President Trump’s Drug Pricing Plan: What’s Next?

by Manatt, Phelps & Phillips, LLP
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The Administration’s drug pricing plan, “American Patients First: The Trump Administration Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs,” unveiled in May included tough rhetoric for the stakeholders in the pharmaceutical industry, including manufacturers, payers, pharmacy benefit managers and others in the drug supply chain. In the months since, however, aside from several manufacturers making promises to temper price increases, we’ve seen little significant impact on drug prices or market dynamics for pharmaceutical companies and others in the drug supply chain. What can the pharmaceutical industry, state governments and consumers expect to see change—and what won’t?

The Administration deserves credit for presenting a comprehensive plan. Its 50-point strategy includes possible steps on Medicare, Medicaid, private sector prices, drug advertising and even drug prices around the world. But the plan lacks many specifics, and as of today, the Administration has acted on only a handful of the plan’s promises. Most significantly, on August 7, the Centers for Medicare & Medicaid Services (CMS) announced that it was reversing an Obama Administration policy and would now allow Medicare Advantage plans to use a utilization management tool known as step therapy as an approach to incentivize drug companies to discount their Medicare Part B drugs. This action could impact the prices of drugs used in physician offices for the third of beneficiaries in Medicare’s managed care plans.

The Administration has also expanded an Obama Administration initiative to publicize drug price increases in federal healthcare programs and to name companies that appear to be blocking generic competition. Most publicly, President Trump has taken to Twitter to shame drug companies that are increasing their list prices. At least initially, the tactic appears to have slowed or halted some planned increases, although the long-term significance of this is unclear.

We know that making significant changes to healthcare policy is tough. Just look at the 2017 repeal and replace efforts. Not everything in the President’s drug pricing plan will become a reality—far from it. But consumers, industry players and observers who write off the Blueprint as a one-and-done press event would be making a mistake.

Here are four things in drug pricing that are likely to happen, four that probably won’t and one big wildcard.

What’s Likely to Happen

Passing through lower prices in Medicare Part D: Medicare’s outpatient drug program has a problem. Patients are paying too much when they have a deductible or when their pharmacy payments are a percentage of their drugs’ prices. Payments are based on the list price of the drug, not the lower price that their insurer gets from the drug company. The Administration has been consistent on this point, and most agree that change is needed. Now the Administration just has to come up with the details on how to do it. Look for Medicare beneficiaries to see a change starting in 2020.

New ways to pay for Part B drugs: Drugs that Medicare beneficiaries get through their physicians are bought by those doctors and reimbursed by the government. Think cancer therapies, as an example. Today, Medicare sets that reimbursement based on what the drug company charges and doesn’t negotiate the price. Key opponents of changing this policy may be doctors who, because of the current design of the Medicare physician payment system, rely on revenues from drugs rather than on Medicare payments for clinic visits. The Obama Administration tried to make changes in this area and failed. In addition to the action that may bring some additional price competition to Medicare Advantage plans, CMS is likely to pilot new ways to buy these drugs in the traditional Medicare program and counter doctors’ concerns. This may involve introducing competitive bidding-like approaches into Part B and/or shifting some Part B drugs to the Part D drug benefit. Look to see some details in the next few months.

New ways for private insurers to pay for drugs: Already some drug companies and insurers are writing contracts that only pay for a drug if it works. This and other strategies for paying for value instead of pills are on the table, but many have cited existing government rules as getting in the way. No one seems to oppose fixing this if the details can be worked out effectively. Look for changes starting later this year.

Tougher negotiation in Medicare Part D: The government doesn’t negotiate the prices for drugs in its pharmacy drug program. Private insurers do. The President’s plan calls for giving these insurers and the pharmacy benefit managers (PBMs) who work for them more authority to cut tough deals. Currently, there are six types of drugs for which insurers must include all available drugs in their plans, including cancer drugs. The President wants to give drug plans more leverage to reduce prices. The Obama Administration tried to eliminate protections for two types of drugs—and fell short. However, look for this Administration to make some more progress over the next couple of years.

What’s Not Likely to Happen

Medicare negotiating drug prices: A favorite of Democrats, this idea has always run into Republican opposition. Candidate Trump backed the idea, and its absence from his drug Blueprint didn’t go unnoticed. Department of Health & Human Services (HHS) Secretary Azar and other Administration officials oppose the idea. Don’t expect anything to happen here.

Drug importation: Another of the President’s campaign commitments, importing drugs from outside the U.S. to take advantage of lower, government-controlled prices, has been strongly opposed by every Food and Drug Administration Commissioner—including the current one, Scott Gottlieb. Opponents fear the safety implications of wholesale importation, as well as the inability to protect the supply chain. Don’t look for a package of drugs from another country in the mail anytime soon.

Including drug prices in drug ads: This creative idea was one of the true surprises of the Administration’s plan. The theory is that including the price in the ads would turn patients off from the drug. However, it’s not clear what price would be included in the ads, since most people have insurance and don’t pay the full cost. Including pricing information in ads may actually discourage patients from taking drugs they need. Look for more talk on this one but no real action.

Higher drug prices abroad: President Trump has knocked foreign governments’ benefiting from our research and development while paying lower prices for drugs as “global freeloading.” But it’s a stretch to think the U.S. can get other governments to change their ways. Look for the Administration to seek and gain some concessions in select bilateral trade pacts, but don’t expect any substantial change in the status quo.

And One Wildcard

The Trump Administration is considering throwing a virtual bomb into the middle of the drug pricing system. The Office of Management and Budget is currently reviewing a proposal titled “Removal of Safe Harbor Protection for Rebates to Plans or PBMs Involving Prescription Pharmaceuticals and Creation of New Safe Harbor Protection.” Nothing is known beyond the title, but it appears to echo calls made by Secretary Azar to end the practice of drug companies and private insurers working in federal programs negotiating rebates for their drugs in return for favorable placement on drug plan formularies. What would replace these rebates (if that is indeed what the proposal would require) is a subject of much speculation and little clarity. And whether a major change that would apply to federal programs, including Medicare and Medicaid, would impact private health coverage is also unsure.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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