The political and policy focus on drug prices continues in 2022 in key markets across the globe. In particular, in the U.S., UK, and EU, policymakers continue work on alternatives to the current reimbursement and procurement regimes, potentially affecting research and development, including in areas of unmet need and of patient-friendly formulations of medications. In China, stakeholders should be aware that following a recent pricing negotiation with the central government, the average price cut for nearly 70 products for the next two years is approximately 60%. This update discusses material legislative, policy, and litigation developments affecting drug pricing across the globe. Key takeaways include:

United States

  • In the U.S., the recent actions taken by Congress, federal regulators, and state governments have resulted in a series of changes that could have significant impact on patient access, innovation in areas of unmet need, and fair pricing and reimbursement.
  • Although passage of the Build Back Better (BBB) Act drug-pricing provisions is unlikely in 2022 due to insufficient votes for the overall bill, stakeholders should continue to monitor other legislative proposals that might seek to incorporate these pricing provisions. At least some of the BBB Act provisions may be included in the FDA user fee programs reauthorization legislation, which must be signed into law by September 30, 2022.
  • Stakeholders can be expected to be on the lookout for, and prepare to react to, government efforts to implement an aggressive wave of new drug-pricing legislation and regulations, including mandatory refunds for drug wastage associated with certain physician-administered products.
  • Litigation challenging drug copay assistance for commercially insured patients and other price-related actions will continue in 2022.

United Kingdom

  • Post-Brexit, the U.K. government and regulators as well as the health technology appraisal agency, the National Institute of Health and Care Excellence (NICE), have established a set of changes and new initiatives, including a new Innovative Medicines Fund and a real world evidence (RWE) framework, aimed at ensuring that the U.K. remains an attractive place to invest and develop innovative technologies in the healthcare sector.
  • The UK has enhanced international collaborations with leading worldwide regulatory bodies, including Project Orbis for oncology and Access Consortium, aimed at accelerating approvals with concurrent submissions. Through a number of creative commercial deals with the NHS, accelerated pathways to market for drugs, digital health solutions, and initiatives incorporating RWE and patient involvement in the reimbursement process, it is expected that the UK will continue being the first market in Europe to gain access to innovative treatments.

European Union

  • In the EU, Member States’ focus on drug pricing has been sharpened by the COVID pandemic, general budget pressures, and a series of so-called “excessive pricing” cases brought by antitrust authorities. There is growing attention to alternative pricing models, proposed by payors, which are based on the notion that drug prices should be based less on the value of the drug and more on the direct cost of development (R&D expenditure). Requests for disclosure of these expenditures may increase, and it remains to be seen whether development risks or other costs will be sufficiently taken into account.
  • The European Commission is expected to propose, in Q4 2022, new EU legislation that could link the grant or maintenance of intellectual property (IP) and regulatory rights to launching a product in most or all Member States and, potentially also, to providing cost transparency.
  • The EU will also set up a structure for centralized clinical health technology assessments, which will add an extra layer of pre-market product assessment, as of 2025.
  • Procedural changes to the German market access framework could increase mandatory discounts and reduce the period during which pharmaceutical companies may set their own commercial prices.

China

  • In China, the government will continue to implement its existing drug pricing regulatory mechanisms in 2022. In particular, the Volume-Based Procurement (VBP) program will continue to rollout across the country and cover more products, which will bring down prices to public hospitals with volume commitments.

It is critical for investors, owners, and executives of manufacturers to identify key potential policy changes in various jurisdictions that could affect fair pricing for existing and development-stage assets, and formulate a multi-prong strategy to address access to medication and continued innovation.

United States

1. Build Back Better Act

The BBB Act would (1) impose inflation rebates on drug prices in Medicare and private insurance to limit annual increases, (2) place a cap on how much Medicare Part D recipients have to pay for some prescriptions, (3) allow the government to negotiate prices for certain medications under Medicare Parts B and D, and (4) limit cost-sharing for insulin in Medicare and private insurance. The bill is one vote shy of passage in the Senate and, as a result, remains under consideration in the new year. These policies may be included in the FDA user fee programs reauthorization legislation. Reauthorization legislation must be signed into law by September 30, 2022, or important agency functions could be disrupted. Stakeholders can be expected to continue to broadly monitor all legislative proposals, as it is not uncommon for drug policy alternatives to be introduced in unrelated legislative vehicles.

