiaries to pick a cheaper alternative. Can you talk about
the options that you gave, are these evidence-based? Where did
these ideas come from? How do you know they will work? You had,
you listed, like, zero copayments, you talked about nominal
financial incentive. Can you talk about where you got that from
and why you think it will work?
Mr. Matthews. Yes, with permission, I would like to be able
to follow up.
Ms. Blunt Rochester. Great.
I appreciate MedPAC's thoughtful analysis on this issue and
so many issues within the Medicare program. Low-income Part D
beneficiaries on tight incomes, there are many of them, and we
must be doing all we can to ensure that they also have access
to the medications that they need, while ensuring that there
are not perverse incentives that keep drug prices high.
I thank you and I yield back.
Mr. Matthews. Thank you.
Mr. Butterfield [presiding]. Thank you, Ms. Blunt
Rochester.
The gentle lady from California, Ms. Barragan, is
recognized for five minutes.
Ms. Barragan. Thank you.
I want to follow up on the questioning from one of my
colleagues on Medicare Part D negotiating. I know that you
indicated that MedPAC has not taken a position on that. We had
a hearing a few weeks ago, we had the drug manufacturers come
in and PBMs come in. I asked them if they were for or against a
proposal to have Medicare negotiate. And they were against it.
Not surprising to many, concerned about profits and so on and
so forth.
I am really glad to see in the committee that we are
working on a bipartisan basis to bring down the price of
prescription drugs. But I, having heard from my colleagues who
sit on other committees for the VA, and everything I have read,
it seems to me that--and certainly hearing from you that you
have no means to influence price--it seems to me that if that
were lifted, it would actually provide some leverage for us to
bring down the cost of prescription drugs to the American
people.
Has MedPAC done any type of study on how much money the
American people would save if Medicare had the ability to
negotiate drug prices?
Mr. Matthews. MedPAC has not done its own independent
assessment of the viability of direct negotiation between the
secretary and manufacturers.
When others, such as our colleagues at CBO, have looked at
this issue they have determined that without the secretary
having very, very strong leverage, such as Medicare coverage or
Medicare payment, or other alternatives that have been proposed
related to things outside of my purview such as patent changes,
that the secretary is unlikely to achieve substantial savings
through direct negotiation without being able to use those
kinds of very strong negotiating tactics.
Ms. Barragan. Can Medicare, rather can MedPAC do a study
on this so that Congress has a report to look at-- and to look
at these factors that you are discussing? Will MedPAC commit to
doing something like that?
Mr. Matthews. We could potentially look at some of the
issues that would pertain to a direct negotiation scenario. So,
you know, for example would this be across-the-board all drugs,
all manufacturers? Does the agency have the resources to
conduct these kinds of evaluations? What the evidence base is
for the secretary's ability to negotiate a given price? We
could look at those sorts of issues in a qualitative way.
I don't know that we would have the capacity to or the
desire to second guess our colleagues at CBO with respect to
calculating potential savings.
Ms. Barragan. OK. Well, anything you could provide to
Congress could be helpful, especially because this has been a
bipartisan issue on a bipartisan basis, seems like a way to
move forward. So, given that you do, you work on a bipartisan
basis----
Mr. Matthews. Yes, ma'am.
Ms. Barragan [continuing]. I think any information will be
helpful. Thank you for that.
I want to chat quickly about the issue of minority health
disparities. Across this country, you know, people based on
race are treated differently in our healthcare system, we have
different health impacts and outcomes. For example, HIV
diagnosis rate among Hispanic men is more than 3 times the HIV
diagnosis rate among non-Hispanic white men. African Americans
are also more than twice as likely as whites to be diagnosed
with and die from blood cancer and multiple melanoma.
My district is majority minority. It is about 80 percent
Latino/African American. I have the highest rate of diabetes
than any other congressional district in the State of
California. And we touched a little bit upon low-income
communities and how Medicare actually has low-income subsidies
for patients. But the annual income is pretty low. I think it
is about $18,735. In California it is easy to miss that a
little bit. And they are not qualified.
And my concern is the connection between costs and the
continuing impacts and effects on minority health disparities.
Has MedPAC or CMS done any type of study to determine whether
minority communities have similar outcomes from the Medicare
Part D program as non-minority communities?
