This article by partners Tom Bulleit and Kristen Mayer was published by Law360 on May 17, 2018.

On May 11, President Donald Trump outlined his administration’s four-point plan for curbing prescription drug prices. With rare exceptions, the plan does nothing that will have immediate or even short-term effects, and missing is any reference to the presidents' campaign suggestions of direct federal price negotiation with drugmakers. Instead, the president is calling on the executive branch and, where necessary, Congress, to (1) consider (the blueprint uses the phrase “U.S. Department of Health and Human Services may”), or (2) gather more information about, the merits of taking more modest future steps that he believes will:

  • Improve competition;
  • Create a framework for better negotiation with drugmakers;
  • Provide incentives to lower the list prices of drugs; and
  • Lower patients’ out-of-pocket costs.

Although the president’s speech indicated that the effects would be “very soon,” HHS Secretary Alex Azar more cautiously advised reporters that the changes likely would take years to accomplish. The administration has stated that most of these changes may be accomplished without legislation, but most of the ideas on which the administration is seeking more information likely would require congressional action, and others that might be implemented administratively may be challenged in court as inconsistent with existing law. The president’s speech itself was short on details, but the administration released a blueprint describing action items in more detail.1

Here is a breakdown of the administration’s key proposals and likely paths forward:

1. Improve Competition

In general, the administration’s approach calls right now for offering modest improvements to the U.S. Food and Drug Administration approval path for generic drugs, and for the future, seeking public comment on whether easing regulatory requirements and reducing taxes that support public programs could bring about more competition.

What the Administration “May” Do

  • Expedited Generic Approvals: The FDA has already created an expedited path for approval of generic drugs where there is an off-patent brand and no generic competitor. The blueprint also indicates that the president will ask Congress to take additional steps to reduce the ability of a first-to-file generic maker to keep out other generic competitors.
  • Eliminate “Shenanigans”: The administration pledges to eliminate “gaming” (the blueprint abjures Commissioner Scott Gottlieb’s more colorful adjective) by drug companies that it believes stifles generic competition. It proposes that the FDA will issue guidance to address ways that drug companies may use the risk evaluation and mitigation strategy, or REMS, developed for brand drugs to delay or block competition. Specific ideas that have been mentioned in the past on this topic include (1) requiring brand makers to provide samples of their drugs to generic makers to facilitate the reverse-engineering that the generic must undertake; and (2) requiring that brand makers allow generics to use the same REMS infrastructure as the brand drug, rather than allowing the brand to restrict use to its own product.
    • Assessment: These are likely to have a pretty modest effect, since FDA approval is only one aspect of whether a generic maker would find market entry profitable. In addition, the first-to-file issue would require congressional action, and could act as a disincentive to competition, since it is currently a profitable incentive to enter the market. Acting on either of the other “shenanigans” arguably would involve property and proprietary rights that brand makers might resist in court.

What the Administration Is Seeking Ideas About

  • Price Reporting Changes: Should changes be made to the Medicaid rebate law’s price reporting requirements or to other government health care program pricing reporting requirements to improve incentives and reduce barriers to price negotiation and competition?
  • Improve Commercial Markets by Reducing Government Subsidies: Should what the blueprint characterizes as increased costs imposed on industry to support government-subsidized health care (e.g., Obamacare taxes, Medicaid rebate, 340b pricing) be rolled back because they are increasing costs on commercial health plans by way of cross-subsidization?
  • More Consumer Information: What additional information from the FDA for providers and consumers would lead to greater innovation and price sensitivity in prescribing drugs?
    • Assessment: These questions are consistent with the administration’s general themes that reduced regulation and taxes will improve competition, but the ideas are too unformed to lead to predictable outcomes. Changes to existing payment formulas for Medicare Part B, Medicaid rebate or 340b may require Congress to act.

2. Better Negotiation

Here, the blueprint calls for the Centers for Medicare & Medicaid Services demonstration projects that incorporate value-based care concepts, and solicits comment on a number of more significant changes that have long been part of the health policy debate, but whose prospects and effects remain uncertain.

What the Administration “May” Do

  • Center for Medicare & Medicaid Innovation Demonstrations: HHS will direct CMS to develop demonstration projects to test innovative ways to encouraged value-based care and lower prices. Mentioned are strategies to find ways to hold manufacturers accountable for outcomes, align incentives with value or volume priorities and site-neutral payments (eliminating facility payments), and provide unspecified additional “tools available to private payers outside of the Medicare program” to manage spending for high cost therapies.
    • Assessment: Although the specific negotiation tools are not made clear in the blueprint, subsequent remarks by HHS Secretary Alex Azar suggest that he believes plans might be reluctant to employ tools like fail-first and step therapy because they fear it could negatively affect their CMS star ratings. It is likely that most of these ideas could be implemented administratively, either across the board (as in the case of medication management tools) or on a trial basis, through CMMI’s existing demonstration authorities.

