Trump Administration releases broad plan to address drug prices

On May 11, 2018, the President released the American Patients First Trump Administration Blueprint to lower drug prices and reduce out of pocket costs.

May 16, 2018 | Health care

The Blueprint includes a number of policy proposals focused on the way drugs are priced both in the US and globally, some of which may be achieved through regulatory changes, while others may require legislation or international trade negotiations.

Many of the ideas covered in the Blueprint echo previous policies described both in the Council of Economic Advisors (CEA) report entitled, “Reforming Biopharmaceutical Pricing at Home and Abroad,” as well as items found in the President’s Fiscal Year 2019 budget.

The Blueprint describes four key challenges confronting the American drug market:

  • Higher list prices for drugs
  • Medicare beneficiaries and government programs paying higher prices for drugs due to lack of the latest negotiation tools
  • High and rising out-of-pocket costs for consumers
  • Foreign governments setting lower prices for products developed by American companies

Given these challenges, the Blueprint lays out four strategic areas for drug pricing reform: Improved competition, better negotiation, incentives for lower list prices, and lowering out-of-pocket costs. The Blueprint is then described in two phases: Actions the President may direct Health and Human Services (HHS) to take immediately, and actions HHS is actively considering, on which feedback is being solicited. The formal Request for Information (RFI). Comments are due by July 16, 2018.

Actions the President may direct HHS to take immediately

Below are current and potential actions that HHS may undertake.

Improve competition

Many experts have noted that costs and time needed to move through Food and Drug Administration (FDA) approval has increased greatly over the past two decades, despite recent steps to streamline the process. Creating a less costly, more straightforward and timely approval process is essential to reducing the barriers to entry for new pharmaceutical and biological products, and encouraging a more dynamic market for new treatments.

The Blueprint states that the FDA will issue guidance to address certain practices that aim to delay or block generic competition. At the same time, the FDA will issue new policies to bring more biosimilars to market as alternatives to brand-name biologics.

Under the Medicare Outpatient Prospective Payment regulatory update for 2018, the Centers for Medicare and Medicaid Services (CMS) instituted separate payment codes for certain biologic products, separating payment rates for first-to-market and biosimilar products so there is value in developing new treatments through reimbursement incentives.

Overall, the FDA’s approach to lowering drug prices is captured in the agency’s Drug Competition Action Plan, which seeks to prevent brand-named drug manufacturers from keeping generics off the market, reducing scientific and regulatory obstacles, and streamlining the generic review process.

Generic drugs are approved on the basis of “bioequivalence,” to an existing approved drug, avoiding redundant clinical trials. At the same time, the FDA approval process can take far longer than the testing phase for generics. The FDA is currently revising their approach to generic drug approvals with the goal of shortening their contribution to new generic drug approvals. Under the FDA Reauthorization Act, the FDA may collect user fees for generic drug applications, among other changes, with early evidence that the generic drug approval process is now moving faster.

Better negotiation

The Blueprint envisions a role for the CMS Innovation Center to launch new demonstrations to bring about value-based care and lower drug prices, such as tying reimbursement for drugs to outcomes, alongside other policies intended to give Medicare, payers, and states additional leverage in managing high-cost therapies.

Regarding Part D, the Blueprint calls for plans to be permitted to adjust their formulary or benefit designs during the plan year if needed to address a price increase, or make a generic drug available, as well as allowing plans to more carefully determine their formularies. Requirements for broad formularies, such as a regulation that formularies must include two non-therapeutically equivalent drugs for a given category or class, mean that Part D plans have limited room for negotiation with drug manufacturers. The plan also calls for an update of Drug Plan Customer Service star ratings to ensure that plans do not have an incentive to manage utilization of high-cost drugs, exploring the possibility of pricing certain drugs differently by their indication, and using authorities under the Competitive Acquisition Program (CAP) for Part B drugs to give prescribers a choice between the average sales price of a drug, or through competitive bidding.

Looking abroad, the Blueprint indicates an interest in revisiting current trade policy and introducing new legislation to ensure that other countries pay their fair share for the profit motive and research and development needed for future advances. As background, The CEA estimates that 70 percent of biopharmaceutical profits generated by Organization for Economic Co-operation and Development (OECD) member states are derived from the American market, while the US accounts for only 34 percent of the OECD’s overall gross domestic product.

Lowering list prices

The Blueprint’s approach to lowering list prices is squarely focused on price transparency. As the regulator of direct-to-consumer advertising for drugs, the administration may call on the FDA to evaluate including list prices as part of advertising rules. The Blueprint indicates that the administration may direct CMS to make Medicare and Medicaid drug prices transparent, and to show any increases in price in a “drug pricing dashboard.” The administration may also address the Maximum Rebate Amount provision, which limits manufacturer rebates in the Medicaid program to 100 percent of the Average Manufacturer Price.

Reduce patient out-of-pocket spending

Under current rules, Part D plans are permitted to stipulate in their contracts that pharmacists are forbidden from discussing options with lower out-of-pocket costs. HHS may end this practice in future rulemaking. Part D sponsors may also be required to give beneficiaries more information on drug price increases and alternative treatments in their Explanations of Benefits.