Mr. Matthews. Not to the best of my knowledge.
Ms. Barragan. Is that something you could do? I know you
mentioned you do a lot of, you look at tradeoff and balances.
But, you know, when we are talking about communities of color,
racial health disparities is an issue. There shouldn't be
really a tradeoff or balance with their health.
Mr. Matthews. Understood. What is outlined here is a fairly
broad endeavor though. And with, again with all due respect, if
you could grant me the leeway to go back and talk to my staff
about what we can and can do with--or can and can't do with the
resources that we have available to us we would certainly be
willing to take a look at this.
Ms. Barragan. Great. Thank you. I yield back.
Mr. Butterfield. Thank you. The gentleman from Montana is
recognized for five minutes.
Mr. Gianforte. Thank you, Mr. Chairman.
OK, thank you. Drug prices in the Medicare program keep
rising and it is making it tougher for seniors in Montana to
afford their prescriptions. Dr. Matthews, last August several
members of the committee wrote to MedPAC and asked the
Commission to examine the trend of hospital consolidation and
how much consolidation increases the costs to Medicare, the
Medicare program and beneficiaries, including the costs of
prescription drugs. So, I want to focus on this issue today.
Since we are discussing prescription drug prices, can you
please update us on MedPAC's findings, specifically the impact
of hospital consolidation and acquisition of physician
practices on the cost of prescription drugs to the Medicare
program and seniors' out-of-pocket expenses?
Mr. Matthews. Yes, sir. So, I don't have any update with
respect to work we have currently underway in response to the
most recent request. But as you know, a couple of years back we
did a chapter in a June report looking at the effects of
consolidation on Medicare spending, and looked at the impacts
of both vertical integration where different levels of the
healthcare system form single entities or horizontal
integration such as where all cardiologists integrate under a
single organization.
And so both of those types of consolidation do have the
potential to increase spending for the Medicare program.
Mr. Gianforte. So, that request that was made, the work is
still ongoing?
Mr. Matthews. Yes, sir, that is correct.
Mr. Gianforte. OK.
Mr. Matthews. And we anticipate starting to roll that out
in the fall of this year.
Mr. Gianforte. OK, thank you.
How do significant payment differences for identical
medical services performed in Medicare at hospital outpatient
departments versus independent physician practices impact
seniors' out-of-pocket costs for Part B drugs?
Mr. Matthews. It has the potential to substantially impact
their out-of-pocket costs. But I use the word ``potential''
deliberately. And the reason I do that is because most Medicare
beneficiaries in fee-for-service Medicare do have some
secondary coverage. They are dual-eligibles, they have
employer-sponsored wrap-around insurance, or they purchase
Medigap.
And so, to some extent they are insulated from the direct
effects of these payment differentials across settings. But
nonetheless, all Medicare beneficiaries are experiencing these
effects through higher Part D premiums. And those beneficiaries
who elect to purchase Medigap are paying higher Medigap
premiums as a result.
Mr. Gianforte. OK. And has MedPAC made any recommendations
to address this differential?
Mr. Matthews. We have. It's been several years now where we
identified a set of services meeting certain criteria: if they
are majority provided in physicians' offices, they are majority
not associated with emergency care, and identified services
that are appropriate candidates for a Medicare site mutual
payment policy.
Mr. Gianforte. OK. If Congress required Medicare to pay the
same amount for services regardless of where they are
performed, would seniors' out-of-pocket prescription drug costs
decrease? What effect would it have on Medicare overall costs?
Mr. Matthews. Off the top of my head I could not venture an
answer with respect to the effects on their drug costs. It is
something we could think about.
Mr. Gianforte. OK. So that is something you could look into
additionally. Because this is the concern we hear back home
is----
Mr. Matthews. Understood.
Mr. Gianforte [continuing]. The overall cost, and
prescription drugs area big piece of that. So, we very much
appreciate your, your help to----
Mr. Matthews. Yes, sir.
Mr. Gianforte [continuing]. Chart a path for us.
Mr. Matthews. Yes, sir.
Mr. Gianforte. I thank you for your testimony today. With
that, Mr. Chairman, I yield back.
Mr. Butterfield. Thank you.
The gentle lady from Illinois, Ms. Kelly, is recognized for
five minutes.
