On May 11, the Trump Administration unveiled its much anticipated plan for reducing drug prices and patient out-of-pocket costs, with a "Blueprint" document,
speeches by President Trump and Department of Health and Human Services (HHS) Secretary Azar, and a press conference (again by Secretary Azar). The Blueprint describes four "challenges" in the US drug market: "high list prices for drugs"; "seniors and government programs overpaying for drugs due to lack of the latest negotiation tools"; "high and rising out-of-pocket costs for consumers"; and "foreign governments free-riding off of American investments in innovation." The Blueprint describes two "phases" for addressing these challenges: "actions the President may direct HHS to take immediately" (or "immediate actions" for short) and "actions HHS is actively considering, on which feedback is being solicited" (or "further opportunities").
The Blueprint's proposals would, if adopted, cause "fundamental structural change" (in Secretary Azar's words) across the healthcare industry, including changes in Medicare Parts B and D, Medicaid, and 340B, and changes in price concessions to pharmacy benefit managers (PBMs). The Blueprint also addresses generic drug approval, direct-to-consumer drug advertising, and international trade.
To help readers digest the Blueprint, Arnold & Porter has prepared the below summary that highlights key issues. The Blueprint's proposals to lower list prices would, if enacted, perhaps sweep most broadly, so this summary presents them first. An appendix to this summary provides background information on Trump Administration drug pricing proposals from the President's Fiscal Year 2019 Budget for HHS (HHS Budget),
which the Blueprint repeatedly references. The HHS Budget, for example, includes a five-part plan to "modernize" Part D that would require Part D plans to apply rebates at the point-of-sale, cap patient out-of-pocket spending in catastrophic coverage, exclude manufacturer coverage gap discounts from patient true out-of-pocket costs, increase Part D formulary flexibility, and eliminate cost sharing on generic drugs for low-income beneficiaries.
Finally, on May 14, HHS released a request for information (RFI)
on the Blueprint. The RFI sets forth the same four "challenges" in the US drug market and proposes nearly identical "immediate actions" and "further opportunities" for each challenge as appear in the Blueprint. However, the RFI also includes a new section not in the Blueprint, titled "Additional Feedback." There, HHS solicits any other suggestions to “improve the affordability and accessibility of prescription drugs" and comments regarding regulatory burdens posed by current and/or proposed drug pricing rules. HHS has scheduled the RFI for publication in the Federal Register on May 16, and comments will be due on or before July 16. Arnold & Porter stands ready to help its clients to submit comments on the RFI.
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I. Incentives for Lower List Prices
A. Immediate Actions
- FDA Evaluation of Requiring Manufacturers to Include List Prices in Advertising: The Blueprint proposes having FDA evaluate whether to require that direct-to-consumer (DTC) drug advertisements include the drug's list price. In his press conference regarding the Blueprint, Secretary Azar explained that the Administration "believe[s] its an important part of fair balance that if you’re telling a patient . . . all the good things that drug can do for them, it's material and relevant [for the patient] to know if it's a $50,000-drug or a $100-drug, because often that patient is going to have to bear a lot of that cost." This proposal has raised First Amendment compelled speech concerns, as well as concerns about confusing consumers about their cost-sharing obligations.
B. Further Opportunities
- Measures to Restrict the Use of Rebates, Including Revisiting the Safe Harbor Under the Anti-Kickback Statute for Drug Rebates: According to the Blueprint, manufacturers, PBMs, and insurers benefit financially from higher list prices and rebates and thus have few incentives to control costs. In his press conference, Secretary Azar characterized the current system as "bit of a game, which is the drug company negotiates this 30 percent rebate. And then the next day, increases price 30 percent. And it's this game of chase that goes on." Accordingly, the Administration is seeking feedback on how to revise the current incentive structure, including by restricting or reducing the use of rebate agreements. Notably, in requesting feedback on potential incentives or regulatory changes to restrict the use of rebates, the Blueprint names "removing the discount safe harbor" as an example reform.