2. Medicare Part B Drug Waste Refund Legislation

Under the Infrastructure Investment and Jobs Act signed into law in November 2021, manufacturers of physician-administered products must plan for the implementation of a first-of-its-kind statutory obligation requiring refunds to the U.S. government in the event of drug wastage for certain physician-administered drugs covered under Medicare Part B, beginning January 1, 2023. Manufacturers of such drugs will then be required to provide the Secretary of Health and Human Services a refund in the specified amount. Civil penalties for non-compliance equal 125% of the refund amount.

The new law applies to “refundable single-dose container or single-use package drugs,” meaning a “single source drug or biological” or a “biosimilar biological product” that is furnished from a single-dose container or single-use package and covered under Medicare Part B. Certain exclusions apply.

This new financial obligation will be implemented in the coming months. Affected manufacturers will need to remain highly engaged in the regulatory implementation process and simultaneously develop readiness strategies for field-based and market access personnel to understand these changes. 

3. Drug Pricing Litigation

a. Copayment Assistance Programs

In December 2020, the U.S. Centers for Medicare & Medicaid Services (CMS) published a final rule requiring drug manufacturers to include the value of assistance they provide to patients through commercial copay assistance programs in their Medicaid best price determinations, unless they “ensure” that the full value of their assistance stays with the patient and is not captured by the patient’s health insurer through accumulator or maximizer adjustment programs, effective January 1, 2023 (the Accumulator Rule).

In May 2021, the Pharmaceutical Research and Manufacturers of America (PhRMA) filed for an injunction in the U.S. District Court for the District of Columbia to prevent CMS from implementing and enforcing the Accumulator Rule. While manufacturers closely monitor the outcome of this case, the future of copayment assistance programs is uncertain. In 2022, manufacturers will continue to consider the available technology options for coupon adjudication as well as the terms and conditions for their copay cards, among other controls, to determine whether and under what circumstances copay assistance programs satisfy the heightened exemption standard set to go into effect in 2023.

b. Other Litigation

Litigation related to the 340B Drug Pricing Program and the Importation Final Rule remains ongoing. Seven manufacturers have filed suit challenging, in part, the requirement that manufacturers provide low prices (referred to as the 340B price) on all contract pharmacy arrangements. District court decisions have been issued in several of the cases, and the federal government has appealed each of the rulings.

With respect to importation, national advocacy groups and a pharmaceutical trade association filed suit in 2020, in the United States District Court for the District of Columbia, challenging the Food and Drug Administration’s (FDA) final rule on Canadian drug importation (the Importation Final Rule). The Importation Final Rule is the first of its kind since a 2000 statute provided for such importation only if it “will (1) pose no additional risk to the public’s health and safety; and (2) result in a significant reduction in the cost of covered products to the America consumer.” The suit argues that this standard is not met, and urges a number of constitutional, legal, and procedural challenges to the final rule. A motion to dismiss has been fully briefed.

Stakeholders can be expected to closely monitor these cases and potential policy and regulatory developments related to these drug-pricing issues in 2022.

4. Medicaid Drug Rebate Program Implementation

a. Value-Based Purchasing Arrangements

In November 2021, CMS published a final rule delaying the effective date of a groundbreaking provision that sets up a framework for drug manufacturers to offer value-based purchasing arrangements in the marketplace for various therapies, including gene therapy and other new and innovative therapies, and report multiple best prices connected to such arrangements. At this time, CMS has delayed the rule by six months to July 1, 2022, and has suggested additional delays may be possible.

Manufacturers have long been urging the U.S. government to recognize the importance of such arrangements in facilitating fair pricing for medicines, where price is tied to improved health outcomes, better patient experience, or reduced healthcare costs. The value-based purchasing framework is an important opportunity to demonstrate the industry’s commitment to these core policy values. Stakeholders can be expected to monitor for timely implementation and seek operational guidance from CMS in 2022.  

b. Territory Expansion

CMS also recently announced a third delay to the implementation of the Medicaid Drug Rebate Program expansion to the U.S. territories until 2023. The territorial expansion of the Medicaid Drug Rebate Program would result in additional rebate obligations on manufacturers with respect to covered outpatient drugs dispensed to Medicaid beneficiaries in the U.S. territories (American Samoa, Northern Mariana Islands, Guam, Puerto Rico, and the Virgin Islands). In explaining its rationale for the delay, CMS stated that a January 1, 2023 effective date gives Puerto Rico the ability to participate soon while giving the other territories “a firm deadline” as to whether to waive participation in the program.  