Ms. Kelly. Thank you, Mr. Chair. Dr. Matthews, thank you
for being here, and thank you for your testimony and sharing
MedPAC's work on these important issues.
As you point out in your testimony, there is a handful of
expensive drugs driving spending in the Part D program, with
consumers responsible for significant out-of-pocket costs. The
top ten highest expenditure drugs accounted for about 43
percent of Part D drug spending in 2017. All of these project--
products, excuse me, are biologics. Some of these drugs have
competitors and others do not.
I would like to learn more about the impact a biosimilar
entry into the market had to date on the price of the
originator biologics driving costs in Part D. You have shared
what drugs a program is spending the most money on and the
conditions these drugs treat. But how many of the top ten
highest expenditure drugs in Part D face competition from a
biosimilar?
Mr. Matthews. As I recall, there are two products out of
that top ten list that have biosimilar competitors. The
biosimilars have not had a substantial impact on the price that
Medicare pays for the originator biologics. In part, this
probably reflects the way Medicare pays for the biosimilars
relative to the innovator biologic.
The innovator biologic gets it own payment code and its own
six percent add-on. The biosimilar gets its own payment code,
even if it is at a lower price, but it gets the six percent
add-on that is associated with the innovator product.
So, from the prescriber's perspective, the physician who
administers the drug, it is a neutral decision whether to use
the innovator product or the biosimilar.
MedPAC has recommended that instead of those two products
having unique codes, that you would potentially influence price
to a much greater extent by combining them and having the
program pay the average of the sales prices of those two
products.
Ms. Kelly. OK. I understand what you are saying that there
has only been a modest impact on prices----
Mr. Matthews. That is right.
Ms. Kelly [continuing]. To date and your recommendations
for what we can do about it.
Can you discuss how original biologics and biosimilars are
currently grouped, and what the Commission has recommended to
result in price reduction there?
Mr. Matthews. Yes. Again, under current payment policy the
innovator biologics and each biosimilar get their own payment
code. And, again, in an attempt to make the decision
financially neutral from the prescriber's perspective, the 6
percent add-on for any of those products if the add-on
associated with the originator product.
So, again, our recommendation would be that instead of
having, let's say, a $1,000 drug that gets a $60 add-on, and
then a $100 drug or biologic that gets a $60 add-on, that
instead we would average the $1,000 bio--referenced biologic
and the $100 biosimilar and have Medicare pay that rate, which
would give providers a much greater incentive to use the
biosimilar and potentially start to move the price of the
referenced biologic down in a way that we have not yet seen.
Ms. Kelly. Is there, as we have been sitting here, is there
anything that we haven't asked you that you want to tell us?
Mr. Matthews. No, ma'am. I do not want to venture any of my
own questions here, so.
Ms. Kelly. Well, thank you. A major goal of this committee
in our drug pricing work to date has been to remove the
barriers to generic competition and stop anticompetitive
practices. It is important for us to continue to examine
policies that would support competition in all markets to lower
costs facing consumers. Everyone should have access, as you
know, to the care and medication they need.
And thank you, and I yield back.
Ms. Eshoo[presiding]. The gentlewoman yield back.
And I now would like to recognize the gentleman from
Vermont, Mr. Welch.
Mr. Welch. Thank you.
Ms. Eshoo. Happy birthday to you.
Mr. Welch. Well, thank you.
Ms. Eshoo. Thank God you were born.
Mr. Welch. Some people agree with that. Thank you.
Dr. Matthews, really good testimony, so thank you very
much, and really good work.
It is really frightening, the cost of prescription drugs,
and it is really frightening how the market power that is out
there is so aggressively used no matter how much pain is
inflicted on folks. I was here when Mr. Bucshon was raising
some questions about a formulary. And a lot of people have that
question: is that going to impede access. I was talking to
Senator Grassley. He had that concern.
One of the approaches that we took in Vermont, because here
is the dilemma as I understand it, if you have a strict
formulary you tend to get more savings but less patient choice.
But if you have a wide-open formulary with patient choice you
get no savings. So how do you, how do you deal with that?
