New Medicare Step Therapy Policy Good for Consumers, Health Care System

August 30, 2018

The Centers for Medicare and Medicaid Services (CMS) released a blueprint this spring to lower prescription drug prices and out-of-pocket costs. One piece of that plan is to allow step therapy for physician-administered drugs covered under Medicare Part B. 

Step therapy promotes use of clinically equivalent, lower-cost drugs before coverage is offered for clinically similar, higher-cost drugs. 

Although insurers can’t change drug prices – which are independently set and raised by pharmaceutical manufacturers – they employ some tools to put pressure on the manufacturers to negotiate prices or rebates.

Step therapy is one of the tools insurers use, and it has helped stabilize Part D premiums. An Oliver Wyman study, conducted in July, concluded that Part D premiums would be 52 percent higher if plans couldn’t negotiate rebates on prescription drugs.

Many believe step therapy will benefit the Part B program as well. CMS will allow Medicare Advantage (MA) plans to use step therapy for drugs covered under Part B starting Jan. 1.

“For too long, Medicare Advantage plans have not had the tools to negotiate a better deal for patients,” said CMS Administrator Seema Verma. “Today we begin lifting those barriers, so plans can use private-sector tools to drive down the cost of expensive drugs while also offering new care coordination and drug adherence programs, to ensure that patients are getting high-quality care at lower cost.”

Step therapy under Plan B will apply only to new treatments; patients already receiving a given medication may continue to do so. Many patients will experience significant savings, according to CMS, as the policy requires MA plans to pass up to 50 percent of the savings back to consumers through rewards.

“Expanding the use of step therapy is a positive step toward lowering prescription prices for Medicare beneficiaries,” said Dr. Michael Anderson, chief pharmacy officer for UnitedHealthcare’s Medicare business. “Consumers will maintain access to safe and effective treatments they require, while sharing in significant savings. Cost is especially important for Medicare beneficiaries, with 40 percent of seniors living on annual incomes at or below $20,000.”

Stacie Dusetzina, a drug pricing expert at Vanderbilt University School of Medicine, told Politico the expansion to drugs administered in the clinical setting should push drug companies to work harder to offer their drugs at a price that won’t make them a target for step therapy. “I think it’s a pretty bold first move,” she said.

Beyond the savings to individual consumers, U.S. Department of Health and Human Services adviser Dan Best estimates that this policy, when coupled with other reforms being considered, could save the government up to $2.4 billion annually – 20 percent of what it spends on prescriptions administered in clinics.