While CMS expressed more certainty than in the past regarding the effective date of the territorial expansion, stakeholders can be expected to continue to monitor for additional delays given the number of delays that have occurred to date.

United Kingdom

1. NICE Reform and NICE Strategy 2021-2026

In January 2022, NICE published a new program manual on health technology evaluations, which accommodates greater evidentiary uncertainty, flexibility on RWE, and earlier patient access especially for severe diseases through a modified severity weight mechanism. 

In response to the new reality of the UK healthcare environment post-Brexit and the COVID-19 pandemic, NICE has developed a five-year strategy centered around the four key pillars of (1) streamlining evaluations, (2) developing living and interactive guideline recommendations (with diabetes guidance expected to be the first to adopt the new format), (3) increasing effective guidance uptake, and (4) offering leadership in data, research, and science. In practice, the new strategy is likely to focus on integrating software and AI-enabled technologies particularly in the implementation of real-world data collection, as well as speeding up the evaluation pathway and opening communication channels with stakeholders.

2. UK Life Sciences Vision and Accelerated Pathways

The UK Life Sciences Vision, published in July 2021, sets out seven healthcare missions (with special emphasis in addressing neurodegeneration, dementia, cardiovascular diseases, respiratory disease, the biology of aging, mental health conditions, and enabling early diagnosis and treatments, including immune therapies).

The Life Sciences Vision also focuses on accelerated access to the market. Indeed, a new procedure, called the Innovative Licensing Authorization Pathway (ILAP) has been introduced, which provides for a unique opportunity for innovative drugs to benefit not only from the regulatory support from the licensing authority (i.e., the Medicines Healthcare Regulatory Authority (MHRA)) but also to sit at the same table as representatives from the key authorities, which will ultimately impact drug pricing. Furthermore, though companies are likely to be under more regulatory scrutiny than ever as competition for national budgets intensifies, there are increasing examples of alternative pricing arrangements being established with the NHS and the biopharmaceutical industry, which will continue to become more mainstream, not just for drugs but also likely for digital health solutions.

Lastly, NHS England has implemented the new Innovative Medicines Fund (IMF), a budget of £340 million earmarked for innovative non-oncology drugs, which address rare and genetic conditions but are not found to be cost-effective through initial technology appraisal.

3. International Collaborations

The first year following the Brexit transition period has seen the UK participate in international regulatory collaboration consortia such as Project Orbis (for oncology) and the Access Consortium. These have enabled faster marketing authorizations being granted, notably resulting in the UK becoming the first country in Europe to gain access to a particular oncology medicine. The UK expects to seek closer alignment to key worldwide regulators to accelerate access to innovative life-saving treatments and offer an interesting proposition to investors and pharmaceutical companies.

4. RWE and Patient Engagement

In tandem with the stated goals of NICE’s five-year strategy and the Life Sciences Vision, MHRA has published the first in a series of guidance documents on use of real-world data to support regulatory approvals, in the first instance, leading to reimbursement decisions. These were developed in consultation with industry and offer guidance on clinical trial design, safety data obligations, and choice of endpoints focusing on high-quality data. Increasing the capacity to gather as well as enable the generation and analysis of RWE is seen as a crucial aspect in the process of transitioning clinical trials from capturing only a static snapshot of patient data in clinical settings to generating “live” data. This data might better predict persistence rates and cost-effectiveness in the “real world,” outside the trial environment. 

The MHRA also concluded its consultation on the Proposed Patient and Public Involvement Strategy 2020-25, which was adopted to more systematically listen to and meaningfully involve patients and the public through clear processes and with defined outcomes, intended to be implemented by June 2022.