What we did in Vermont is we basically made it pretty easy
for a doctor to override what the formulary was because it
might be that Mr. Bucshon, or Dr. Bucshon and I have the same
condition but the medication that works for him is different
than the one that works for me. I mean, is that a possible way
to try to thread the needle here where we maintain patient
choice but get the benefit where in the vast majority of time
medication A is probably going to be good for Dr. Bucshon as
well as good for me? Is that a possible path forward on this?
Mr. Matthews. Potentially, and as I said in my comments
earlier, we do think that there should be very robust
exceptions and appeals avenues available for Part D enrollees
and their physicians. But at the same time, you know, we are
trying to balance the plan's ability to leverage price from the
manufacturer. And----
Mr. Welch. Right. I agree with that. But the fact is that
there is going to be a lot of resistance if there is an
apprehension that a patient can't get the medication he or she
needs. So it has to be simple.
But the incentives that are built into the system right now
that you outlined are totally in favor of higher prices. You
know, if you can get somebody into the specialty drug program,
then that is a real burden on the taxpayer. The patient has no
clue really, because we rely on what the doctor tells us.
I would just urge us to try to look for some way where we
address this patient choice issue, because I know a lot of my
colleagues have that concern. I have that concern.
Mr. Matthews. Sure.
Mr. Welch. But we've got to get the benefit of that
formulary.
Now, the other thing is we are the only Government that I
am aware of that really doesn't play an active role in trying
to provide some pricing protection to benefit our taxpayers and
consumers. And you gave the shocking statistics about the
specialty drugs and how a while ago what was it, 33,000 people
went immediately into----
Mr. Matthews. Yes, sir. That was in 2010. The number in
2017 is now 370,000.
Mr. Welch. Yes. So it is one prescription----
Mr. Matthews. Sure.
Mr. Welch [continuing]. Gets them into that high pay, high
taxpayer pay situation.
Now, would you be supportive of legislation which would
have price negotiation available as a tool for MedPAC and, in
the event that failed, have arbitration to come up with a price
that is ``fair''?
Mr. Matthews. The Commission has not weighed in on the
broader question of direct negotiation. Our standing
recommendation would include binding arbitration as part of our
DVP proposal, which we recommended in 2017. We are currently
exploring whether or not binding arbitration could have a
potentially greater role in the Medicare program. But we have
not----
Mr. Welch. You could have the binding arbitration in some
of the highest cost specialty drugs.
Mr. Matthews. Yes, sir. That is correct.
Mr. Welch. And that would have a huge impact on the cost of
the overall to the taxpayer and to the plans. Correct?
Mr. Matthews. Yes, sir, that is correct.
Mr. Welch. Yes, I mean, you know, again I am going to focus
on Dr. Bucshon here a minute because I know what a dedicated
physician he has been. We just have this dilemma: you just
can't have it all. OK. You just can't have it all, and the cost
side on healthcare is where all the pain is. If we just have
these costs go out of control, continue to go out of control,
that cuts off access.
So there has got to be some tradeoffs is my view here.
Would you agree with that, Dr. Matthews?
Mr. Matthews. Yes, sir. It is all about tradeoffs.
Mr. Welch. There is some argument that is always made by
the pharma companies that if there is some pushback on their
pricing power, that somehow means they are not going to
innovate. I find that to be bogus because they are spending
more on advertising than they are on research. There is an
enormous amount of research funded by taxpayers through the
National Institute of Health. There is an enormous amount of
research funded by taxpayers through the research and
development tax credit.
Do you see that if we have reasonable interaction by the
Government to negotiate prices or to have an arbitration system
with neutral parties that that would have--that would impede
innovation?
Mr. Matthews. As we have contemplated binding arbitration,
we do not believe that it would stifle R&D for true innovative
new products where the manufacturer would have an opportunity
to come before a neutral arbiter, or arbitror, I never know
which the right word is, but present evidence in terms of R&D
costs, in terms of foregone additional spending for the use of
their product. And----
Mr. Welch. And you would get some transparency out there?
Mr. Matthews. Yes.
Mr. Welch. Again, Madam Chair, I think that is why this
hearing is so important. I mean, this is not a he said/she said
deal. We are all losing on this thing.
I appreciate that testimony and the good work you have done
over the years. And, hopefully, this committee can start moving
forward to help bring these prices down.
I yield back.