- Additional Reforms to the Rebating System: The Administration is also considering prohibiting the use of rebates in contracts between drug manufacturers and Part D plan sponsors, and instead requiring that drug prices be set at a fixed price over the contract term. In a press briefing on the drug pricing plan, Secretary Azar stated that removing rebates would take away the "gross-to-net spread," which "leads to indifference" about the list price of the drug. The Blueprint requests feedback on how prohibiting rebate agreements would affect the behavior of drug manufacturers, PBMs, and insurers, and how this prohibition could change the formulary design, premium rates, or overall structure of the Part D benefit.
- Using Incentives to Discourage Manufacturer Price Increases for Drugs Used in Part B and Part D: In addition to reducing the role of rebates, the Administration is exploring incentives for manufacturers to control list prices. For example, the Blueprint proposes limiting the Medicare Part D protected classes to drugs of manufacturers that have not increased their prices over a lookback period. (Please see the Appendix for the HHS Budget’s proposal to limit the Part D protected classes.) In his press conference, Secretary Azar also mentioned exclusion from the specialty tier as another incentive that could be conditioned on not increasing the list price over a certain period. The Administration is also considering whether to accelerate granting reimbursement codes for Part B drugs whose manufacturers “commit to a price over a particular lookback period."
- Considering Fiduciary Status for PBMs: The Blueprint asserts that most PBM contracts “may allow them to retain a percentage of the rebate collected and other administrative or service fees," and suggests that this structure creates a financial incentive for PBMs to favor higher list prices. In order to remove these perceived incentives and focus PBMs on achieving low net drug costs, the Blueprint seeks input on imposing a fiduciary duty on PBMs on behalf of the "ultimate payer (i.e., consumers)." In his press conference, Secretary Azar phrased the question more broadly, as whether "we [should] move to a fiduciary model where the pharmacy benefit manager works for the insurance company or the individual, and only is compensated by the insurance company or individual."
- Reforms to the Medicaid Drug Rebate Program. The Trump Administration is considering repealing a provision included in the Affordable Care Act that capped the Medicaid rebate amount at 100 percent of average manufacturer price (AMP), and asks what impact the repeal would have on list prices, price increases, and payors. During his press conference, Secretary Azar further elaborated that "overturning that cap on rebates" would "make the math work so that when you increase your list price, it’s going to cost you more money if you're a pharma executive thinking about raising prices." The Blueprint also asks about the implications of removing an exemption from Best Price, and potentially AMP, for certain payments to PBMs.
- Reforms to the 340B Drug Discount Program: The Blueprint notes that the 340B Program has experienced significant growth, partly due to Affordable Care Act amendments to the 340B law. The Blueprint asks whether changing the 340B Program’s definition of a "patient," contract pharmacy policies, or hospital "child site" policies would refocus the 340B Program towards its intended purpose. The Blueprint also asks whether the mechanisms for identifying and preventing duplicate discounts are effective, and whether the inventory models for tracking 340B drugs and the prohibition on certain 340B hospitals using group purchasing organization arrangements increase or decrease prices. The Blueprint also asks whether the agency that oversees the 340B Program should be given general rulemaking authority.
- Steps to Prevent Manufacturer Gaming of Regulatory Processes such as Risk Evaluation and Mitigation Strategies (REMS): FDA may impose REMS requirements on a drug in certain circumstances to ensure that its benefits outweigh its risks, and a REMS program may require restrictions on distribution of the drug as well as mandated education for providers and patients. Although current law already prohibits use of REMS to "block or delay" approval of a generic drug, the Blueprint suggests FDA will consider additional steps intended to prevent innovators’ use of REMS requirements to impede generic entry.
II. Improving Competition
A. Immediate Actions
Although not included in the Blueprint, President Trump stated during his address, "We are getting tough on the drug makers that exploit our patent laws to choke out competition. Our patent system will reward innovation, but it will not be used as a shield to protect unfair monopolies."
