White House Builds Momentum for Drug Price Controls

May 21, 2018

McDermott+Consulting

On May 11, 2018, President Trump released the American Patients First Blueprint (the “Blueprint”), a plan to lower drug prices and reduce beneficiary out-of-pocket spending on drugs in the Medicare program. The Blueprint builds upon a trio of documents released earlier in 2018 by the White House and its advisors that together provide the framework for a multi-faceted approach that the administration believes can reduce spending on prescription drugs in the United States while continuing to encourage growth and innovation.

With the Blueprint, the Trump administration continues to build on its policy initiative to control drug prices. This Blueprint is structured more as a series of policy options and questions than a comprehensive set of specific proposals. The administration is focused on approaches to address drug prices that encourage competition, redirect some behavior in the current marketplace that the administration believes is undesirable, and lower the prices that Americans pay for drugs.

The Blueprint lays out steps the administration has already taken to control drug spending, including:

  • Accelerated approval of generic drugs by the US Food and Drug Administration (FDA)
  • Reduced Medicare payments for drugs purchased under the 340B drug discount program
  • Finalization of a policy allowing faster substitution of generic drugs onto Medicare Advantage and Part D formularies

The Blueprint goes on to direct federal agencies, including the FDA and the Centers for Medicare and Medicaid Services (CMS) to take additional actions to identify ways to reduce spending on prescription drugs. The Blueprint also seeks feedback on areas where Congress can provide new authorities to decrease spending while improving access to care.

Federal Payment Policy Suggestions

Develop Payment Innovations

The Blueprint encourages the CMS Center for Medicare and Medicaid Innovation (CMMI) to test value-based payment models designed to improve care while reducing drug payments. The Blueprint calls for CMMI to design and implement alternative payment models, such as indications-based or outcomes-based payments for drugs under Part B and Part D.

The Blueprint does not call for an immediate design and implementation of such alternative models, but instead asks a series of questions designed to solicit feedback on the design details of drug-specific value-based payment models. The Blueprint seeks input on when, where and how such models would be most effective, and asks how providers can be given the information and tools necessary to make the most effective prescribing and treatment decisions.

Re-Examine Rebates Structures

The administration takes aim at the use of rebates throughout the drug industry and questions whether payers or patients ultimately benefit from the current web of complex arrangements. In particular, the Blueprint references long-standing proposals to require Part D plans to pass through a portion of rebates to beneficiaries at the point-of-sale. Going even further, the Blueprint echoes comments by FDA Commissioner Scott Gottlieb and US Department of Health and Human Services (HHS) Secretary Alex Azar threatening to prohibit the use of drug rebates in federal health care programs entirely. The administration has indicated that this could be achieved without additional statutory authority by modifying the Anti-Kickback Statute discount safe harbor, which is currently set forth in HHS regulations. While Secretary Azar has also referenced potential changes to the rebate structure in the private insurance industry, the administration has not indicated that it has the authority make such changes without action from Congress.

We have access to the greatest medicines in the world, but access is meaningless without affordability. – Secretary Azar

The Blueprint asks how changes to the pricing system, such as rewarding manufacturers that lower or do not increase prices, would affect the behavior of purchasers and manufacturers alike. The Blueprint seeks input on removing the inflationary rebate cap and the impact that may have on list prices over time. It also considers expanding the availability of co-pay assistance cards, currently unavailable to Medicare and Medicaid patients, and seeks to learn what impact such cards may have on pricing behaviors.

Reforms to Medicare B Drugs and Part D Drugs

The administration signaled its intention to continue to investigate Part B drug payment reform by restarting the Competitive Acquisition Program (CAP) for Part B drugs. Under a CAP functioning as originally envisioned by Congress, physicians would work with selected vendors that would purchase and maintain an inventory of drugs, making those drugs available to prescribers at lower prices than the currently allowed Medicare rates. The administration looks to learn how CAP should be structured to successfully bring down the costs of Part B drugs, and is interested in understanding whether enough vendors exist to make the CAP feasible. The original CAP program was discontinued indefinitely because CMS could not recruit vendors, in part because of the lack of formulary management tools under Part B.

More broadly, the administration is also exploring the possibility of shifting some or all drugs currently covered under Part B to coverage under Part D. Given the current financing and copay structures under both programs, the administration seeks input on which class(es) of drugs are most appropriate to move to Part D, and seeks to develop a proposal that would avoid out-of-pocket cost increases for beneficiaries without Part D coverage.

The Blueprint builds on the administration’s efforts in Part D as well, and presses the program to continue to foster competition, lower prices and improve access. The Blueprint sets forth several changes that HHS “may” implement in the Part D program, including permitting Part D plans to make mid-year formulary adjustments to address price increases for sole source generic drugs, and giving plans new tools to negotiate for lower prices on drugs in six “protected classes.”