Ms. Eshoo. I thank the gentleman, and he yield back.
I also want to acknowledge, and I think I was leaving the
hearing room to run downstairs to the other hearing, and I did
not get to wish our colleague Congresswoman Robin Kelly a
happy, blessed, wonderful birthday, because you are all 3.
With that, I am pleased to recognize the gentleman from
Florida, Mr. Soto, for five minutes of questioning.
Mr. Soto. Thank you, Madam Chairwoman.
We saw in our committee analysis we are paying 104.3
percent average sales price to providers, down from 1.6 percent
because of sequester. We all realize this is an incentive to
purchase drugs at a higher average sales price and receive a
higher reimbursement.
We saw CMS roll out a plan recently last year to have
pharmaceutical vendors purchase and sell directly to patients,
circumventing this provider cost escalation incentive,
providing flat fees to providers and time reimbursements to
international pricing.
For my constituents at home will this do the job or are
there other things we should be doing going along with what
Congressman Ruiz talked about potential arbitration or other
ideas? What is MedPAC advising?
Mr. Matthews. OK.
Mr. Soto. Just broad points.
Mr. Matthews. Yes, sir. So, I am not familiar with the
proposal to have manufacturers sell directly to patients, if I
understood your question correctly. So, again I would ask for
the dispensation to come back to you on that point.
With----
Mr. Soto. So, basically it is saying allow private sector
pharmaceutical vendors to buy and bill Medicare for drugs and
supply those drugs to providers, rather than the providers
doing so directly?
Mr. Matthews. Yes. So, this is part of the IPI proposal
that the Administration has put forward. And again, while we do
support the Administration's desire to reduce the prices that
Medicare beneficiaries pay for prescription drugs, particularly
in light of prices that citizens of other countries are paying,
but at the same time we think there are certain logistical and
implementation issues with respect to the Administration's
proposal that would make it less likely to succeed than----
Mr. Soto. What are those specifically?
Mr. Matthews. So, again, under the Administration's
proposal, Medicare would set a price that it will pay the
vendor based on the international reference price. And it is
incumbent upon the vendor to try and obtain that price from
manufacturers.
But the proposal, if I recall correctly, does not give the
vendor much by way of negotiating tools in order to extract
that price.
Mr. Soto. So, that is where this arbitration idea that is
being mulled around in this committee----
Mr. Matthews. Yes, sir.
Mr. Soto [continuing]. Is so critical because that could
create a more arms-length transaction to get the most efficient
price. Is that correct?
Mr. Matthews. That is correct.
Mr. Soto. I wanted to move into some other ideas pitched by
HHS, particularly step therapy and higher authorization.
Certainly with lesser conditions these can be cost saving. But
I worry when you apply it to cancer and other potentially fatal
conditions that this step therapy and prior authorization,
particularly step therapy, leads to time running out and people
dying, literally, of cancer because they are given less
effective drugs earlier on in the step therapy. And that we end
with a death that could have been prevented.
Do you think there should be a carve-out for cancer and
other fatal conditions with regard to step therapy?
Mr. Matthews. The Commission has not contemplated the need
for a carve-out or exceptions based on medical condition or a
patient's diagnosis. But we have recognized, again, the need
for a very robust and very expeditious exceptions and appeals
process as part of the use of utilization management tools on
the part of plans.
Mr. Soto. And going into another issue that we continue to
see is in the private market drug prices going 3, 4, 10 times
the amount of increases. What role should we play in stopping
this from happening? How does that affect Medicare when we see
a drug that has been around for 20 years that has a 10--10 to
20 percent--10 to 20 times increase? What are you advising us
to do?
Mr. Matthews. Right. So that is actually an insightful
distinction that if I could take a minute.
Mr. Soto. Yes.
Mr. Matthews. So, one, you know, we have seen the entry of
truly revolutionary blockbuster products on the market that
cure things like Hep C. So, the Sovaldis, the Harvonis where
the benefits of the medication potentially warrant the prices
that the manufacturer is charging.
But we also see, and the Commission is extremely concerned
about instances that you just alluded to where you have
products that have been on the market for decades where there
is no real active research and development to increasing the
efficacy of these products. And yet, the prices continue to
increase year over year.