Further actions under review and opportunities for feedback

The administration is interested in soliciting public comment on areas of policy that may be responsible for high drug prices, including a lack of transparency, gaming of the regulatory process, and stymied price negotiation, among other areas. Below is a description of the chief areas of interest described in the Blueprint.

Increasing competition

In the area of competition, the RFI asks whether certain federal programs contain incentives that limit market forces or price negotiation. One example is the Medicaid Drug Rebate Program, which gives state Medicaid programs a minimum rebate of 23.1 percent off the Average Manufacturer Price (AMP), or if the price is lower, manufacturers must grant Medicaid programs rebates amounting to the best price offered to any other purchaser. The Blueprint asks whether the “best price” standard can cause drug manufacturers to inflate prices for certain products with a high proportion of Medicaid sales. Existing statute may permit the Center for Medicaid and Medicare Services (CMS) to rewrite current regulation so that best prices are calculated based on actual sales and the observed value of the drug to a patient’s health. Such a change could encourage competition, and introduce a new dynamic of value-based contracts to the Medicaid pharmaceutical market. The RFI is also interested in whether Affordable Care Act policies requiring an excise tax on certain drugs sold, and higher rebates to Medicaid Managed Care Organizations have impacted list prices.

Regarding FDA policy, the RFI seeks information on current practices limiting distribution of reference product samples of brand-name pharmaceutical and biologics for use by generic manufacturers’ product development slows generic competition. The administration poses dozens of questions related to biosimilar development. As background, the law makes a distinction between pharmaceuticals, which are chemically manufactured drugs, and biologics, which are drugs manufactured as byproducts of living cells. Like generic pharmaceuticals, biosimilar biologics are clinically identical formulations of an existing drug. With the high cost of development and production, biologics have faced limited competition with one another.

Better negotiation

At the center of the administration’s efforts towards value-based payment is improving transparency on the prices actually paid by payers and patients alike. The RFI poses a number of questions intended to better define the practical landscape for regulatory change in this area.

Looking at Medicaid and 340B, the RFI seeks information on the impacts of allowing manufacturers to exclude discounts, rebates, and price guarantees from statutory price reporting for the purposes the Medicaid Drug Rebate and 340 Programs. The RFI asks whether longer-term financing of high-cost drugs by Medicaid and other state programs can be used to amortize the expenses of high-value high-cost treatments for conditions such as Hepatitis C.

Under Medicare, the RFI gauges interest in providers using the Competitive Acquisition Program under Part B as an alternative to administratively set prices for Part B drugs. On the legislative side, the administration is interested in authorities to move certain Part B drugs to Part D in order to take advantage of the negotiating levers present in that program. Of note, the RFI asks whether Part B drugs sold by manufacturers offering lower prices to OECD nations should be subject to Part D negotiation. In a similar vein, the administration is interested in intellectual property or trade policies that would discourage such nations from lowering drug prices to the detriment of US consumers and tax payers.

Site neutrality is another key area of interest in the RFI. The administration asks about possible impacts of site neutrality for Part B drugs administered in various care settings. Currently, Medicare facility fees vary considerably between Part B drugs administered in a hospital setting, as opposed to a free-standing outpatient department. Other more general questions on site neutrality are directed towards differential payment for the same drug in an inpatient (Part A) scenario, as compared to an outpatient (Part B) scenario.

Create incentives to lower list prices

Many experts point to list prices for drugs as a driver of higher costs for consumers. The Blueprint poses a number of questions that are directed at reducing list prices.

The RFI asks what duties Pharmacy Benefits Managers have as fiduciaries to insurers and large employers, in addition to drug manufacturers, for negotiating drug formularies with plans and rebates to manufacturers. The RFI asks the question of whether complex rebate mechanisms ultimately drive up list prices without passing savings on to end consumers, and what CMS could do to change this practice.

The RFI asks whether there are any changes to look-back periods in pricing determinations for Part B and Part D drugs could reduce pressure on manufacturers to raise list prices, and whether certain rebate structures under the Medicaid program lead to list price increases. Citing a persistent concern with the 340B program’s growth in recent years, the administration seeks further information on whether rebates available under 340B drive up list prices. Going further, the Blueprint asks question about whether changing the definition of a “patient” under 340B could reduce overuse of the program, and the extent to which 340B discounts made on top of Medicaid rebates in violation of statutory prohibition on “duplicate discounts.”

Reduce patient pot-of-pocket spending

With any number of complex rules and practices obscuring prices from the consumer, the RFI asks whether an end-of-year statement on drug pricing changes and rebates collected could have an impact on consumer decisionmaking. Other questions are whether the federal government might prohibit gag clauses that restrict pharmacies from informing patients of lower-cost treatment options, or whether a drug would in fact be less expensive if paid for separate from their insurance coverage. The RFI asks what can be done to better inform Part B and D beneficiaries about lower-cost options.

This article contains general information only and Deloitte is not, by means of this article, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This article is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor.

Deloitte shall not be responsible for any loss sustained by any person who relies on this article.

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Anne Phelps
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US Health Care Regulatory Leader
Deloitte & Touche LLP

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