The Blueprint also suggests that the administration may seek to prohibit “gag clauses” in Part D pharmacy contracts, which currently prohibit pharmacists from disclosing to patients that a particular drug or an alternative could be purchased at a lower cash price outside of the patient’s Part D plan. CMS issued a letter to Part D plan sponsors last week stating that “CMS finds any form of ‘gag clauses’ unacceptable and contrary to our efforts to promote drug price transparency and lower drug prices.” The Blueprint also seeks input on additional information Part D plans could provide to beneficiaries about prices and price changes, either in the Explanation of Benefits or alternative communication models.

340B Drug Discount Program

In 2017, the administration reduced Medicare Outpatient Prospective Payment System payments for separately payable drugs purchased through the 340B discount program by 28 percent. The President’s Budget for FY 2019 proposed to redistribute some savings generated from those payment cuts to hospitals that demonstrate a total share of uncompensated care above 1 percent of total patient care costs. The Blueprint builds on the administration’s willingness to look to the 340B program to help reduce spending, and asks a series of questions, presumably with the intention of soliciting feedback from drug manufacturers and other stakeholders on ways to continue to reform and reduce federal spending related to the 340B program.

The questions cover a wide range of issues, including the effects on price of introducing additional restrictions under the 340B program, the purchase of drugs via group purchasing organizations and the 340B Prime Vendor Program. The Blueprint also poses questions about inventory tracking models, changing the definition of “patient,” the unintended consequences of the 340B program overall, rebate calculations, and the prevention of duplicate 340B and Medicaid discounts, but offers little policy guidance to suggest the administration’s policy leanings.

Policy Suggestions to Encourage Competition

The Role of the FDA

The Blueprint looks to the FDA to encourage competition by reducing a manufacturer’s ability to block the entry of generic drugs through the improper use of tools such as Risk Evaluation and Mitigation Strategy (REMS) plans. The Blueprint asks how an REMS program can be properly used to manage distribution without restricting appropriate introduction of generic drugs.

The plan also looks to improve the availability and adoption of biosimilars by ensuring access to reference samples for developmental purposes and by ensuring that the FDA and biosimilars manufacturers have the resources and tools necessary to reduce development costs.

To increase transparency in the biosimilar market, the Blueprint calls on the FDA to better educate providers about how to incorporate biosimilars into their practices. An improved Purple Book and other tools would be developed and disseminated to inform physicians and other health care practitioners about the availability and uses of both biosimilar and interchangeable products.

The FDA is also charged with investigating policies to require manufacturers to include drug prices in direct-to-consumer advertisements to increase consumer awareness.

Examining the Role of Pharmacy Benefit Managers

The Blueprint seeks to examine the role of Pharmacy Benefit Managers (PBMs) in the drug supply chain to identify potential opportunities to control drugs costs. The administration is interested in how the current PBM business model can be reformed to benefit consumers by encouraging lower costs, and the administration seeks to understand how changes to a PBM’s role as a fiduciary of the consumer would affect the PBM’s ability to negotiate prices and lower out-of-pocket spending.

Encouraging Other Countries to Review Their Policies on Setting Drug Prices

The administration will review the prices among countries in the Organization for Economic Co-operation and Development (OECD) to quantify the price differences in drugs purchased in each country. In the Blueprint, the administration contends that excessive price controls in other developed markets forces a race to the lowest price manufacturers can charge, which has the consequence of higher prices in the US market. The administration is interested in working with Congress and the US Trade Representative to explore ways to remedy the effects these price differences have on the US consumer.

Conclusion

Many of the potential provisions in the Blueprint could have far-reaching effects on providers, manufacturers, pharmacies, Part D plans, PBMs, rebate aggregators and Medicare beneficiaries. However, very little action on any of the proposals is expected in the short term. Many of the proposals, such as new legislative authorities, would require congressional action, and very little congressional action on anything other than maybe the 340B program is expected in 2018.

Even with the proposals that are within the administration’s current authority to implement, rulemaking typically is required, and formal rulemaking could take years to complete and implement. Plus, the Blueprint makes clear that the administration intends to test certain changes through limited demonstrations, which would further slow progress.

Much of the Blueprint simply solicits ideas and feedback from stakeholders. See the Request for Information published in the Federal Register on May 16, 2018. Even though the administration has requested those comments by July 16, it likely will take the administration many more months to translate those comments into actionable policy change.

The Blueprint also is notable for what it does not include: it does not recommend creating a pathway for drugs to be reimported into the United States from other countries, where drugs often are sold at considerably lower prices, nor does it recommend authorizing the Secretary of HHS to negotiate drug prices directly with manufacturers. Both ideas are often discussed as leading ways to reduce drug spending, but both are hotly opposed by the pharmaceutical industry and certain other stakeholders.

In evaluating these and other proposals that may later emerge, stakeholders should consider whether the proposed policy changes are likely to actually reduce the drug price or out-of-pocket expense for patients.

For more information please contact Emily Cook, Adaeze Enekwechi, Kate McDonald, Paul Radensky, or John Warren.

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