Medicare Part B Changes Could Hit Big Biotech Drugs, Say Analysts
Drug stocks fell Wednesday as Wall Street sorted through the impact of proposed changes to Medicare Part B reimbursement designed to drive down the prices of some expensive hospital drugs. Late Tuesday, the Center for Medicare & Medicaid Services proposed a pilot program testing a new reimbursement scheme for Medicare Part B, which covers drugs administered in hospitals or doctors’ offices. Currently, CMS will pay back the price of the drug plus 6% for the health care provider, which critics say encourages doctors to prescribe more expensive drugs. Under the proposed rule, doctors would get just a 2.5% premium plus a flat fee of $16.80 per drug per day, which would somewhat reduce the disparity between different-priced drugs. CMS also proposed reducing or eliminating the portion that the patient has to pay for the drug, and tying the reimbursement level to the effectiveness of a drug for a given indication. Thus, if the same drug works well for one condition but only so-so for another, CMS would reimburse it at different levels for each condition. The agency also wants to create online “decision support tools” to help physicians determine the most effective drug to use in a given situation. Another test would let CMS enter voluntary risk-sharing agreements with drug makers linking price adjustments with patient outcomes. There will be a comment period on the CMS proposal until May 9. At that point, CMS plans to place providers into two different groups, one using the old reimbursement method and one the new one, and study the differences between the groups over the course of five years. It plans to start testing its other ideas starting January 2017. The reimbursement proposal drew the most attention from Wall Street. The covered drugs would be mostly infused or injected treatments for serious conditions, as opposed to pills that the patient can take on her or his own, and so, potentially affects some of the drug industry’s biggest cash cows. “For the big biotechs, the most notable drugs that would fall under this theoretical test would be drugs that include Amgen ( AMGN ) (U.S. Neupogen, Neulasta … also Kyprolis, Xgeva/Prolia, Vectibix, about 35%+ of total sales), Celgene ( CELG ) (U.S. Abraxane is 6% of revenue — the other notable drugs are orals),” wrote RBC Capital Markets analyst Michael Yee in a research note. Credit Suisse analyst Vamil Divan agreed about Amgen, adding that Regeneron Pharmaceuticals ( REGN ) and Biogen ( BIIB ) also depend on drugs under the Medicare Part B umbrella. The new immunotherapy drugs from Bristol-Myers Squibb ( BMY ) and Merck ( MRK ), such as Opdivo, Keytruda and Yervoy, also are covered by Part B, but Yee argued that they aren’t chosen for price reasons. “Consensus understands these drugs are chosen for high efficacy or where there aren’t equivalent drugs that aren’t also infused, not because of the 6% reimbursement,” Yee wrote. Amgen stock hit a five-month low and ended the day down 2.6%, at 140.90. Regeneron tumbled 5.1% to 374.75. Celgene fell 1.1% and Biogen was off 2.2%. Bristol-Myers stock fell 1.1%, while Merck slipped a fraction.