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A Voice for Private Physicians Since 1943

Comments on HHS Blueprint to Lower Drug Prices

July 13, 2018

Comments in Response to Request for Information (RFI) on HHS Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs (CMS-2018-0075).

Dear Secretary Azar:

Thank you for this opportunity to submit comments in response to the HHS Request for Information on the Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs. We applaud the Administration’s willingness to undertake this needed reform for the benefit of American patients.

The Association of American Physicians & Surgeons (“AAPS”) is a non-profit membership organization of physicians and surgeons who are mostly in small, independent practices.  Founded in 1943, AAPS defends and promotes the practice of private, ethical medicine.  AAPS has members in virtually every specialty and State, and AAPS speaks out frequently about issues concerning patients and medical practice.

There are many reasons why prescription drugs are unaffordable and most of them result from flawed policies that constrain free market forces. Saying this won’t win us many popularity contests, especially at HHS, but root causes of the affordability crisis system-wide are Medicare and Medicaid themselves. Imposing a top-down structure of third-party payment over approximately two-thirds of U.S. medical care has had a devastating impact rife with incentives that, as HHS itself admits, reward increased prices and gaming the system in ways that harm patients.

Since more fundamental change that will roll back federal interference in American medicine is not currently the topic of this RFI, we will limit our suggestions presently to changes that hopefully CMS will undertake that are in the scope of the request for ideas to lower prescription drug costs.

1) Repeal of GPO/PBM Safe Harbor

Abuse of the system created the need for additional policies to try to safeguard taxpayer funds, for instance, the federal Anti-Kickback Statute. And the amalgamation of these patch-work policies brought additional problems that begat other band-aid solutions, and so on, that in turn led to new ways for middlemen to extract funds without adding value.

We propose that HHS start unwinding some of the worst failed policies.  One that truly belongs in the Hall of Shame is the “safe harbor” in the Medicare Anti-Kickback Statute enjoyed by Group Purchasing Organizations (GPOs), which has been further extended by HHS OIG administrative guidance to Pharmacy Benefits Managers (PBMs).

The Federal statute granting this “safe harbor” is 42 U.S.C. § 1320a-7b(b)(3)(C). The language was established by the Omnibus Budget Reconciliation Act of 1986, strengthened by the Medicare and Medicaid Patient and Program Protection Act of 1987, and subsequently ensconced in federal regulation at 42 C.F.R. § 1001.952(j).

The provision ostensibly facilitates greater bargaining power for the purchasing of supplies and drugs.  However, the safe harbor has in practice driven up costs and created scarcity by perpetuating a system rife with hidden kickbacks, rebates, and single source contracts, which financially benefit GPOs, PBMs, and large manufacturers, but constrain competition and ultimately harm patients. Such arrangements would be illegal in other industries.

It is time for HHS to support Congressional repeal of  42 U.S.C. § 1320a-7b(b)(3)(C) and for the agency to revoke any related regulations and guidance that protect the improper kickbacks driving higher prices and shortages.

Physicians Against Drug Shortages calculates that such “corrupt practices have driven up the prices of drugs sold by PBMs to individual consumers by at least $100 billion annually.”  This is in addition to the $100 billion per year in inflated supply costs that result from kickbacks to GPOs. For additional details see http://www.physiciansagainstdrugshortages.com/.

Diabetes patients are one group particularly hard hit by the collusion between PBMs and manufacturers. CBS News recently reported that “the cost of two common types of insulin increased 300 percent in the past decade” thanks in large part to kickbacks to PBMs. Contracts between GPOs, PBMs, suppliers, and manufacturers are hidden from public view, despite the fact that taxpayers fund nearly two-thirds of every dollar spent on medical care.

While announcing a new initiative on drug shortages, FDA Commissioner Scott Gottlieb agreed, “a key issue is that generic drug makers increasingly are squeezed by middlemen — hospital group purchasing organizations and prescription benefit managers.”

To help shine sunlight on these secret backroom deals HHS could use investigative authority to demand to see and disclose PBM contracts related to the sale of drugs and other medical products that have dramatically risen in price or scarcity. Contracts related to saline, fentanyl, Epipen®, and insulin are a few examples that need examination.

HHS and its program integrity contractors liberally exercise extensive investigative authority over physician payment. How about shifting some resources to looking more closely into the abuses in the pharmaceutical and medical supply chain?

At the very least HHS has the following authority via 42 C.F.R. § 1001.952(j):

“the GPO [and logically a PBM too] must disclose in writing … to the Secretary upon request, the amount received from each vendor.”

We suspect HHS has additional investigative tools it can bring to bear.  For instance HHS should start unmasking the PBM rebates that are disclosed to HHS but currently not to the public.