5. NHS Commercial Framework for New Medicines 

Following the publication of the 2019 Voluntary Scheme for Branded Medicines Pricing and Access (the “Voluntary Scheme”), a new national strategy setting out the NHS’ commercial framework for new medicines was published in February 2021. It describes the routes to commissioning in the UK system; the roles and responsibilities of stakeholders such as NICE, NHS England, and NHS Improvement; and the commercial options available to companies such as patient access schemes and commercial access agreements. Additionally, there is recourse to escalate the commercial discussions if no agreement is forthcoming and the strategy recognizes the benefit of early engagement with industry representatives. Though the framework is now established as a national strategy, it remains open to change in line with the Voluntary Scheme.

6. Advanced Therapy Medicinal Products Roadmap

One of the key focal aspects in the UK innovative drugs landscape is access to advanced therapy medicinal products (ATMPs), including gene, cell and tissue-engineered therapies. Late in December 2022, the Association of the British Pharmaceutical Industry (ABPI) and the NHS Accelerated Access Collaborative (AAC) published a roadmap to assist companies with increasing the speed of ATMPs to market in the UK. The roadmap emphasizes early engagement with all components of the healthcare system, including the MHRA, NICE, and NHS England, patient engagement, and standardization. In 2022 the UK will build upon its infrastructure, which in 2019 ensured that the UK was the first European country to make available the CAR-T therapies to its patients, and support speedy access of the NHS to ATMPs.

European Union

1. EU Pharmaceutical Strategy: General Overhaul to Increase Access and Affordability

2022 will be a crucial year in the rollout of the European Commission’s “Pharmaceutical Strategy for Europe,” which was published in November 2020. The Pharmaceutical Strategy emphasized patient access and affordability. It noted that patient access to drugs varies considerably across Member States, and concluded that prices are getting higher, while “there is a lack of transparency (in particular in R&D costs)” and no consensus on cost principles. To address these issues, the Commission is investigating whether it should introduce “conditionality” for certain IP and regulatory rights (possibly including regulatory data protection, supplementary protection certificates, and current incentives and rewards for developing orphan and pediatric drugs) by making the grant and maintenance of such rights dependent on whether the company launches the product in “most or all Member States” or provides transparency on R&D costs. The Pharmaceutical Strategy also proposes to streamline market-approval procedures and to increase the possibilities to use RWE.

In the course of 2022, it is possible the Commission will seek to incorporate such changes in a crucial set of legislative proposals, which are due to be presented by the end of 2022, and could amend the EU’s general pharmaceutical legislation, the Orphan Medicinal Products (OMP) Regulation, and the Paediatrics Regulation. The forthcoming proposals are likely to redefine several fundamental concepts of EU law, and to enable faster market access for generics and biosimilars.

Stakeholders and industry associations will continue to be highly focused on advancing policy positions that incentivize research, support fair pricing and reimbursement, and help to shape the optimum environment for pharmaceutical product development in the EU.

2. Revision of Orphan Medicinal Products Regulation and Pediatric Regulation

As a part of its Pharmaceutical Strategy, the European Commission has been evaluating the current EU rules on OMPs.  In addition to the general policy aim of increasing access and affordability, the Commission is assessing whether it can steer investment towards products addressing “unmet needs,” in particular for rare diseases and children. In that context, the Commission is working on proposals that could “modulate” the scope and duration of the current 10-year market exclusivity for OMPs downwards for therapeutic areas where unmet needs are purportedly less, or where products have already obtained a prior orphan designation.

The Commission is also considering so-called “Mechanism of Action Pediatric Investigation Plans,” whereby developers would be obliged to study drugs in pediatric patients with a condition unrelated to the adult condition.

In the course of 2022, it will become clearer how the Commission will shape these fundamental changes to current EU law. 

3. New Incentives to Combat Antimicrobial Resistance

As part of the Pharmaceutical Strategy, the Commission is also considering new incentives to combat antimicrobial resistance and for drugs addressing areas of high unmet need, to replace or complement current rewards and incentives.  One of the ideas raised in consultations on behalf of the European Commission is a “transferable exclusivity extension” whereby a company that achieves a marketing authorization for a new antimicrobial drug could obtain the right to extend regulatory or intellectual property exclusivities of another product which already has proven to generate sufficient sales.