While there may be costs and R&D going on beyond, behind
the scenes that people like me don't see, we still think that
those kinds of cost increases are not warranted, given our
responsibility to a public program like Medicare. And so, we
have recommended an inflation rebate that would check the
ability of manufacturers to increase their prices on a year
over year basis in excess of some defined rate of inflation.
Mr. Soto. Thank you. I yield back.
Ms. Eshoo. The gentleman yield back.
It is a pleasure to recognize the gentleman from Maryland,
Mr. Sarbanes, for five minutes of questioning.
Mr. Sarbanes. Thank you.
Thank you, Dr. Matthews, your testimony today has been
excellent. You are definitely going to get called back by many,
many committees in the future.
Mr. Matthews. I am sorry to hear that.
Mr. Sarbanes. You did a great job.
I wanted to pick up actually right where Congressman Soto
left off because you mentioned this inflation rebate as a way
of trying to get to some of these significant price----
Mr. Matthews. Yes, sir.
Mr. Sarbanes [continuing]. Increases. And it seems to me
that, arguably, is the other side of a coin where you could
think about setting, or we could think about setting upper
limits on the prices of some of these drugs. It is just a
different way of accomplishing the same thing.
Would you agree with those as sort of two sides of the same
coin potentially?
Mr. Matthews. Potentially, yes.
Mr. Sarbanes. Yes. I note that there is a number of States
which have begun to explore regulating prescription drug
pricing within their own jurisdictions. Maryland recently
created, the Maryland General Assembly passed legislation.
I think it is the first State to actually get this passed,
it is now subject to the Governor's signature, that would
create a prescription drug affordability board. The board would
have the authority to review drug cost data that manufacturers
submitted, and then they could set an upper payment limit on
those prescription drugs. And I think there are six or seven
other States that are exploring the same sort of approach.
We have talked about a number of strategies to address drug
pricing. We have also talked about how you have made
recommendations on how Medicare can try to manage the situation
downstream a little bit, if you view the original pricing that
the manufacturers are setting as kind of the ultimate upstream
point in the continuum.
There are all these efforts downstream, bringing the plans
in, trying to incentivize them more to manage costs so the
program isn't taking as big a hit, et cetera. But if we go to
the source, which is the pricing that the manufacturers are
setting, there is increasingly I think a sense in this Congress
on both side of the aisle that we have to take some pretty
dramatic steps to control the costs and the price setting at
that end.
But what is your view of this concept of regulating or
setting upper limits on the prices of these various categories
of prescription drugs?
Mr. Matthews. OK. So, so again, the Commission hasn't taken
a position with respect to setting a specific cap on a price.
Although, I do see the analogy between setting a hard cap on a
price versus setting a cap on the rate that a price can
increase over time.
I am also not personally familiar with the details of the
State efforts that you have just described, but it is something
we can start to look at and see if there is any model there.
But, with respect to our inflation rebate, it is guided by
the notion that for drugs that have been on the market for some
period of time where they are established therapies whose
indications are known, and their effects are known, that to
some extent these are commodities, and the expectation of
commodity prices is that they should go down over time.
When you look at things like computers or wide screen
T.V.'s you are getting better and better technology with each
passing year at lower prices. The question is why these trends
work in reverse for prescription drugs, especially these
therapies that are, again, long-extant on the market?
And so, we think that at a minimum, setting a limit that
those prices can increase year over year is a step in
moderating these effects that we have seen that have very
detrimental effects on the Medicare program.
Mr. Sarbanes. Well, I think we need to put every option on
the table. The rebate is, I would say, a step in the right
direction, an inflation rebate. But we need to be looking at
negotiating power on the part of the Medicare program. Many
have talked to that. The arbitration approach is another. Maybe
some form of, like, public auction around the pricing of these
drugs, and even the notion of regulating these, these drugs as
a utility.
I mean, if you look at there is a lot of--there is a lot of
analogies you can draw between the public good aspect of how
drugs are delivered to pretty much every American and the way
electricity is delivered, or water is delivered, or, you know,
healthcare premiums are set. I think there is going to be a lot
more activism on our part here in Congress with respect to the
pricing of drugs.
Thank you for your testimony today. This was extremely
helpful. I yield back.
Mr. Matthews. Thank you. Thank you.
