Lawmakers Launch Warning to HHS Regarding Skyrocketing Generic Drug Prices

A letter urging the federal government to address “staggering increases” in the cost of generic drugs was sent to HHS Secretary Sylvia Burwell by Senator Bernie Sanders (I-Vt.) and Representative Elijah E. Cummings (D-Md.). The letter asks for the assistance of HHS in addressing significant and rapid increases in generic drug prices, which the lawmakers say are negatively affecting Medicare, Medicaid, hospitals, nursing homes, and individuals across the country. The letter warns action must be taken immediately to protect access to historically affordable generic drugs that countless Americans rely on.

Rising Prices

According to the letter, the Healthcare Supply Chain Association (HSCA) recently revealed that certain drugs have undergone enormous increases in prices. For example, a bottle of 100 2mg pills of the asthma drug albuterol sulfate was available October 2013 for $11, whereas, by April 2014, the cost of the same bottle had risen to $434. Over that same period of time, a bottle of 500 100mg tablets of the antibiotic doxycycline hyclate rose from $20 to $1,849. According to the lawmakers’ letter, the HSCA has documented at least eight generic drugs that have seen price increases of more than 400 percent between October 2013 and April 2014.


To demonstrate the impact of the rising prices, the letter points to 1,500 stories that Senator Sanders and Representative Cummings received from individuals in the two week time period that they spent investigating the issue. Additionally, the letter points to the impact that the price hikes are having on industry. The letter gives the example of a recent report, which indicated that two Walgreens executives were let go for underestimating the cost of generic drug price increases by $1 billion.


In light of the price increases, the letter requests that HHS provide lawmakers with the National Average Drug Acquisition Cost data maintained by CMS, so that the lawmakers can attempt to better understand and address the price increase trends. The letter also inquires as to the steps that HHS is taking to combat the price increases, the authority that HHS has to address the problem, and whether legislative action is required. In addition to writing to HHS, the lawmakers sent letters to 14 different generic drug manufacturers to ask why the prices those manufacturers are charging for generic drugs have increased so significantly in such a brief period of time.

Nursing Homes Under Fire for Lack of Sprinklers

CMS has indicated that as many as 385 nursing homes in 39 states have failed to meet requirements to install sprinkler systems to combat potentially deadly fires in those facilities. According to the Associated Press, the nursing homes with the non-compliant sprinkler systems house 52,000 patients who are being put at unnecessary risk of deadly nursing home fires.


The lack of sprinklers poses a compliance problem for some nursing homes because of a deadline set by CMS requiring all nursing homes to be “sprinklered” by August 13, 2013. CMS warned that it would not grant extensions for the timeline that was officially set out in a 2008 final rule (73 FR 47075). According to the Associated Press, CMS has indicated that compliance has reached 97 percent, with 3 percent of facilities falling out of compliance on the sprinkler mandate. CMS reportedly told the Associated Press that “CMS and states are actively engaging with the rest of the facilities to verify their compliance with this regulation and will take appropriate actions for noncompliance to ensure the safety of residents.”

Slow Compliance

The path to sprinklers in nursing homes has been a slow one. In 2003, attention was brought to the issue when two nursing homes, without sprinkler systems, burned and left 31 people killed. One of the nursing homes that caught fire was the Greenwood Nursing Home in Hartford, Connecticut and the other facility was the NHC Healthcare Center in Nashville, Tennessee.  Although at the time of those fires, newly constructed facilities were required to have sprinkler systems, older facilities were not required to be retrofitted. In 2008, CMS issued the requirement that all nursing homes were to install sprinklers and gave the lengthy five year deadline for compliance. Despite the slow start, the numbers have improved from last December when, according to the Associated Press, CMS reported that 714 homes lacked adequate sprinkler systems.


One reason for the lack of compliance is the cost associated with the installation of adequate sprinklers. For example, in 2003, following the Greenwood fire, the estimated cost of installing sprinklers ranged from $270,000 to $363,000 depending on whether a system needed to be upgraded or no system was in place at all.

