Ruling Limits Medicare’s Ability to Set Drug Prices

December 1, 2008

The federal government has less authority to set Medicare drug reimbursement prices than officials at the Centers for Medicare & Medicaid Services (CMS) had thought, according to a ruling by Judge Henry H. Kennedy Jr of the US District Court in Washington, DC, in a case (Hays v Leavitt [1:08-cv-01032-HHK]) filed by a person with chronic obstructive pulmonary disease. The patient, Ilene Hays, had received a prescription for DuoNeb, a combination inhalation drug made by Mylan’s Dey subsidiary.

 

The federal government has less authority to set Medicare drug reimbursement prices than officials at the Centers for Medicare & Medicaid Services (CMS) had thought, according to a ruling by Judge Henry H. Kennedy Jr of the US District Court in Washington, DC, in a case (Hays v Leavitt [1:08-cv-01032-HHK]) filed by a person with chronic obstructive pulmonary disease. The patient, Ilene Hays, had received a prescription for DuoNeb, a combination inhalation drug made by Mylan’s Dey subsidiary.

There was no dispute that Medicare would pay for the medication under Part B; the litigation was over how to compute the payment. The CMS argued that in all cases, it should calculate the amount of the least costly alternative and base its payment on that figure. In this case, that amount would have been determined by the costs of separate doses of DuoNeb’s 2 components, albuterol and ipratropium bromide. Paying more would violate the provision in the Medicare law for the program to deny coverage for items that are “not reasonable and necessary for the diagnosis or treatment of illness or injury, or to improve the functioning of a malformed body member.” The Medicare Program Integrity Manual that went into effect on November 1 applied the least costly alternative concept, which was originally designed for durable medical equipment, to all Medicare reimbursements.

Judge Kennedy, however, found that such a reading of the legislation was wrong and conflicted with the part of the law that specifies how Part B drug pricing is to be established-that is, by averaging the drug's usual selling price. His opinion noted that if Medicare were allowed to pay only for separate doses of the DuoNeb’s component drugs, the government would be given “broad discretion” to rewrite the payment formula.

Medicare Prescription Drug Coverage

Heart Drugs Top Part D Spending

For the first time, the CMS released detailed data on how the Medicare Part D benefit is being used-data that program officials call an “unprecedented tool” for evaluating prescription drug use in the United States. The information reveals that the number one prescription drug used by Medicare beneficiaries, as measured by dollar outlays in 2006, was Lipitor. Rounding out the list of the top 10 drugs by cost were, in order, Plavix, Zyprexa, Nexium, Seroquel, Risperdal, Prevacid, Norvasc, Aricept, and Advair Diskus. Overall, the top 3 therapeutic classes of drugs by cost accounted for nearly 50% of the agency’s Part D spending; 22.7% was spent on cardiovascular medications, and 17% and 8.7% were spent on psychotherapeutics and GI drugs, respectively.

The CMS also reported that in 2007, 31.7% of Medicare enrollees reached the “doughnut-hole” coverage gap, but about two-thirds of these beneficiaries continued to be reimbursed because either they were receiving the low-income subsidy or they had enrolled in a plan with doughnut-hole coverage. Just 8.8% of Part D enrollees reached the catastrophic-coverage phase (on the other side of the coverage gap), in which Medicare pays 95% of drug costs.

When the CMS released detailed figures from 2006 and 2007, it also announced totals from fiscal year 2008, which ended on September 30. These figures showed that the government spent $44 billion on Part D, which was $6 billion less than the fiscal 2007 figure and $30 billion less than the Congressional Budget Office’s projection for 2008, which was made before Part D was launched. The main reason for the reduced outlays was that generic drugs accounted for 64% of prescriptions; the CMS had estimated that the figure would be closer to the 61% reported for private sector health plans.

Medicare Prescription Drug Coverage

Audits of Rebates More Difficult Than Expected

The CMS is having a difficult time ensuring that submitted estimates of price concessions that Part D sponsors expect from pharmaceutical manufacturers reflect the prices actually paid. A new report from the Government Accountability Office (GAO) notes that although the agency originally expected to complete 169 audits of such data from the 2006 plan year by the end of October, it completed only half that number. “According to CMS officials, the remaining audits were delayed due to financial constraints,” the GAO reported.

The problems, however, extend beyond staffing. The CMS is finding little consistency in how plans define price concessions and allocate rebates from pharmaceutical manufacturers between Medicare beneficiaries and enrollees covered under other policies. For example, when a plan uses the same formulary for Part D and its other policies, it may split the rebate equally, while plans that use different formularies may use different allocation practices. Moreover, because plans have different enrollee population characteristics, it may be impossible, the CMS says, to devise a concessions standard that would quickly pinpoint plans with suspicious figures.

