Medicare inches forward on drug prices

The Trump administration is making another incremental move toward lower drug prices, opening up a new part of Medicare to well-established competitive pressures.

The big picture: "Step therapy" allows insurance companies and pharmacy benefit managers (PBMs) to set up a system under which patients have to start with a cheaper drug first, switching to a higher-cost alternative only if they need to.

• Step therapy is common in private insurance and in Medicare’s coverage for the kinds of drugs you pick up at a pharmacy.
• Now, the administration is allowing the use of step therapy for some drugs that are administered at a doctor’s office — which are some of the most expensive drugs on the market.

How it works: The idea behind step therapy is partially just to switch patients to cheaper drugs. But there’s also a hope that it will prod more expensive products to offer bigger discounts, so that insurers won’t subject them to step therapy.

The impact is hard to predict. The new rules only apply to Medicare Advantage, not to traditional Medicare. MA accounts for about a third of all Medicare beneficiaries.

• Some plans won’t adopt step therapy. Some MA enrollees will prefer the plans that don’t. And some of the relevant drugs don’t have cheaper alternatives.

Why it matters: The Trump administration’s top health officials have said they’re going to bring down drug prices through greater competition, and they’ve acknowledged a lot of that will have to happen without Congress.

• However well or poorly that process ultimately works, this is what it looks like — a series of small, incremental changes.
• Patients for Affordable Drugs, an advocacy group that often pushes the administration to be more aggressive on drug prices, supported the move.

What’s next: PBMs cheered yesterday’s announcement, but they’re next on the chopping block. The administration is working on regulations to roll federal protections for PBMs’ highly lucrative rebates.