At this point, it is not clear whether this signals that additional patent-related initiatives will be forthcoming.
B. Further Opportunities
- Considering How to Encourage Sharing of Samples Needed for Generic Drug Development: The Blueprint asks, for example, whether existing REMS should be reviewed "to determine whether distribution restrictions are appropriate" and whether REMS may be modified to expand access to drugs necessary for generic development efforts. The Blueprint also asks what actions should be considered "to facilitate access to reference product samples" by companies developing biosimilars.
- Additional Efforts to Promote the Use of Biosimilars: With regard to biosimilars and interchangeable products, the Blueprint asks several questions, including: What information or resources would be most useful in driving down costs of development for biosimilars and interchangeable biologics? How should the Purple Book, in which FDA publishes information about biological products, including reference products, biosimilars, and interchangeable biologics, be made more useful? What role do state pharmacy practices have to play with regard to prescribing and dispensing biosimilars and interchangeable biologics?
A. Immediate Actions
- Reforming Medicare Part D to Give Plan Sponsors Significantly More Power When Negotiating with Manufacturers: The Blueprint suggests several actions to increase plan flexibility, including "providing plans full flexibility to manage high cost drugs that do not provide Part D plans with rebates or negotiated fixed prices, including in the protected classes" and allowing indication-based pricing. The Blueprint also proposes holding plans accountable by "updating the methodology" used to show Drug Plan Customer Service ratings for plans, while cutting back patients’ and prescribers’ appeal rights by eliminating the Independent Review Entity (IRE) level of appeal.
B. Further Opportunities
- Considering Further Use of Value-Based Purchasing in Federal Programs, Including Indication-Based Pricing and Long-Term Financing:
Value-Based Arrangements and Price Reporting: In addition to the Blueprint's discussion of "immediate actions" in this area (see above), the Blueprint asks how excluding value-based pricing arrangements from drug price reporting might affect various programs. The Blueprint also asks about the possibility of extending the time for manufacturers to report restatements of AMP and Best Price to accommodate the longer evaluation timeframes that might be used in value-based evaluations, and about possible modification to various price reporting definitions ("bundled sale," "free good," "unit," and "best price"). The Blueprint also asks whether Anti-Kickback Statute changes could increase adoption of value-based arrangements.
- "Part B to D": The Administration seeks comment on: (1) which drugs could be good candidates for moving from Part B to Part D reimbursement; (2) the impact on beneficiaries who do not have Medicare Part D coverage or those who have supplemental benefits in Part B due to any such change; and (3) whether lower pricing in other Organisation for Economic Co-operation and Development (OECD) nations should be the basis for selecting specific Part B drugs for negotiated pricing. A related proposal appears in the HHS Budget (and the Appendix).
- Requiring Site Neutrality In Payment: Under Medicare Part B and often in Medicaid, the facility fees paid when drugs are administered at hospitals and hospital-owned outpatient departments exceed the drug administration fees paid to physician offices. The Administration asks for feedback on how moving to a "site-neutral" payment policy for drug administration could affect the practice of medicine, the organization of health care systems, and competition for health care services. The Blueprint asks similar questions regarding differences between Part A and Part B drug reimbursement.
- Prohibiting Part D Contracts with "Gag Clauses" that Prevent Pharmacists from Telling Patients When They Could Pay Less Out-of-Pocket by Not Using Insurance: The Blueprint suggests that HHS may prohibit Part D plans from using "gag clause" contracts that prevent network pharmacies from telling patients that they could reduce their out-of-pocket payment by not using their insurance.
IV. Lowering Out-Of-Pocket Costs
- Improving the Usefulness of the Part D Explanation of Benefits (EOB) Statement by Including Information About Drug Price Increases and Lower-Cost Alternatives: Each month that a beneficiary fills a prescription, a Part D plan sends the beneficiary an EOB describing the prescription drug claims and costs. The Blueprint suggests including in the EOB additional information about drug price increases and lower-cost alternatives to the drugs used by the beneficiary.
