U.S. pays nearly twice as much for drugs compared to other countries

A recent HHS analysis revealed that prices charged by drug manufacturers to wholesalers and distributors in the United States are 1.8 times higher than in other countries for the top drugs by total expenditures separately paid under Medicare Part B. U.S. prices were higher for most of the drugs included in the analysis, and U.S. prices were more likely to be the highest prices paid among the countries in the study (ASPE Report, October 25, 2018).

Medicare Part B

Drugs typically administered to patients by healthcare practitioners are covered and paid under Medicare Part B, which is part of the fee for service traditional Medicare benefit. Under Part B, providers buy and bill for these drugs. Medicare pays suppliers and providers based upon the Average Sales Price (ASP) for each product, as reported by manufacturers to CMS. Physician offices that buy and bill Part B drugs are paid 106 percent of the drug’s ASP, and hospitals are reimbursed either at 106 percent or 77.5 percent of ASP, depending on the hospital outpatient department’s participation in a safety net drug pricing program. Spending on Part B drugs has doubled since 2006.

The analysis and results

Data was compiled on the top drugs based on total Medicare reimbursement to either physician offices, hospital outpatient departments, or overall under Medicare Part B in 2016. Countries included in the analysis included: the United States, Austria, Belgium, Canada, Czech Republic, Finland, France, Germany, Greece, Ireland, Italy, Japan, Portugal, Slovakia, Spain, Sweden, and the United Kingdom. The analysis identified thirty two Medicare Part B drugs among the top twenty drugs in spending for each setting. These thirty two drugs accounted for $18 billion in spending, out of a total $27 billion on Part B drugs across these settings. The main analysis reports on twenty seven Part B Drugs.

Across the twenty seven drugs in the study, the U.S. ex-manufacturer prices were 1.8 times than average international ex-manufacturer price. There was not any one country that consistently had the highest or lowest prices compared to the U.S. for twenty of the drug products; U.S. prices exceeded the average international price by more than twenty percent. In addition, for nineteen of the twenty seven products the U.S. prices were higher than any other country. Excluding the U.S., Germany and Canada had the highest prices for six drugs and Japan for five drugs. France and the United Kingdom had the lowest prices for four drug products. Japan, Sweden and Slovakia had the lowest prices for three drug products each. Finally, the analysis calculated that the Medicare program and its beneficiaries spent an additional $8.1 billion (47 percent more) on these twenty seven products that it would have, if payments based upon ASP were scaled by the international price ratios.

Overall, prices and reimbursement rates for Part B drugs are significantly higher for the U.S. providers than purchasers outside the U.S., except for a few outlier cases. The amount by which U.S. prices exceeded those of international comparators varied significantly by product, and there was no clear pattern as to which countries were consistently paying lower prices. The analysis suggests that Medicare Part B could achieve significant savings if prices in the U.S. were similar to those of other large market based economies.

CMS touts nationwide drop in avoidable hospital readmissions

Thanks to the Hospital Readmissions Reduction Program (HRRP) and other initiatives, CMS stated that Medicare beneficiaries were spared approximately 100,000 readmissions in 2015, while the HHS Assistant Secretary for Planning and Evaluation (ASPE) estimates that they have avoided 565,000 readmissions since 2010. Potentially avoidable hospital readmissions occurring within 30 days of discharge account for $17 billion in Medicare spending each year, according to CMS. Initiatives like the HRRP and the Partnership for Patients improve patient care by, for example, encouraging hospitals to ensure that patients are discharged with appropriate medications and instructions for follow-up care and schedule follow-up appointments.

Initiatives

The HRRP was established pursuant to section 3025 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148). It provides hospitals with monetary incentives for reducing avoidable readmissions by penalizing those with excessive readmissions for targeted clinical conditions. In fiscal years (FYs) 2013 and 2014, the targeted conditions were acute myocardial infarction, heart failure, and pneumonia. FY 2015 also included readmissions for chronic obstructive pulmonary disease (COPD) and total hip and knee replacements. FY 2017 will include readmissions for coronary artery bypass graft surgery. CMS assessed more than $420 million in penalties against hospitals in FY 2016 (see Medicare readmission penalties exceed $500M for FY 2017, Health Reform WK-EDGE, August 10, 2016). In addition to reducing avoidable readmissions, the Partnership for Patients aims to specifically improve transitions of patients among care settings.

Reductions

Readmissions fell by 8 percent nationwide from 2010 to 2015. Forty-nine states and the District of Columbia experienced decreased readmission rates; the readmission rate in Vermont increased by only one-tenth of a percent, or the equivalent of 21 readmissions. Rates decreased by more than 5 percent in 43 states and by more than 10 percent in 11 states.

Medicare spending is lower than it could have been but still rising

Medicare spending for personal health care expenditures was $473 billion lower between 2009 and 2014 than it would have been if the growth rate between 2000 and 2008 had continued into 2014. If the slowed spending growth continues for 2015, the savings could reach $648 billion—a sum greater than all Medicare spending for 2015. The HHS Office of the Assistant Secretary for Planning and Evaluation (ASPE) Report, which contained the findings, noted that, despite the lower spending for personal health care expenditures under Medicare, national health care spending increased moderately in 2014 by 4.3 percent per person.

Changing growth

The rate of national health care spending growth per person was on a downward trajectory between 2002 and 2012. For example, between 2009 and 2012, the average growth rate in per enrollee spending for the Medicare program was 2.3 percent, whereas the average growth rate for the years 2000 through 2008 was 6.3 percent. ASPE attributed the slowdown to multiple factors including the great recession, expiring drug patents, uptake of generic drugs, and changing state and federal policies. In subsequent years, the country experienced significant gains in health insurance coverage as a result of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148). In 2014, the first year of operability for the ACA’s health insurance exchanges, per person growth rose to 4.3 percent, which, while an increase from previous years, is considered modest by ASPE on historical standards.

Transitory spending

The report suggests that the uptick in growth was likely caused by the sudden impact of the ACA’s expansion of insurance coverage and the introduction of new specialty drugs. ASPE projects that the spending increases will be transitory. For example, the report suggests that some spending increases could be caused by the pent-up demand for services that was addressed suddenly when individuals obtained coverage under the ACA. Additionally, spending on specialty drugs like those used to treat Hepatitis C skewed spending growth numbers significantly. For example, spending on prescription drugs would have remained the same between 2013 and 2014 without the introduction of new Hepatitis C drugs. However, due to the introduction of those drugs, prescription drug spending increased 4.5 percent between 2013 and 2014.