What the Administration Is Seeking Ideas About

  • Fewer Upfront Price Concessions in Exchange for Value-Based Health Care: Should drug manufacturers be able to reduce the amounts that they pay to Medicaid (and Medicare) in rebates, and the amount of discount they provide to safety-net hospitals under the 340b program, in exchange for offering value-based health care arrangements that reward better outcomes?
  • Allowing Indication-Based Payments: Should Medicare and Medicaid be allowed to pay differently for drugs based on what conditions they are used to treat?
  • Long-Term Health Plan Financing: Should states and payers set their premium rates for periods of longer than one year to anticipate the costs of higher cost innovative drugs?
  • Moving Drugs from Part B to Part D: Should Medicare Part D be expanded to cover more physician-administered drugs currently paid under Medicare Part B? Part B drugs are paid under a statutory formula of the average sales price, or ASP, plus 6 percent. Since ASP is based on manufacturer-set prices, net of discounts and rebates, and providers are guaranteed a margin, critics argue that the system encourages higher list prices.
  • Invigorating Part B Competitive Acquisition Program: What incentives would providers need to get out of the business of receiving a 6 percent markup on Part B drugs and turn the risk and reward over to their heretofore little-used competitive bidding program?
  • Fixing Global “Freeloading": It is generally acknowledged that the national health plans run by foreign countries pay less for prescription drugs than does Medicare or private U.S. plans. The administration argues that when Americans pay the higher, unregulated prices, they are subsidizing the lower foreign prices. Recognizing this fact, however, does not admit of an easy solution. The administration proposes to handle this through trade negotiations, and the president indicated that he has instructed the U.S. trade representative to make this a top priority. What carrots and sticks would the U.S. have to use to get foreign governments to pay more for prescription drugs or otherwise address this issue?
  • Site-Neutrality for Payment: Should states and other payers encourage drug administration in lower-cost settings (e.g., physician offices) by eliminating facility fees that pay institutions (e.g., hospitals) more for administration?
    • Assessment: This is a smorgasbord of ideas, most of which have rattled around health policy circles for many years. Most significant is perhaps the focus on addressing foreign “freeloading” through trade negotiation, which seems consistent with the administration’s view that other countries don’t pay their fair share for the benefits that the U.S. bestows, which in this case includes substantial public sector investment in research and development. Payment formula and private sector changes likely would require congressional action, as would eliminating coverage for physician-administered drugs under Part B

3. Reduce the List Prices Set by Manufacturers

The administration’s primary immediate approach might be best characterized as subjecting drugmakers to “cost shaming” by making their prices and price increases more public. Longer term, and consistent with remarks in the president’s speech about how the “middlemen” won’t be so rich anymore, the blueprint asks genuinely provocative questions about whether the existing business model for drug delivery should be fundamentally changed. It does this by asking leading questions about whether the role of pharmacy benefit managers, or PBMs, should be curtailed, and raises similar questions about the scope of the 340b safety net hospital discount program and patient coinsurance discount cards.

What the Administration “May” Do

  • Direct-to-Consumer Ads: The FDA may evaluate whether to require that DTC drug advertisements include the list price of the drug.
  • Medicare/Medicaid Dashboard: CMS may create a dashboard of pricing information to advise consumers of drug prices and of price increases.
  • Follow the Lead of the States: Another step to encourage competition could be to follow the lead of a number of states and require drugmakers to publish or otherwise disclose price increases and a rationale.
    • Assessment: It is not clear that the FDA has the authority to require prices to be included in DTC ads, and such efforts might be met with First Amendment challenges as well. While many cost-shaming measures could be accomplished through administrative action, it also is not clear that such cost-shaming would lead drugmakers to implement more voluntary price reductions.

What the Administration Is Seeking Ideas About

  • Fiduciary Duty for PBMs: Should the business model for pharmacy benefit management in which PBMs receive their payment from drug manufacturers in the form of rebates and administrative fees that depend on the volume or value of products sold, be changed so that PBMs act as the fiduciary for their health plan members and presumably are no longer paid on this basis?
  • Reducing the Impact of Rebates: Would requiring a restriction or reduction in Part D rebates paid to PBMs result in lower list prices, and would that lead drug manufacturers to lower list prices in a way significant enough to advantage health plans and consumers?
  • Coinsurance Discount Cards: Should action be taken to eliminate or restrict the use of manufacturer-provided discount cards that help patients with copay and coinsurance, which critics argue incentivizes higher list prices?
  • 340b Discount Program: Does the 340b program of requiring manufacturers to give drug discounts to safety net hospitals lead to higher list prices because drug manufacturers must cross-subsidize, and if so should the scope of the program be reduced?
    • Assessment: Changes in these areas would fundamentally remake the existing prescription drug insurance marketplace, albeit in unpredictable ways, and Congressional action would certainly be required.

4. Ease Out-of-Pocket Costs

What the Administration “May” Do

  • Prohibiting “Gag Clauses”: Here the administration proposes to piggyback on initiatives already enacted in several states and require that Part D plans prohibit their PBMs from restricting pharmacists from discussing lower cost alternatives with patients.
  • More Consumer Information: Require Part D plans to provide their members with additional information about drug prices and lower cost alternatives in their explanations of benefits.
  • Ease OTC Approvals: While not mentioned in the blueprint, the president suggested in his speech that another approach could be to move more drugs to over-the-counter status, which might in some cases lead to lower cost.
    • Assessment: All of these modest informational efforts likely could be implemented through administrative action, and would rely on consumers taking more ownership of their own health care costs.

What the Administration Is Seeking Ideas About

  • More Consumer Information Redux: The same elements listed immediately above are also detailed as items on which the administration seeks more information on impact.
    • Assessment: That these ideas show up as current steps and as information-seeking suggests a paucity of ideas on how to ease out-of-pocket costs.