Medicare offers new tools to negotiate lower drug prices for patients

Aug. 8, 2018

Medicare Advantage announced that plans will be able to use tools employed by private-sector insurers to negotiate lower prescription drug prices for patients.

The Centers for Medicare & Medicaid Services is rescinding a policy regarding Medicare Part B drugs that discouraged Medicare Advantage plans from using tools that are widely used in private insurance plans to negotiate lower prices from pharmaceutical companies.

Specifically, patients will now be able to choose Medicare Advantage plans that require enrollees to try certain more cost-effective drugs first (known as “step therapy”). Plans will also be able to cross-manage between the drugs covered by different parts of Medicare, allowing them to pay for the most appropriate, most affordable drugs, regardless of whether patients receive them in a doctor’s office (Part B) or at a pharmacy (Part D).

These negotiating tools will offer plans the same power that private-sector insurers have to drive down the price of prescription drugs and force manufacturers to compete on price, while maintaining patients’ rights to appeal decisions, choose another plan, or enroll in Medicare fee-for-service instead.

For many physician-administered drugs covered by Medicare Part B, private insurance plans negotiate discounts of 15% to 20% or more, while Medicare essentially pays full price.

More than 20 million Americans are enrolled in Medicare Advantage plans, representing 33 percent of Medicare enrollees. In 2017, Medicare Advantage plans spent $11.9 billion on Medicare Part B drugs, the category where plans will now have more power to drive down prices.

Plans will be required to pass on to patients more than half of the savings generated from tougher negotiation. Savings can be realized for enrollees through lower coinsurance amounts and through rewards programs, which provide patients with benefits such as gift cards.

Beginning in 2020, plans will be able to pass on savings to patients through lower premiums. (Premiums have already been set for 2019 Medicare Advantage plans.)

Medicare Advantage plans can begin using these tools as part of their 2019 policies, meaning savings could be generated and passed on to patients as soon as next year. Plans have limited time to implement the tools for next year, however, and it is expected that more plans will adopt the tools over time.

HHS has the full release