The full GAO report is available at http://www.gao.gov/new.items/d081074r.pdf.

FDA Misses Drug Decision Deadlines

The bargain embedded in the Prescription Drug User Fee Act is that pharmaceutical manufacturers agree to hefty filing fees when they submit a marketing application to the FDA in return for a quick decision-in general, within 10 months for routine applications and within 6 months for applications for drugs that have the potential to be major breakthroughs. However, this year, the FDA has not lived up to its part of that bargain.

A compilation by analyst Corey Davis of Natixis Bleichroeder Research identified 15 drug applications for which the deadline has passed without an FDA decision. On the list are prasugrel, a blood thinner developed by Lilly and Daiichi Sankyo; algoliptin, a diabetes drug from Takeda; and asenapine, a schizophrenia drug from Schering-Plough. In fact, the number of drugs on the list understates the number of delayed decisions because it excludes applications for which the agency has formally extended review times.

The problem is simply one of inadequate staffing. “There have been dramatic increases in workload that have not kept pace with increases in staffing,” explained John K. Jenkins, MD, director of the FDA’s Office of New Drugs.

 

Health Plans’ Class-Action Vioxx Suit Denied

With the Vioxx settlement administrator ready to begin making interim payments to persons who submitted claims for myocardial infarctions or strokes related to using the analgesic, employer-sponsored health plans that paid the medical costs of treating those persons argue that they, too, should be reimbursed. However, the US District Court of the Eastern District of Louisiana, which is handling the Vioxx claim cases, has ruled that if the plans want to make such claims, they must do so individually. The court rejected the plans’ attempt to have their claims heard in 2 large class-action suits.

The decision on the class-action application (In re: Vioxx Products Liability Litigation [MDL1657]) found that it would not be appropriate to handle all the claims together because each plan had different provisions covering reimbursement for medical services as well as different language spelling out its rights to recover payments that enrollees receive from other sources. Moreover, the ruling noted that the petitioners “cannot determine how many plans-or even which plans-they might potentially represent because they do not know who is participating in the settlement.”

 

US Justice Department Probes Vytorin Marketing

 

The US Department of Justice has launched an investigation into whether Merck and Schering-Plough violated the False Claims Act by using unsupported claims that their cholesterol-lowering medication Vytorin worked much better than generics, which cost one-third the price, in order to market the drug to Medicare and Medicaid beneficiaries. The companies were officially informed of the probe in a September 10 letter, but it was only publicly revealed on November 3 in a Merck filing with the Securities and Exchange Commission. The filing also disclosed that attorneys general in 35 states are investigating Merck's marketing practices for the drug and that the company is facing approximately 140 consumer class actions alleging wrongdoing in the way it promoted Vytorin and its component Zetia.

 

 

In Other Legislative and Regulatory News . . .

 

The Wisconsin Medical Society (WMS) issued a voluntary “complete ban” on its 12,000 members' accepting gifts from pharmaceutical manufacturers. The new ethics policy covers “personal items, office supplies, food, travel and time costs, or payment for participation in online continuing medical education” from any provider of products that the physicians prescribe. The WMS decided that a complete ban rather than a limit on the dollar value of gifts is the best way to avoid conflicts of interest. The new policy also decrees that WMS members “should not serve as members of speakers' bureaus for health product companies.” However, it allows physicians to accept free drug samples for patients but wants the practice to be “limited” and to be replaced by vouchers that physicians can give to patients to reduce the cost of filling a prescription.

On January 1, 2009, Florida plans to begin its Cover Florida program, which will offer no-frills, low-cost health insurance to adults younger than 65 years. The state has selected United Healthcare and Blue Cross and Blue Shield of Florida to sell the policies statewide; Florida Health Care Plans, JMH Health Plan, Total Health Choice, and Medical Health Plans will market the program in a few populous counties. All the policies will cover prescription drugs as well as urgent care, surgery, and preventive care but will exclude reimbursement for treatment of cancer or mental illness. Each of the Cover Florida participating insurers will offer a plan with inpatient and catastrophic coverage and a plan with premiums of about $150 a month without such coverage. Residents who have been without health insurance for a minimum of 6 months are eligible to sign up.

Kentucky is setting up a statewide network of centers to help low-income residents receive free or discounted drugs from pharmaceutical manufacturers. The program, an expansion of a program already in operation in 2 Kentucky towns, Paducah and Elizabethtown, will guide residents through the often complex application procedures for the pharmaceutical companies' assistance programs. The centers will be staffed by volunteers supported by a legislative appropriation of $1 million for training, site set-up, and computers. The program’s goals are to get centers up and running in 90 of the state's 120 counties by March and eventually to open a center in every county.