On August 26, 2016, the U.S. Government Accountability Office (GAO) issued a report on drug coupon discount programs for privately insured patients and their potential impact on Medicare Part B drug spending. Although the report found only a relatively modest 0.7 percent effective price impact from coupon use with high expenditure Part B drugs (as compared to their government-reported average sales price, or ASP), the GAO also noted the potential for that impact to grow over time with increased coupon use. Thus, the report recommends that Congress give the Centers for Medicare and Medicaid Services (CMS) authority to collect drug coupon program data for Medicare Part B drugs and require CMS to collect the data and issue a report on how these programs impact the Medicare Part B drug reimbursement methodology.

Coupon Use Growing, With Mixed Results

Drug coupon programs involve a manufacturer offering a coupon, savings card, or point-of-sale discount directly to privately insured patients to reduce the out-of-pocket costs they may incur for a given drug in the form of a copay, coinsurance, or deductible obligations. In its report, the GAO cites data indicating that the use of drug coupons more than doubled between 2011 and 2014, from 3 percent to 8 percent of all brand name prescriptions.

The GAO notes that these programs have some benefits in helping patients afford their medications and in improving patient adherence. But according to the GAO, coupon programs also raise concerns because (1) they may encourage patients to choose more expensive drugs, and (2) Medicare Part B's current ASP-based reimbursement methodology does not account for discounts or rebates provided directly to patients, which means that ASP for a drug may be higher than what the market effectively pays for the same drug.

The GAO also observes that the Department of Health and Human Services (HHS) Office of the Inspector General (OIG) considers these programs to be an unlawful kickback if offered to Medicare or other federal health program beneficiaries because they could induce beneficiaries to pick a more expensive drug when there is a less expensive but equally beneficial drug available. The OIG previously addressed this issue in a Special Advisory Bulletin on "Pharmaceutical Manufacturer Copayment Coupons" from September 2014 that Hogan Lovells addressed as part of a Health, Pharmaceutical, and Biotechnology Alert dated September 25, 2014.

Estimating the Impact on Part B

In its report, the GAO identified the 50 highest expenditure drugs under the Medicare Part B program in 2013 (the most recent year for which full claims data was available), which accounted for 85 percent of all Medicare Part B drug purchases. The GAO then determined that 21 of these drugs were covered by coupon programs and ultimately collected data on the coupon programs for 18 of those drugs.

The GAO found that 19 percent of the patients who used the 18 drugs also used a coupon program, and realized an average annual savings of US$2,051 per patient, or a total of US$205 million in 2013. Because these discounts are not accounted for in Medicare Part B's ASP-based drug reimbursement methodology, the GAO concludes that "the ASP for drugs with coupons exceeds the effective market price by an average of 0.7 percent," which would account for US$69 million more in Medicare Part B spending in 2013 for the 18 drugs with coupons reviewed in the report. For 5 of the 18 drugs, ASP exceeded the effective market price by at least 2.7 percent, for a difference of US$50 million more than Medicare Part B would otherwise have spent on those drugs. The GAO indicates that the increasing use of drug coupons could only increase the difference between ASP-based reimbursement and effective market price over time.

The GAO also notes that CMS currently lacks the authority to collect data on coupon programs to determine their impact on Medicare Part B spending and therefore is unable to evaluate alternatives to Medicare Part B's current reimbursement methodology.

Recommendations and Implications

Based on the results of its report, the GAO recommends that Congress give CMS the authority to collect data on drug discount programs and report on the implications of drug discounts to patients on Medicare Part B payments. Should Congress choose to move forward, enactment of legislation providing this authority to CMS will take some time.

In addition, should CMS be given this authority, it will need to engage in notice and comment rulemaking before any reporting obligations can be implemented, and CMS will need to collect sufficient data before it can even begin to contemplate whether and how the Medicare Part B reimbursement methodology should account for drug coupons.

Thus, the potential for any actual impact from the GAO report on payments made under the Medicare Part B program would appear to be several years away.