CMS Action

According to the Associated Press, CMS indicated that it could resolve continued non-compliance with the sprinkler requirement by denying payment and terminating a facility’s provider agreement. The agency did state that some providers may receive extensions due to extenuating circumstances if, for example, nursing homes are undergoing major renovations. Regardless of the action CMS takes to enforce the sprinkler requirement, compliance is important. The Government Accountability Office indicated in a 2004 report that no facility fully equipped with sprinklers has ever had a multiple casualty fire. Simply put, sprinklers save lives. In the words of Tom Burke, a spokesman for the American Health Care Association, the value of sprinklers as a “safety and patient safety feature is undisputed.

High Med-Mal Standards May Not Tip Scale on Health Care Costs

The connection between wasteful health care spending and physicians’ fears of malpractice lawsuits may not be as significant as malpractice reform advocates suggest, according to a recent study published in the New England Journal of Medicine (NEJM). The study evaluated the effect of malpractice reforms in three states where malpractice standards for emergency care were raised to gross negligence. The findings revealed that the heightened legal standard had only a nominal effect on the intensity of the care provided in the emergency departments within those states.


The study was designed to evaluate the widespread belief that high health care costs are driven through a sort of defensive health care, where physicians provide unnecessary services in order to insulate themselves from malpractice liability. To examine the hypothesis, the study looked at Medicare fee-for-service beneficiaries in Texas, Georgia, and South Carolina, the three states that took on malpractice reform, as well as six neighboring states, which operated as controls. Using emergency department data from 1997 through 2001, the study compared patient outcomes from before and after the malpractice reforms. Specifically, the researchers looked at changes in the use of “computed tomography (CT) or magnetic resonance imaging (MRI), per-visit emergency department charges, and the rate of hospital admissions.”


The study revealed that for a significant majority of the patient outcomes evaluated there was no reduction in the intensity of care that could be meaningfully attributed to the changes in medical malpractice policy. The researchers found no reduction in CT or MRI utilization in any of the three reform states, and the only reduction in charges was found in Georgia, where the reforms were attributed to a 3.6 percent reduction in per-visit emergency department charges. As a result, the researchers concluded that substantial changes in medical malpractice standards for emergency physicians in Texas, Georgia, and South Carolina had little effect on the intensity of imaging rates, admission rates or average charges in those three states.

CMS Announces “Investment Model” ACO Funding

CMS will award funding for a new Accountable Care Organization (ACO) innovation model, the Investment Model, beginning January 1, 2016. The Investment Model builds on previous work with advance payments in the shared savings program. This model addresses the need for capital to invest in the equipment and training needed to manage the care of a patient population while increasing the level of financial risk in response to stakeholder concerns.

Two Groups of ACOs

Two groups of ACOs will be eligible to apply for funding under the Investment Model. ACOs that already are participating in the shared savings program may apply from October 15, 2014 to December 1, 2014. CMS will accept applications from new ACOs that will begin participation on January 1, 2016 and ACOs that began participation during 2014 in the summer of 2015.

Types of Payments

Both groups of ACOs will receive two types of variable payments: one “up-front” payment and one monthly payment. Both variable payments will be based on the number of Medicare beneficiaries preliminarily and prospectively assigned to the ACO. The new ACOs also will receive a fixed up-front payment.

Eligibility Requirements

To participate in the Investment Model, ACOs must be accepted into the Medicare shared savings program. ACOs that entered the program in 2012, 2013, or 2014 must have submitted complete and accurate quality reports during the most recent performance year. In addition, the ACO must not: (1) have been assigned more than 10,000 beneficiaries; (2) include hospital participants providers except for critical access hospitals (CAHs) or prospective payment system hospitals with no more than 100 beds; (3) be operated either wholly or in part by a health plan; and (4) have participated in the Advance Payment Program.


In its selection process, CMS will favor new ACOs in rural areas and other areas with low penetration and existing ACOs that agree to increase their level of financial risk. It also will give preference to ACOs that have provided high quality care, achieved their financial benchmarks, demonstrated exceptional financial need, or “presented compelling proposals” for the investment of both their own and CMS funds.