Ms. Eshoo. The gentleman yield back.
I am going to recognize myself for an additional five
minutes, and also the ranking member as well for a couple of
follow-up questions.
First, Dr. Matthews, again thank you. I think it is very
clear that the committee on a bipartisan basis clearly has more
than an interest in addressing drug prices.
I would encourage MedPAC to go back and continue to make
recommendations on how to protect patient access. I know that
in the original legislation that created MedPAC, when Medicare
Part D was created so was MedPAC. But to leave out patients in
this, I mean, this is not just a program where numbers are
shifted around. The numbers apply to people, to human beings,
and I don't see how that element can be left out of your
deliberations.
As we work to reduce costs, that too has an effect on, as
we have heard from questions and your responses, that too has
an effect on patients.
Now, this whole issue of step therapy, I don't see how
MedPAC can just stick with what seems to me a conversation
about tools and the kit, et cetera, et cetera, when people have
actually died because they don't have access to what they need.
We can't ignore that, nor can MedPAC. So, while this step
therapy has been created so that, as you describe it more tools
in the kit to reduce and control pricing and whatever, when
people are dying because they can't get what they need, and
they are pushed back to step one.
Step 1 the doctor knows is not going to work, step 2 the
doctor knows is not going to work, but you never get to 3
because you haven't lived long enough, that doesn't make sense.
It just doesn't. I mean, it is not defensible in my view and I
think in other members' views as well.
I don't know who supports this thing. It is from the both
side of the aisle you have heard about it. We have heard from
our constituents. They don't identify themselves to us as
Republicans or Democrats, they are our constituents.
The issue that you have raised since the program was
founded, was put together, that there has been a 20 percent
increase in D, if I heard you correctly, a 20 percent increase
on an annual basis relative to drug pricing is, to say it is a
jaw-dropper doesn't begin to describe it.
I think we have our work cut out for us, but I think you do
as well. I think that MedPAC needs to step its game up, so to
speak, in these, in these areas. And that you do it in a timely
fashion so that you can make recommendations and some of these
changes be recommended in these key areas.
With that, I would like to recognize Mr. Bucshon and thank
him for his support of an additional five minutes for myself
and for himself as well. Thank you again.
Mr. Bucshon. Thank you, Madam Chairwoman.
I will make a few comments about the step therapy and prior
authorization. I mean, I have been a physician for years, for
many years, and this has been a concept that has waxed and
waned for the 30 years or so that I have been in medicine. And,
you know, it is a concept that waxes and wanes because at the
end of the day I would argue it ultimately doesn't save anybody
any money because the delay--it has a potential to delay
therapy.
And then as a cardiovascular surgeon I saw people in
tertiary care situations in their lives, and I just, I have
always had concerns about that. I don't know if anyone has, has
looked at the long-term implications of that, and it may not
be--it is probably out of the scope of what you look at.
Mr. Matthews. Yes, sir.
Mr. Bucshon. But looking at delay in therapy, potential
delay in therapy--and, again, my argument that physicians
generally will make the decision to treat their patients based
on what they think is the best individual therapy for that
patient. And do consider cost. Don't get me wrong. As I
mentioned, I considered cost if there was equivalent therapy.
The one thing I--on the prior authorization, a number of
years ago, maybe 10 or 15 years ago, there was one of the major
private sector insurance companies that decided to drop their
prior authorization program. Do you recall that at all?
Mr. Matthews. I do not. I am sorry.
Mr. Bucshon. It might have been UnitedHealthcare. I can't
recall. Don't quote me on that, but I just--and then it has
been, I think it has been reinstituted. But the reasoning
behind that, I remember when that happened, was is because they
found that whoever this was, and I am not saying it was them,
is that at the end of the day it didn't save them anything
because they were authorizing about 98 or 99 percent and the
administrative costs to deny the 1 or 1.5 percent didn't
outweigh the savings.
Have you heard of that type of concept?
Mr. Matthews. I have heard similar anecdotes. Again, I
can't attribute them to a specific----
Mr. Bucshon. Right.
Mr. Matthews [continuing]. Instance, but yes.
Mr. Bucshon. Yes. I would argue that that is probably the
case. The administrative costs if you are going to, you know,
if you are going to deny 10 percent or something I--I get that.
