Obama administration proposes new effort to combat high drug prices

Protesting high drug prices, AIDS activists and other demonstrators carry images of Turing Pharmaceuticals then-CEO Martin Shkreli in October 2015. Shkreli drew attention for a 5,000% price increase on a life-saving drug.

Protesting high drug prices, AIDS activists and other demonstrators carry images of Turing Pharmaceuticals then-CEO Martin Shkreli in October 2015. Shkreli drew attention for a 5,000% price increase on a life-saving drug.

(Craig Ruttle / Associated Press)
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Facing skyrocketing drug prices, the Obama administration is proposing potentially major changes in how Medicare pays for some medications, including high-priced specialty drugs used to treat cancer and other costly diseases.

The proposed regulations, unveiled Tuesday, would initially affect a relatively small share of the nation’s nearly $500-billion drug tab.

But if widely implemented, they could overhaul the way Medicare, America’s largest insurer, pays for drugs, by linking payments to the effectiveness of medications, not just their prices.


“These models would test how to improve Medicare beneficiaries’ care by aligning incentives to reward value and the most successful patient outcomes,” said Dr. Patrick Conway, chief medical officer at the federal Centers for Medicare and Medicaid Services. “The choice of medications for beneficiaries should be driven by the best available evidence, the unique needs of the patient and what best promotes high-quality care.”

Though still a relatively small fraction of the nation’s total annual healthcare tab — which is nearing $3.5 trillion — prescription drug costs have been rising rapidly in recent years.

Drug spending jumped more than 12% in 2014, according to federal analysts.

That is driving public anxiety about how much the pharmaceutical industry is charging for its products.

In a national survey by the nonprofit Kaiser Family Foundation last fall, Americans singled out drug prices as the most pressing healthcare issue the next president and Congress should address.

Both presidential front-runners, Democrat Hillary Clinton and Republican Donald Trump, have proposed new government initiatives to control prices.

Clinton and Trump were calling for the federal Medicare program to negotiate lower prices with drugmakers, though Trump more recently appeared to switch strategies, voicing support instead for importing lower-cost drugs from abroad.


Clinton is also proposing new caps on how much patients can be charged for prescription drugs and new restrictions on how drugmakers advertise and how much they must spend on research.

Pharmaceutical industry officials say the high prices are necessary to fund research in lifesaving treatments and note that even very expensive drugs can save money in the long run by extending patients’ lives and avoiding other costly medical care such as hospitalizations.

“Proposing sweeping changes to Medicare Part B drug reimbursement without thoughtful consideration and stakeholder input is not the right approach and puts Medicare patients who rely on these medicines at risk,” Pharmaceutical Research and Manufacturers of America spokeswoman Allyson Funk said in a statement.

Genentech, the South San Francisco maker of numerous cancer medicines, said it was reviewing the proposal.

“We’re supportive of efforts that take a holistic look at the overall cost of treating serious diseases such as cancer,” the company said in a statement. “We actively work with all stakeholders in the healthcare community to ensure patients have access to medicines like ours.”

Rising drug costs — which came after years of relatively slow growth in prescription drug spending — are putting intense pressure on government health plans such as Medicare and Medicaid and on patients themselves, who are being forced to pay more and more out of pocket for care.


The new Medicare initiative would affect only prescription drugs that are administered by physicians through the Part B program, such as ones for chemotherapy. These totaled about $20 billion in 2015, according to the federal government.

The initiative would not affect the much larger Medicare Part D drug program, which provides insurance coverage for prescriptions that seniors fill at the pharmacy.

But the new effort to test “value-based” systems of paying for drugs could ultimately require the federal government to make judgments about which treatments work best for which medical conditions.

That task could be politically explosive, as it has sometimes been in other countries with more centralized government health insurance systems such as Britain.

Dr. Robert Figlin, director of hematology and oncology at Cedars-Sinai, said the plan is “likely to be a step in the right direction.” He said Cedars doctors had already moved to providing “evidence-based, value-based care.”

Obama administration officials emphasized Tuesday that the federal government is only seeking feedback on the proposals, and Medicare has no plans to limit physicians’ choices of drugs.


“Nothing … will prevent doctors from prescribing exactly the treatment they think their patients need,” Conway told reporters.

Medicare officials also are proposing to limit how much patients must pay out of their own pockets for these drugs.

And they are seeking to scale back incentives in the Medicare program that pay doctors and hospitals higher fees for prescribing high-priced drugs, even if they are no more effective.

Staff writer Melody Petersen contributed to this report.