- More Measures to Inform Medicare Part B and D Beneficiaries About Lower-Cost Alternatives: In the Blueprint, the Administration asks how pharmacists and providers can become more involved in informing beneficiaries about the price of their drugs, and in helping reduce beneficiaries’ out-of-pocket costs. For example, the Blueprint asks whether pharmacists should inform beneficiaries when prices for their drugs have changed, and how to improve transparency for Medicare beneficiaries without violating confidentiality requirements.
Appendix: FY2019 HHS Budget Background
As noted above, the Blueprint briefly references multiple drug pricing and other proposals from the FY2019 HHS Budget. This appendix reproduces in full the HHS Budget discussions of these topics (which provides additional detail).
The Blueprint, for example, references repeatedly the five-part plan from the HHS Budget to "modernize" Medicare Part D, noting that this plan "is intended to be implemented together, as eliminating even one piece of the package significantly changes the proposal's impacts." The HHS Budget described these proposals of the five-part plan as follows:
- "Require Medicare Part D Plans to Apply a Substantial Portion of Rebates at the Point of Sale: This proposal requires Part D sponsors to apply at least one-third of total rebates and price concessions at the point of sale. This will improve price transparency and allow beneficiaries to share directly in the savings from discounts negotiated by plans. [$42.2 billion in costs over 10 years]
- "Establish a Beneficiary Out-of-Pocket Maximum in the Medicare Part D Catastrophic Space: This proposal increases Part D plan sponsors' risk in the catastrophic phase by increasing plan liability over four years from 15 percent to 80 percent, and simultaneously decreasing Medicare's reinsurance liability from 80 to 20 percent. Additionally, beneficiary coinsurance would decrease from 5 to 0 percent, creating a true out-of-pocket maximum in Part D for the first time in the program's history. Collectively, these changes provide beneficiaries with more predictable annual drug expenses and incentivize plans to better manage spending throughout the entirety of the benefit. [$7.4 billion in costs over 10 years]
- "Exclude Manufacturer Discounts from the Calculation of Beneficiary Out-of-Pocket Costs in the Medicare Part D Coverage Gap: Under the current benefit structure, required discounts paid by manufacturers in the coverage gap are counted towards the calculation of beneficiary true out-of-pocket costs, which ultimately determine the speed of beneficiaries' progression through the coverage gap. As a result, plans are incentivized to encourage beneficiaries to use costly brand drugs in order to accelerate beneficiaries through the coverage gap and into the catastrophic phase, where Medicare is liable for 80 percent of spending. This proposal restructures the coverage gap discount program to exclude manufacturer discounts from the calculation of true out-of-pocket costs in order to correct this misaligned incentive. [$47.0 billion in savings over 10 years]
- "Increase Medicare Part D Plan Formulary Flexibility: This proposal changes Part D plan formulary standards to require a minimum of one drug per category or class rather than two. It also expands plans' ability to use utilization management tools for specialty drugs and drugs in protected classes to empower plans to better manage the Part D drug benefit. [$5.5 billion in savings over 10 years]
In addition to the five-part plan, the Blueprint also highlighted the following HHS Budget proposals on drug pricing.
- “Address Abusive Drug Pricing by Manufacturers by Establishing an Inflation Limit for Reimbursement of Part B Drugs: Effective CY 2019, this proposal limits growth of the Average Sales Price (ASP) portion of payment of Part B drugs to the Consumer Price Index for All Urban Consumers. Each quarter when CMS establishes the ASP +6 percent payment amounts, CMS would pay the lesser of (1) the actual ASP +6 percent or (2) the inflation-adjusted ASP +6 percent. The base for determining growth of a drugs price will be the initial ASP, or the first quarter of CY 2017 for drugs that had an ASP prior to the date of enactment. [Budget impact not available]."
