CBO Single-Payer Report: Highlights of Drug Pricing, Cost Containment Ideas, Implications

May 3, 2019
Allison Inserro

The Congressional Budget Office this week released a report that examines the different components of what putting together a single-payer system could involve, as well as the implications. Here we highlight 2 sections of the report that are likely of interest to those following biosimilars, drug pricing and healthcare cost containment.

Rather than release a hard set of numbers, the Congressional Budget Office (CBO) released a report this week about key policy considerations policymakers must think about if a single-payer system, such as Medicare for All, is created.

Unlike other CBO reports, it is not so much a financial analysis of the impact on the federal budget or deficits, but rather looks at different components of what putting together such a system could involve, as well as the implications. Here we highlight 2 sections of the report that are likely of interest to those following biosimilars.

Prescription Drug Pricing

The CBO said the impact of a single-payer system on pharmaceutical manufacturers is uncertain. While prescription drug products are sold globally, the United States is the largest single market and also has the highest drug prices. On the one hand, if average prescription drug prices fell under a single-payer system in the United States, manufacturers might be able to counter at least some of those declines if they could convince health systems in other countries to raise their prices.

If that doesn’t work, they might reduce research and development, the CBO said.

One possible outcome: if a single-payer system paid for a new drug on the basis of its additional benefit relative to existing drugs, manufacturers might refocus their research and development on drugs that provide significant additional benefits instead of drugs that provide marginal improvements over other existing drugs.

Payment rates under a single-payer system would affect manufacturers differently depending on their current payer mix.

After accounting for rebates and discounts, the average price per prescription for 50 top-selling brand-name specialty drugs was nearly twice as high in Medicare Part D as in Medicaid, CBO has said.

If a new system used an average of fee-for-service (FFS), Medicaid, and Medicare Part D prescription drug prices, the average price would fall for drugs under commercial insurance, but might increase for some Medicaid beneficiaries and those receiving veterans benefits.

Paying for Drugs

A single-payer system could affect the profits of drug manufacturers, which could affect their incentives to develop new drugs, the CBO said. A single-payer system could use several different methods to pay for prescription drugs, including value-based pricing, reference pricing, negotiated pricing, and administered pricing.

However, it could also use different payment methods for different types of drugs, such as by exempting certain types from the usual mechanism. In addition, some drugs could be placed on a nonpreferred drug list (as payers do currently).

Cost Containment

The cost of a single-payer system would depend the services covered, cost-sharing requirements, and provider payment rates, among other things. In addition to those design decisions, policymakers could use 2 other techniques to contain the growth of government spending on the single-payer plan and total healthcare spending: global budgets and utilization management.

Global budgets, which are commonly used in other nations, are rarely used as cost-control tools in the United States. They are difficult to implement in multipayer systems, with one exception being Maryland, which has a global budget for hospital spending, the CBO noted.

A single-payer system could also use utilization management, including care coordination and utilization review. The administrator of the single-payer plan could enforce utilization patterns by monitoring claims and identifying outliers. This is not a foreign concept to many people enrolled in private insurance, Medicare Advantage, or Medicare Part B plans, but would be a change for those enrolled in traditional Medicare FFS, the CBO noted.

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