White House Unveils Proposal on Drug Pricing

by Holland & Knight LLP

Holland & Knight LLP

On Feb. 9, 2018, the Trump Administration released a 30-page report analyzing domestic and global factors influencing drug pricing. The report by the Council of Economic Advisers (CEA) is expected to inform the HHS' Fiscal Year (FY) 2019 budget request as the report came in advance of a drug-price plan that is part of the president’s budget request.

The report addresses a number of policy issues including, but not limited to, Medicare drug reimbursement, weakening pharmacy benefit managers (PBMs), biosimilar competition and the 340B program. Notably, some of the recommend changes could be done through regulation while others would necessitate statutory changes.

Key proposals include:

Competition Abroad

An extended theme in the report was that foreign countries take measures to curb high drug prices. The report blames high drug spending in the United States on nations that have fixed drug prices and “free ride” off the innovation of companies that pay for drug research and development by raising their U.S. prices. The report continues by suggesting that “the United States could take actions that change the incentives for these countries to price drugs at levels that appropriately reward innovation, rather than disproportionately putting that burden on American patients and taxpayers.”  However, the report did not provide a clear recommendation for how to increase spending in other countries.

Medicare Part B 

The report outlines several potential changes for reform proposed by the Medicare Payment Advisory Commission (MedPAC), the Government Accountability Office (GAO) and the Office of the Inspector General (OIG). Recommended reforms include: (1) introducing physician reimbursement that is not tied to drug prices; (2) moving Medicare Part B drug coverage into Medicare Part D, and (3) changing how pricing data is reported to increase transparency.

In regard to moving Part B drug coverage into Medicare Part D, the report notes, the 71% of Medicare beneficiaries who participate in Part D would receive prescriptions that they would fill and their physicians would administer, removing any economic incentive from prescribing decisions.

HHS Secretary Alex Azar has said moving outpatient drug coverage into Part D would yield savings by allowing the companies that administer the program to negotiate on behalf of the government.

Medicare Part D

The report notes that the Medicare Part D program “creates perverse incentives for plan sponsors and pharmacy benefit managers (PBMs) to generate formularies that favor high-price, high-rebate drugs” that speed patients through the early phases of the benefit structure. Accordingly, the report recommends requiring plans to share drug manufacturer discounts with patients, allowing plans to manage formularies, lowering co-pays for generics, and discouraging formulary design that speeds patients to the catastrophic coverage phase.

Specifically, the report suggests revising the Social Security Act’s requirement to include two “non-therapeutically equivalent” drugs within each category and class. The document suggests that “this requirement eliminates the ability of Part D sponsors to negotiate for lower prices when there are only two drugs on the market since drug manufacturers know that CMS must cover both.” The report also recommends that Part D plans be permitted to vary cost-sharing amounts for low-income subsidy (LIS) enrollees.

Food and Drug Administration (FDA)

The report suggests that the FDA should do more to speed up new drug development, including rewarding companies that invest in the pooling, curating and validating of potential biomarkers and surrogate endpoints. Further, the report goes on to outline how FDA can improve the process for approving new drugs by facilitating the validation and qualification of new drug development tools that allow sponsors to demonstrate safety and efficacy more efficiently and earlier. The report also recommends extending the expedited review process to products that are second or third class that have no generics.

340B Program

The report says two significant problems have emerged in the 340B program. First, “imprecise eligibility criteria has allowed for significant program growth beyond the intended purpose of the program. Second, providers earn significant profits from qualifying for the program, which can be used to fund other forms of care or shareholders’ dividends rather than provide care for low income patients.”  The report notes that “drug reimbursement could be restricted under the program to cover only uses the drugs are intended to treat,” which would constrain the ability of providers to use 340B to cross-subsidize other care. The report also suggests restricting the drug discount program to poor patients, and it raises concerns with current 340B eligibility standards.


The report notes that biosimilars have the potential to be cheaper than their reference products and save $44 billion over the next ten years. The report acknowledges that biosimilar approval has taken time—with only nine-FDA approved biosimilars and none considered interchangeable.  The report also addresses regulatory uncertainty that has impeded biosimilar reimbursement. Accordingly, the report calls on the FDA to more quickly release final guidance on biosimilar interchangeable designations. The report states “if these guidelines are relatively easy and inexpensive to adhere to, it could spur interchangeable applications and approvals, which could result in more effective competition with the reference biosimilar and lower prices.”

Pharmacy Benefit Managers (PBMs)

The report argues that the PBM market is “highly concentrated,” and calls for policies to decrease concentration in the PBM market and other segments of the supply chain. The report did not say how decreased concentration might be achieved but notes that policies to decrease concentration can increase competition and further reduce the price of drugs paid by consumers.

Medicaid Drug Rebate

The report suggests broad reforms to the drug rebate program including calling for CMS to provide more guidance on how value-based contracts and price reporting would affect other price regulation(s). The report also suggests that CMS could revise rules to specify how manufacturers calculate best price.

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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