Earnings season is already a turbulent time for drugmakers. But the most recent one saw an extra shake-up, as midway through the Centers for Medicare and Medicaid Services gave notice that it's considering proposing a new payment model for medicines covered under Medicare Part B.
The plan's overarching goal is to curb the amount CMS spends on Part B drugs by 30% over time. To do that, regulators would aim to align the prices paid in the U.S. more closely to the often lower prices found in foreign countries.
Currently, CMS pays the average sales price for a drug plus a 6% add-on payment. The agency notes, however, that costs for Part B medications are higher in the U.S. than many other "wealthy" countries, and in some cases up to seven times higher. To that point, Medicare fee-for-service drug spending increased from $17.6 billion in 2011 to $28 billion in 2016 under Part B, according to the agency.
It will be some time before the model is put into place, if at all. CMS issued an advanced notice of proposed rulemaking on Oct. 25 that is now open for public comment. The quickest turnaround would have the agency putting out a proposed rule in the spring and potentially starting the model in 2020, to then expand through 2025. CMS expects that shift will cut spending by $16 billion over that five-year period.
While far from realized, the proposed change may have substantial impacts on manufacturers — particularly those getting a significant amount of product revenue from Part B sales. Leerink analyst Geoffrey Porges acknowledged that the bottom lines at Amgen, Regeneron Pharmaceuticals, Bristol-Myers Squibb and Roche could be open to exposure.
"At the manufacturer level the many unintended or unexpected consequences of this proposal will be paraded by industry representatives and lobbyists, and some of the many liabilities of this approach will be quite alarming," he wrote in an Oct. 25 note.
"We would expect the comments to be impassioned, extensive and possibly extended, and thus we ultimately expect that this proposal will be delayed, scaled back, or just not implemented at all, after the consequences of reduced treatment services and reduced drug supply, are considered," he added.
Pharmas that reported earnings after the announcement had a wide range of reactions as well.
Allergan didn't seem too concerned given the main products of its business. The company's Chief Commercial Officer William Meury underscored that just about 6% of Botox (botulinum toxin) sales are subject to Part B.
"As it relates to the international pricing index, not surprisingly with a biopharmaceutical like Botox there's going to be a difference between the price in the United States relative to markets internationally," he said on an Oct. 30 earnings call. "When you look at that overall proposal, I think the therapeutic areas that are really in focus are oncology, [multiple sclerosis], [rheumatoid arthritis] and other spaces. I don't consider Botox a big budget-buster in any way, shape or form."
Pfizer's leader was more disapproving.
"The new suggested rule in Part B — I don't think it's in the best interest of patients to effectively enforce price controls from abroad into the U.S," CEO Ian Read said on the company's earnings call. "And we would hope that the administration would reconsider its position on that."
On a broader scale, GlaxoSmithKline foreshadowed that changes to Medicare pricing could face significant pushback if they impede access to therapeutic areas like HIV, a key market for the British pharma. One piece of the Trump administration's drug pricing blueprint, for instance, proposes to amend Medicare Part D formulary standards for protected drug classes such as antiretrovirals.
"Clearly in HIV, there's a very powerful patient lobby and stakeholder group that will be extremely interested in retaining it as a protected class and keeping the access to it," said David Redfern, GSK's chief strategy officer.
"We'll obviously have to see how things play through in the U.S. ... but it's actually very unclear exactly what the process is by which protected classes could be removed," he added. "Does it have to go through Senate? Can it done by executive order and so forth? And obviously that plays into all the other dynamics of the midterm and so forth. So, I don't think it's an immediate threat, but it's certainly something we will watch."
Perhaps most prominently, companies explained it's simply too early to gauge what this proposal will ultimately do — or if it will even come to fruition.
"Obviously, it's tough to know what's going to actually become policy given a lot of these announcements were pre-election," Regeneron CEO Leonard Schleifer said on the company's third quarter earnings call.
"I do think the administration is serious about trying to do something with drug pricing. But whether or not they will be able to get in a demonstration pricing which covers a large fraction of the country starting in the year 2020 with international reference pricing, I think that's a wide, big question mark at this time," he said.
Amgen, which earns 17% of its U.S. business through Part B, also had a wait-and-see approach.
"At this point, it is just a proposal," Amgen CEO Robert Bradway said.
"We think there are some things that can be done to eliminate unnecessary cost and friction in the system and make sure the patients who need innovative therapies can get them, and we will continue to advance those ideas in our discussions in Washington," he added. "But again, it just underscores this is a proposal at this point and there will be plenty of time to see the proposal take shape."