Recent and Possible Executive Orders on Drug Pricing: What You Need to Know

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On July 24, 2020, President Trump signed three Executive Orders aimed at lowering prescription drug costs and increasing patients’ access to life-saving medications. A fourth Executive Order was discussed, which could reduce the prices Medicare Part B pays for drugs based upon international prices, unless the pharmaceutical industry implements measures in the next 30 days. Leaving politics and rhetoric aside, below are the key facts regarding the Executive Orders.

First Executive Order: Access to Affordable Life-Saving Medications

The Order: Click here to view the Order.

Effective Date:  July 24, 2020

Purpose: Requires Federally Qualified Health Centers (“FQHCs”) to pass on the discounted prices they pay for insulin and epinephrine to low income patients. FQHCs are federally funded, community-based health care providers serving low income patients and underserved areas. Under the Health and Human Services’ (“HHS”) 340B Drug Discount Program, drug manufacturers charge FQHCs statutorily discounted prices, sometimes as low as $0.01, for drugs including insulin and epinephrine. But FQHCs are not required to pass on the discounted prices to their patients. This Executive Order requires FQHCs to make insulin and epinephrine available to their patients at the price paid by the FQHC. The FQHC is permitted to charge a minimal administration fee.

Possible Repercussions: FQHCs use excess funds, such as the difference between the price they charge patients for drugs compared to the price the FQHCs pay for the drugs, to make up for alleged shortfalls in federal funding. Thus, this Executive Order could shift subsidization of FQHC operations from patients to require additional federal funding. In addition, while this Executive Order aims to increase patients’ access to these drugs, the opposite effect is possible. FQHCs could opt to cease offering insulin and/or epinephrine if doing so prevents offering other drugs and services. Finally, FQHCs pay discounted prices for many drugs, not simply insulin and epinephrine. As a result, this Executive Order could be viewed as a slippery slope that will be expanded to all drugs covered by the 340B Program, potentially leading to future increases in federal funding.

Next Steps: Although effective immediately, the Executive Order could have a devastating impact on FQHC budgets. Expect to see some tweaking by HHS to avoid FQHCs from having to turn some patients away.

Second Executive Order: Increasing Drug Importation to Lower Prices for American Patients

The Order: Click here to view the Order.

Effective Date: Approximately December 2020

Purposes:

(1) Directs HHS to complete its rulemaking that would permit States to implement plans for the importation of certain drugs from Canada;

(2) Authorizes HHS to permit the reimportation of insulin based upon a finding by HHS that it is required for emergency medical care; and

(3) Directs HHS to grant waivers of the prohibition on importation of drugs for personal use if the importation poses no additional risks to public safety and results in lower costs.

Nothing in this Executive Order is new. In December 2019, HHS issued a proposed rule to implement Section 804 of the Federal Food, Drug, and Cosmetic Act (“FDC Act”) to allow FDA-authorized entities to import certain prescription drugs from Canada. This Executive Order’s grant of authority to HHS to permit the reimportation of insulin has existed in Section 801(d) of the FDC Act since 1997. Finally, this Executive Order’s direction to HHS to grant personal use importation waivers is set forth in Section 804(j)(2) of FDC Act.

Possible Repercussions: Perhaps the most interesting repercussion, if it can be called that, will be watching expected HHS internal struggles. Historically, the FDA has been a major opponent to pharmaceutical reimportation.

Next Steps: HHS to complete its rulemaking.

Third Executive Order: Lowering Prices for Patients by Eliminating Kickbacks to Middlemen

The Order: Click here to view the Order.

Effective Date: Unknown; depends on HHS rulemaking.

Purpose: Prohibits secret deals between drug manufacturers and pharmacy benefit managers (“PBMs”), ensuring patients directly benefit from available discounts at the pharmacy counter.

Again, however, this initiative is not new. In February 2019, the HHS Office of the Inspector General (“OIG”) proposed a rule to eliminate the anti-kickback law safe harbor protection for rebates paid by drug manufacturers to PBMs and replace it with a new safe harbor protecting manufacturer discounts provided to federal program beneficiaries at the point of sale. However, in July 2019, the HHS OIG withdrew the proposed rule because a May 2019 Congressional Budget Office (“CBO”) report found that the rule would increase federal spending and Medicare Part D enrollee premiums.

This Executive Order directs HHS to reinitiate its rulemaking, but only after it confirms “that the action is not projected to increase federal spending, Medicare beneficiary premiums, or patients’ total out-of-pocket costs.” These confirmations seem unlikely given the CBO May 2019 report.

Possible Repercussions: Substantial changes to contractual arrangements within the pharmaceutical industry would be required if this initiative is finalized.

Next Steps: HHS to conduct rulemaking.

Possible Fourth Executive Order: “Most Favored Nations”

The Order: Not yet released.

Effective Date: Potentially August 24, 2020

Purpose: Benchmark Medicare Part B drug reimbursement to international drug prices so that the United States pays the lowest prices for the same drugs paid in other countries (i.e., a “most favored nations” clause for Medicare Part B). Again, this proposal is not new. HHS included this proposal in an October 2018 Advance Notice of Proposed Rulemaking. HHS has not published a proposed regulation.

Possible Repercussions: Pharmaceutical industry pushback due to elimination or relaxation of Congress’ agreement that the federal government would not negotiate Medicare prices for pharmaceuticals. Also, representatives of the pharmaceutical industry were scheduled to meet with President Trump on July 28th; however, after release of the three abovementioned Executive Orders on July 24th and announcement of this potential fourth Executive Order, the pharmaceutical executives cancelled the meeting.

Next Steps: HHS will likely engage in a rulemaking regarding some of the details of this possible Executive Order, such as defining which countries are considered “medically advanced nations.” In addition, the pharmaceutical industry has until August 24th to propose a plan that would decrease Medicare Part B drug reimbursement.

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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