ACA changes contributed to slow in health care expenditures, study finds

Despite conventional wisdom that the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) has done little to address high growth in health care costs, national health expenditures have grown at historically low rates in recent years, according to a brief by the Urban Institute and Robert Wood Johnson Foundation. The slower growth is related in part to the recession and slow economic recovery, but changes associated with the ACA also seem to have contributed. Analysts predict that these factors will likely cause the slower growth rates to persist into the future.

In February 2017 CMS estimated that national health expenditures grew 4.3 percent annually from 2010 to 2015, lower than its original forecast of 6.5 percent (see CMS actuary releases 2016-2025 health care expenditure projections, Health Law Daily, February 16, 2017). Current estimates of growth in each component of spending for 2010 to 2015 are lower than the original forecast—from 5.8 percent to 4.5 percent for Medicare, from 9.9 percent to 6.5 percent for Medicaid, and from 6.6 percent to 4.4 percent for private insurance.

The report attributed the slower growth to the 2007 to 2009 economic recession and slow recovery, unexpectedly low inflation, increased employer offerings of high-deductible insurance plans, cost-containment efforts within state Medicaid programs, and Medicare policies unrelated to the ACA. The ACA probably also contributed to low spending growth—for example, Medicare payment reductions to hospitals and other providers, the reduction in Medicare Advantage payments, and the managed competition structure of the marketplaces, which were reflected in the 2010 forecast.

Other ACA-related factors not in the original forecast that might have helped slow spending growth include adjustments to ACA Medicare payments, which reduced the number of Medicare hospital days, outpatient visits, skilled nursing facility days, and advanced imaging procedures between 2010 and 2014. Lower Medicare payment rates might also have had spillover effects on other payers. In addition, Medicare policies such as financial penalties for hospital readmissions could have changed provider practice patterns for patients of other payers.

Federal EpiPen® spending up 463 percent, Mylan misclassified drug as generic

Medicare and Medicaid spending on Mylan’s EpiPen increased by 463 percent from 2011 to 2015 not accounting for rebates and other point-of-sale concessions, from $86 million to $487 million. In a letter to the Senate Finance Committee, CMS Acting Administrator Andy Slavitt also indicated that the EpiPen has been improperly classified as a generic, rather than a brand-name, drug under the Medicaid Drug Rebate Program since the fourth quarter of 1997. CMS “expressly told Mylan,” which acquired the EpiPen from Merck in 2007, that the drug is misclassified. The misclassification has financial consequences for federal and state governments and could subject the manufacturer to liability under the False Claims Act (FCA) (31 U.S.C. § 3729, et seq.) and other penalties.

In September 2016, Senate Finance Committee Ranking Member Ron Wyden (D-Ore) and House Energy and Commerce Committee Ranking Member Frank Pallone, Jr., (D-NJ) notified HHS of its concerns that the EpiPen—the source of public outcry stemming from its shocking price increase—was improperly classified under the Medicaid Drug Rebate Program and that Mylan was receiving improper payments from Medicaid (see Mylan CEO highlights EpiPen® access improvement efforts before House committee, Health Law Daily, September 22, 2016; Mylan attempts to mitigate EpiPen® cost hike controversy, Health Law Daily, August 25, 2016). It asked HHS pointed questions about EpiPen’s classification under the Program, which requires participating drug manufacturers to enter into and maintain national rebate agreements with HHS in exchange for state Medicaid coverage of most of the manufacturer’s drug, and helps to offset federal and state costs of most outpatient prescription drugs dispensed to Medicaid patients.

In the October 2016 letter, Slavitt stated that the EpiPen is misclassified as a generic—non-innovator, multiple source—drug, despite the fact that it is approved under a New Drug Application (NDA) by the FDA, has patent protection, and has no therapeutic equivalents, making it properly classified as a brand—single source—drug. Slavitt indicated that brand drugs pay a rebate of the greater of 23.1 percent of the average manufacturer price (AMP) or the difference between the AMP and the drug’s best price. (The difference is increased by a rebate if the rate of increase of the AMP outpaced the rate of inflation.) The rebate for generic products, however, is only 13 percent of the AMP. Mylan thus paid less in rebates than it should have. Slavitt noted that manufacturers that fail to accurately report product and pricing data and pay inadequate rebates may be subject to FCA liability, penalties of up to $100,000 per item of false information, and other government claims.

In February 2016, CMS issued the covered outpatient drug final rule, which stated that covered outpatient drugs approved by the FDA under an NDA must be reported as brand drugs, and will be classified as brand drugs by default, until the manufacturer applies for, and CMS grants, an exception to classify the drug as generic (see CMS paves the way for bigger, better Medicaid drug rebates, Health Law Daily, February 1, 2016). Manufacturers of drugs currently reported as generic, but marketed under an NDA, have until March 31, 2017, to submit an exception request before CMS takes administrative action.

In response to CMS’ letter, Wyden and Pallone noted, “While Mylan irresponsibly raised the price of EpiPen, they were also bilking taxpayers out of millions of dollars” (see Mylan calculatedprofitability using 37.5% tax it doesn’t pay, Health Law Daily, September 27, 2016; Mylan and Congress agree:the epinephrine auto-injector market needs a generic, Health Law Daily, August 30, 2016). They stated that Mylan and other drug companies must take responsibility for their actions to keep “essential medicines” from families, and pledged to get taxpayers their due.