Tom Bulleit, Ropes & Gray health care partner, discusses the Trump Administration's latest drug pricing initiatives.
I'm Tom Bulleit, a health care partner based in Ropes & Gray's Washington, D.C. office. In this video, I'll discuss drug pricing initiatives during the Trump presidency.
The Administration's 2017 health policy efforts were devoted mostly to the ultimately unsuccessful effort to repeal the Affordable Care Act; but in 2018, the Administration stepped up its game with the Rose Garden presentation of their "American Patients First" strategy, called the Blueprint, to curb prescription drug prices. The Blueprint set four priorities that have spurred various Administration initiatives over the past year: improve competition, improve negotiation with drugmakers, incentivize lower list prices, and reduce out of pocket costs. The FY 2020 budget that the Administration released on Monday March 11 also contains several of these ideas.
Turning first to promoting competition, FDA has taken some steps—issuing lists of drugs that could be subject to generic competition, and issuing guidance to make it easier for generic makers to force brand makers to provide the sample needed to reverse engineer the generic. But FDA's actions likely will have only modest effects on drug prices. The FDA approval process is only one aspect of whether a potential manufacturer of generics or biosimilars would view market entry as profitable. More radical steps, such as finding a way to penalize drug companies for so-called pay-for-delay arrangements, are contained in bills in Congress and in the President's budget, but it's doubtful that there is sufficient bipartisan consensus to enact the stronger measures.
Improve negotiation with drugmakers
While the Blueprint did not include direct federal negotiation with drugmakers, the budget proposes a Medicaid demonstration project that would allow a closed drug formulary and direct negotiation on prices by Medicaid plans. But as with the Administration's other stronger measures, a change this dramatic has little chance of becoming law anytime soon. The biggest negotiation idea is a proposed rule that for half of Medicare Part B drug spending, would replace the current physician buy-and-bill system, which gives physicians a statutory markup on drugs they administer in their offices, with a new vendor-based system. Vendors would buy and bill for the product and doctors would get paid only a fixed fee for administration. Importantly, CMS's reimbursement of the vendors would be based on the average price of the drug in select countries. The drug industry already has support from patient and provider groups in opposition, and some Republicans in particular have already objected on grounds of "socialized medicine" and "foreign price controls." It's also not clear how it would reduce prices: why the new vendors would have any more negotiating power than today's PBMs. And of course, the proposal will invite a legal challenge as the breadth of such a demonstration project could exceed the scope of CMS's authority.
Incentivize lower list prices
The Administration's early tactics in encouraging lower list prices are best described as price shaming: calling out publicly the drug companies that raise their prices. The President prevailed on some companies to avoid any mid-year increases in 2018, but most of those companies raised their prices at the beginning of 2019. The Administration's also proposed a regulation to require direct to consumer ads to show the list price of Medicare and Medicaid covered drugs, and Johnson & Johnson recently announced that it would begin to do so. But again, there's little indication that this kind of activity will lead to lower prices.
Reduce out of pocket costs
The Administration has touted with much fanfare its newly proposed rule that would eliminate anti-kickback safe harbor protection for rebates to health plans and their PBMs, and creating new safe harbors for paying PBMs on a fixed fee basis, and protecting rebates that are passed through to the consumer at point of sale. Although this rule would be a major disruption to the way business is done in the drug supply chain, it's hard to see how it would reduce list prices. What it could do is transfer the benefit of any price reductions from the PBM to the pharmacy and the consumer. That would be a step towards the Blueprint's fourth priority, reducing out of pocket costs. But outlawing percentage-based rebates to PBMs will be challenged in court as inconsistent with the anti-kickback law's statutory exception for discounts.
In sum, the Administration is creating a new environment where there will be lots of work for trade and professional associations, lobbyists and lawyers. Consumers might see some modest relief on point-of-sale cost-sharing, though potentially at the expense of higher premiums. But substantially lowering drug prices? I wouldn't hold my breath.
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