- "Test Allowing State Medicaid Programs to Negotiate Prices Directly with Drug Manufacturers and Set Formulary for Coverage: This proposal includes a new statutory demonstration authority to allow up to five states more flexibility in negotiating prices with manufacturers, rather than participate in the Medicaid Drug Rebate Program, and to make drug coverage decisions that meet state needs. Participating states will be required to include an appeals process so beneficiaries can access noncovered drugs based on medical need. [$85 million in savings over 10 years]."
- "Modify Payment for Drugs Hospitals Purchased through the 340B Discount Program and Require a Minimal Level of Charity Care for Hospitals to Receive a Payment Adjustment Related to Uncompensated Care: Beginning in CY 2019, this proposal allows CMS to apply savings from a reduction in payment to hospitals for drugs purchased under the 340B program in a nonbudget neutral manner. Under a regulation that goes into effect CY 2018, hospital payment for 340B drugs is reduced from ASP +6 percent to the average sales price -22.5 percent to reflect the minimum average discount 340B hospitals receive. Statute requires the savings to be redistributed within the payment system in a budget neutral manner. Under this proposal, the savings from hospitals that provide uncompensated care equaling at least one percent of their patient care costs are redistributed based on their share of aggregate uncompensated care. Hospitals not meeting that threshold are not eligible for the redistribution, and the savings from their payment reduction will be returned to the Medicare Trust Funds. [Budget impact not available]."
The HHS Budget describes,
and the Blueprint briefly mentions, a legislative proposal that would amend the 180-day generic drug exclusivity provisions of the Federal Food, Drug, and Cosmetic Act (FD&C Act). The Administration intends this change to "speed access to more affordable generics by spurring competition." Under current law, the first generic drug applicant to file a substantially complete abbreviated new drug application (ANDA) containing a "paragraph IV" patent certification (the "first-filer") receives a 180-day exclusivity period during which FDA cannot approve a subsequent ANDA for the same drug product that contains a paragraph IV certification. Although a first-filer is awarded a 180-day exclusivity period prior to receiving final marketing approval, the 180-day period does not begin to run until the first-filer’s commercial marketing of the ANDA post-approval or marketing of the reference drug. The proposed legislative fix, as described in the Budget and Blueprint, appears to be intended to address the problem that occurs when a first-filer by delaying taking actions necessary to obtain final approval of the first-filer’s ANDA can delay approval of subsequent generic applications that are otherwise ready for approval, but for the 180-day exclusivity of the first-filer. According to the Blueprint, "As a result, first filers can ‘park’ their exclusivity, and consumers are denied access to generic products and must keep paying brand price." The legislative proposal would start the first filer’s 180-day exclusivity clock upon the tentative approval of a subsequent ANDA, disincentivizing "parking" behaviors. It is unclear whether the proposed fix would kick in only in situations where the Agency has reason to believe a first-filer is intentionally delaying approval of the first-filer’s ANDA and under what specific conditions the fix would apply.
In his speech unveiling the Blueprint, President Trump briefly mentioned that FDA will "speed up the approval process for over-the-counter medicines so that patients can get more medicines without a prescription."
Under the current framework for over-the-counter (OTC) drugs, certain types of OTC drugs do not require individual approvals but rather are marketed pursuant to monographs issued by FDA setting forth the conditions under which categories of OTC medications are generally recognized as safe and effective for specified indications. Other OTC medications, by contrast, require individual approvals through the new drug application (NDA) or ANDA process. The HHS Budget included a proposal for legislation to modernize the OTC monograph process and create a new user fee to support OTC monograph review activities, though the Blueprint did not reference any OTC proposal. Congress and FDA have recently been considering changes in the regulation of OTC drugs. Notably, FDA has already moved forward with several initiatives to foster competition in the biopharmaceutical marketplace, particularly with regard to generic drugs and biosimilars, and facilitating opportunities for improving information sharing between manufacturers and payors.
Finally, the FY2019 HHS Budget included several proposals related to drug pricing omitted from the President’s Blueprint.