A last point related to repeal of the GPO/PBM “safe harbor”: The HHS blueprint recommends shifting Part B drugs into Part D, which is largely PBM-run. This change would make repeal of the “safe harbor” even more crucial.

2) Cut Red Tape for Lower-Cost Options for Prescription Drugs for Medicare and Medicaid Enrollees

Meanwhile, independent physicians, for instance many with Direct Primary Care practice models, are providing tremendous savings to patients (and taxpayers) through in-office dispensing of prescriptions that cut out the cost increases caused by middlemen like PBMs.  For example, a 72-year-old female patient with multiple chronic conditions purchases all nine of her medications through a Direct Primary Care office for $14.63/month. Through her Medicare “coverage” the cost would be $294.25 per month.

Medicaid patients are also increasingly seeking care outside the system in this fashion but face counterproductive hurdles. ACA Section 6401(b) requires physicians ordering and prescribing for Medicaid patients to be enrolled in Medicaid. This creates barriers for Medicaid patients who wish to self-pay to receive medical care from a Direct Primary Care (or other third-party-free physician) but need to use their Medicaid benefits for labs, imaging, other needed diagnostics, or prescriptions that are not available affordably through the physician’s office. This is particularly a problem for Medicaid patients seeking medication-assisted treatment for opioid addiction from independent physicians.

In prior rulemaking, CMS has stated the following: “State Medicaid agencies may implement a streamlined enrollment process for those providers who only order or refer, that is, who do not bill for services, similar to the CMS–855–O process in the Medicare program.”

Page 5905: https://www.gpo.gov/fdsys/pkg/FR-2011-02-02/pdf/2011-1686.pdf

However, some states still claim their hands are tied by CMS, and these states are refusing to allow cash-based physicians the opportunity to enroll solely for the purposes or ordering, referring, and prescribing.  Medicaid patients are thereby losing flexibility to consult a doctor of their choice, even if they are willing to pay for the physician out of pocket. Blocking these patients’ ability to work with direct-pay physicians is harmful to these patients and is bad public policy as it increases costs to taxpayers.

We ask CMS to clarify guidance and regulation to encourage and expand the ability of direct-pay practices to serve these patients, who are too often unable to obtain actual medical care within the Medicaid system.

In addition, certain states hold the position that independent, non-Medicaid-contracted physicians are summarily prohibited from privately contracting with cash-paying Medicaid patients.  We know of no federal regulation or statute prohibiting this, and we ask CMS to encourage states to allow increased freedom of physician choice for Medicaid patients.

In this same vein, We also ask that 42 C.F.R.  § 405.415(h) and (o) be revised to better comply with the administrative simplification directives of the Trump administration and statutes as revised by MACRA. In fact, if CMS is looking for a regulation to revoke in accordance with the Executive Order on “Reducing Regulation and Controlling Regulatory Costs,” which requires the elimination of two regulations for every new regulation, then 42 C.F.R.  § 405.415(o) is an excellent regulation to consider for deletion.

The MACRA statute reduces regulatory burdens on physicians opted out of Medicare, but corresponding regulations on private contracts between opted-out physicians and their patients were not properly revised in past rulemaking.  It is no longer proper, or statutorily justified, for a contract between a patient and opted-out physicians to be required to be tied to a 2-year period. The private contract could be valid for an indefinite period, as long as the physician remains opted out, and if mutually agreed upon by both the patient and physician.

The elimination of 42 C.F.R.  § 405.415(h) and (o) would advance HHS goals of “reducing barriers to choice and competition and increasing the availability of high-quality care at affordable prices.”

3) Address Regulations Blocking HSA Participants from Access to Lower Cost Prescription Drug Options

The clumsy IRS treatment of Direct Primary Care improperly impedes Health Savings Account holders from utilizing this low-cost, high-quality practice model that often provides access to lower cost prescription drugs.

In a 2014 letter to IRS Commissioner Koskinen, Senators Murray and Cantwell, along with Rep. Jim McDermott, asked for changes to correct the outdated regulations:

Section 223(c) of the Internal Revenue Code should be updated to reflect that DPC medical homes are not a type of “health plan” and that periodic fee payments to primary care physicians should be recognized as a “qualified medical expense” under section 213(d) of the Internal Revenue Code.

Commissioner Koskinen declined to make the corrections. We encourage HHS and the Trump Administration to request that the IRS take a fresh look at this problem and enact a regulatory solution while Congress works to pass related legislation to prevent future administrative ambiguity.

In conclusion, lowering costs for prescription drugs is going to mean ending the improper flow of money to middlemen who profit without adding value to patient care. Thank you for taking action to end failed policies that benefit the bottom lines of special interests and also to implement solutions that hand control back to patients.

Please do not hesitate to reach out to us for further discussion.


Jane M. Orient, M.D.
Executive Director
[email protected]

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