I would say I would have an ethical problem with that. But if
you were, then it might save you money. I don't know what the
finances are on that.
But there is a perception that it saves money, and I am not
sure that that is actually true.
So, I want to comment, that is my comment on those two
things.
Do you know if CBO has ever done studies on out-of-pocket
cost caps? Like, say, if there was a cap set at a certain level
what the, what the CBO score would be? There will be a score,
right, because there will be a potential number of people that
would go over, that would normally be over that level, whatever
that cap is.
Mr. Matthews. I believe that is correct, yes.
Mr. Bucshon. Is that something that you think would be
interesting to know for your purposes?
Mr. Matthews. This would be for?
Mr. Bucshon. For Medicare Part D. Like an out-of-pocket
cost cap; right?
Mr. Matthews. Yes. And this is something that MedPAC has
recommended as part of our package of Part D recommendations.
Mr. Bucshon. Right. The question would be is what level
that the out-of-pocket costs are capped at.
Mr. Matthews. That is correct.
Mr. Bucshon. So the question would be is a CBO score on
that at differing levels might be interesting information to
know. Would you agree or disagree with that, or have they done
it?
Mr. Matthews. I am not aware that they have done this. But
I don't disagree that it would be an interesting thing to know
the effects at different level.
Mr. Bucshon. Because if you were going, if Congress was
going to say, OK, we are going to set an out-of-pocket cost cap
at X dollars, right? The first thing we would do is get a CBO
score.
Mr. Matthews. Right.
Mr. Bucshon. And see, well, what is that going to--what is
that going to cost; right? Because there will be a cost if you
set it, if you set it low enough there would be a cost?
Mr. Matthews. Right.
Mr. Bucshon. And so, maybe preemptively having a multitude
of different cost levels known to Congress before we try to
make some of these decisions might--could be helpful. Would you
think that would be the case?
Mr. Matthews. Without committing my colleagues----
Mr. Bucshon. I understand. I am not asking----
Mr. Matthews [continuing]. To doing this work.
Mr. Bucshon [continuing]. You for any commitment at all.
Right.
Mr. Matthews. That is correct, yes.
Mr. Bucshon. Yes. I think that might very well be helpful.
With that, Madam Chairwoman, I yield back.
Ms. Eshoo. The gentleman yield back.
Again I would like to thank you, Dr. Matthews, for your
participation. I hope that you didn't need to take any pain
medication to come here today or anything else due to your
testimony. But a first time out I think that we would all say
that you presented your case very well.
I want to remind Members that pursuant to committee rules
they have ten business days to submit additional questions for
the record to be answered by the witness who has appeared. We
would appreciate your timely response to those, Dr. Matthews.
As I said, we really appreciate prompt responses to the
question that you may receive.
So, at this time, the subcommittee is adjourned.
[Whereupon, at 12:43 p.m., the subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]
Prepared Statement of Hon. Eliot L. Engel
Thank you Madame Chairwoman Eshoo for holding today's
important hearing on Medicare drug pricing. Nearly 130,000 of
my constituents depend on this vital federal health program for
drug coverage.
A growing share of the program's expenditures are going to
prescription drugs. According to the nonpartisan Kaiser Family
Foundation, Medicare's share of nationwide prescription drug
spending jumped from 18 percent in 2005 to 30 percent in 2017.
While some of this increase was for innovative drugs--which
save future Medicare dollars--much of the growth stems from
price spikes.
I am pleased that this committee has taken steps in the
past to curb Medicare drug spending. The bipartisan 21st
Century Cures Act included provisions from my bill toexpand
access to infusion drugs under the Medicare Part B program.
These expanded benefits will give beneficiaries the ability to
receive life-saving therapies in the comfort of their own home
while avoiding costlier care in institutional settings. These
past efforts demonstrate that Medicare can be leveraged to
reduce drug costs.
My constituents are outraged that the 2003 Prescription
Drug, Improvement, and Modernization Act, which I voted
against, contains the so-called ``non-interference clause."
This horrendous policy prevents Medicare from using its
clout to negotiate lower prescription drug prices.
Empowering Medicare to do so would bring immediate relief
to hard-working American families, who often are being forced
to choose between filling life-saving prescriptions or
purchasing groceries.
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