4. New Health Technology Assessment Regulation

As of January 2022, the European Commission has started setting up the mechanisms for implementing the new EU Regulation on Health Technology Assessment (HTA Regulation), which was published on December 22, 2021. The rollout will take several years: as of January 2025, a Coordination Group consisting of EU Member State representatives will carry out “joint clinical assessments” of oncology drugs and ATMPs, and selected medical devices. Orphan medicinal products will be covered as of January 2028, and other drugs subject to EMA approval will be added as of 2030.

The joint clinical assessments will be limited in scope: they cover only the “relative effects” of the new technology compared to existing technologies, and will not conclude on “overall clinical added value.” Member States must take the joint clinical assessments into account, but remain free to perform additional clinical analyses and request additional studies with comparators not covered in the joint assessment. In practice, therefore, the joint assessments may add another layer of assessments before gaining market access to some Member States. Companies with products in late-stage development will want to start considering how to prepare for joint clinical assessments. 

In the meantime, the Commission will continue to support HTA cooperation between Member States though initiatives such as EUnetHTA.  

5. Joint Procurement and “Fair Pricing” Models

Since the start of the COVID-19 pandemic, the European Commission has engaged in many procurement procedures leading to hundreds of agreements for COVID-19 vaccines, drugs, and protective and medical equipment with a value exceeding €13 billion. In 2022, the Commission will continue its central purchasing role. 

Separately, groupings of Member States will likely continue their efforts to engage in joint assessments, and, in some cases, joint pricing negotiations. One of the most advanced initiatives is BeNeLuxA, comprising Belgium, the Netherlands, Luxembourg, Austria, and Ireland. Three of these countries concluded their first joint pricing negotiations in October 2021. During 2022, further joint HTA initiatives are expected from BeNeLuxA, and also from other initiatives such as FINOSE (Finland, Norway and Sweden), the La Valletta Group (Italy, Portugal, Croatia, Cyprus, Greece, Malta, Romania, Slovenia, and Spain), and the Fair and Affordable Pricing Initiative (FAAP), including the Czech Republic, Hungary, Lithuania, Poland, and Slovakia.

Separately, several Member States are understood to be considering a move away from “value-based” pricing for new drugs and put more emphasis on the link between the price requested and R&D expenditure. Prompted in part by a series of EU antitrust cases alleging excessive pricing for older products, Member States and other stakeholders are seeking to develop several “cost plus” or “fair pricing” models. A key question arising in 2022 is whether such models will be applied, and how they would account for factors in drug development, including the risk of failure. In the context of the revision of the orphan and pediatric rules, several economic reports have pointed out that direct R&D expenditure and the time value of money are not the only factors determining whether a product will be developed: the risks of failure to obtain marketing authorization, IP rights, and reimbursement are equally important. Discourse on these points will continue in 2022, in particular for orphan drugs and oncology drugs.

6. Changes in Germany

In the course of 2022, the new German government may implement its coalition agreement which contains proposals to increase mandatory discounts and reduce the “grace period” under Germany’s drug pricing market access procedure (under Germany’s Pharmaceuticals Market Reorganization Act (Arzneimittelmarkt-Neuordnungsgesetz or AMNOG) from twelve to six months. The current AMNOG procedure allows a pharmaceutical company to set the price of its new medicinal products for a period of twelve months following launch. Starting with the thirteenth month, a negotiated reimbursement price applies. Under future legislation, a negotiated reimbursement price could apply from the seventh month after market launch. The reduction of the grace period could put further pressure on market access planning in the EU, which is often anchored on the German pre- and post-AMNOG prices.

China

In China, since 2018, multiple governmental agencies at the local and national level have undertaken a coordinated effort to regulate drug prices through (1) government-organized procurement programs, especially VBP programs and (2) pricing negotiations for inclusion into the National Reimbursable Drug List (NRDL). Drug prices are significantly reduced through these mechanisms. Average prices were reduced by approximately 60% for nearly 70 products for the next two years in a recent pricing negotiation with the central government for inclusion on the NRDL.

In 2022, the government will continue to implement these regulatory mechanisms. China is also in the process of developing its first national healthcare law to endorse the overall pricing and reimbursement system it has put in place, which owners, investors, and executives can be expected to continue to closely monitor.