Prescription drug pricing is emerging as one of several healthcare issues that may become a focus of the presidential race as well as contested congressional races this fall. With pending legislative attempts to control drug prices and reform the Medicare Part D prescription drug benefit stalled because of partisan disputes, President Donald Trump stepped into the fray on July 24 with a White House event unveiling four executive orders on drug pricing.
While the President described the orders as “bold and historic, very dramatic action to reduce the price of prescription drugs,” the orders are unlikely to have any impact on drug prices in the near term. Instead, three of the four represent a continuation of some initiatives that have already been underway in the Administration but have yet to reach fruition, and the fourth, although new, is likely to have limited impact.
Of the four executive orders (EOs) the President announced, just three have been released. They are (1) prescription drug importation, (2) prescription drug rebates and (3) access to insulin and injectable epinephrine through the 340B Drug Discount Program. Under the other, described by the President as “the granddaddy of them all,” the President said “we will determine what other medically advanced nations pay for the most expensive drugs, and instead of paying the highest price, Medicare will pay the lowest price and so will lots of other U.S. buyers.”
This appears to refer to the International Price Index (IPI) plan, first previewed in 2018, to create a Center for Medicare and Medicaid Innovation (CMMI) model test of reducing Medicare Part B reimbursement for drugs where such drugs have lower prices among a list of referenced countries. President Trump said he’d be delaying action on this EO for one month, “hoping that the pharmaceutical companies will come up with something that will substantially reduce drug prices.”
None of the EOs make immediate policy changes: For the policies contained within the orders to have any effect, agencies would need to take additional administrative actions. Depending on the details of further administrative actions, some of these proposals could have significant impacts for drug manufacturers and providers.
Here is a description of each of the EOs:
This EO contains three parts:
- Directive for the Food & Drug Administration (FDA) to finalize state importation rulemaking. The first part directs the FDA to complete its rulemaking to allow states to apply to the FDA to create a program to import certain drugs from Canada. This rulemaking, which began in December 2019, is ongoing, and the FDA appears to have not yet completed its review of comments or prepared a final rule. The Administration’s regulatory agenda had targeted the completion of this rule for December.
- Directive for HHS to “facilitate” a process to grant permission for individuals to import drugs from other countries. This second part directs HHS (and presumably, therefore, the FDA) to “facilitate” granting individuals permission to import drugs from other countries. Such authority already exists in Section 804(j)(2) of the Federal Food, Drug, and Cosmetic Act (FDCA). This subsection provides that this permission may come through regulations (i.e., general rules) or on a case-by-case basis. The FDA has never chosen to implement this authority. In proposing its Canadian drug importation proposal in December 2019, the FDA explicitly declined to implement the personal importation authority of subsection (j)(2), writing: “Medications that are purchased online and imported through international mail, express couriers, and other means pose significant challenges for FDA and its ability to adequately safeguard the quality and safety of drugs taken by U.S. consumers.”
To implement this part of the EO, the FDA could publish guidance, as required under the subsection, to describe the conditions under which it might approve personal importation.
- Directive for HHS to authorize reimportation of insulin products during an emergency. The third part of this EO directs HHS to use, as appropriate, the authority that already exists in federal law to authorize the reimportation of insulin products where there is an emergency. This authority is obscure and it is not clear how this emergency use would expand access. It appears limited to insulin originally manufactured in the United States and then exported.
None of the initiatives that this EO seeks to advance are likely to have any major impact on U.S. patients or providers. The state importation rule would, if finalized, merely create a pathway for states to apply to the FDA to create a program. There is no guarantee that the FDA would approve a program. Finally, even if a state gained approval, the restrictions on such program that the FDA proposed would make any significant use unlikely.
This EO directs HHS to complete the rulemaking it started in January 2019 to end the ability of drug manufacturers to provide rebates to Medicare Part D plans and, instead, authorize a new safe harbor under the Federal Anti-Kickback Statute to allow companies to provide discounts that are passed through to beneficiaries at the point of sale. The Administration had announced, in July of last year, that it was ending consideration of the proposal. However, HHS never published an official notice that the rule was withdrawn.
Significantly, the order includes a condition that HHS not act unless the HHS Secretary can “confirm—and make public such confirmation—that the action is not projected to increase Federal spending, Medicare beneficiary premiums, or patients’ total out-of-pocket costs.”
This requirement may provide an obstacle because the Centers for Medicare & Medicaid Services (CMS) Office of the Actuary and two other actuarial firms retained by HHS found that the proposal would increase Part D premiums. It is possible that HHS could satisfy this condition by making changes to its original proposal or by implementing a demonstration program, as it had proposed in 2019, to increase Part D subsidies to ensure that there would not be a premium increase. Achieving this latter idea might be difficult given the other condition of not increasing federal costs.
Under this EO, it is possible that HHS may seek to finalize the January 2019 proposal with changes based on the comments it received. It is also possible that HHS might issue another proposed rule. However, because Part D plans are well into the planning for the 2021 plan year, it is difficult to envision how the conversion of rebates to point of sale discounts could be implemented before the 2022 plan year.
Should this change become law, it could have a large impact on prescription drug pricing in Medicare and beyond. As rebates have been the primary means of drug price competition throughout the healthcare system for decades, a change from rebates to price discounts in Medicare Part D would have unknown implications. As some believe, including CMS’s own actuaries, the change could, at least in the short term, increase net drug costs as manufacturers convert only a portion of rebates into discounts. The change, which would make net prices transparent to all including competitors, could also have negative competitive impacts especially in categories of drugs with few competitors.
Finally, a change of this magnitude for Medicare, the largest market for many drug products, could quickly spill over into the commercial markets as manufacturers may not want to maintain two different systems of pricing.
Access to Insulin and Epinephrine
Under Section 340B of the federal Public Health Service Act, pharmaceutical manufacturers that participate in the Medicaid program (which virtually all manufacturers do) are required to provide discounts on outpatient drugs to certain types of healthcare providers and programs, including federally qualified health centers (FQHCs). This EO is intended to require FQHCs to pass the 340B discounts they receive on insulin and injectable epinephrine through to certain low-income patients.
In yet another acknowledgment of the Health Resources and Services Administration’s (HRSA’s) limited enforcement authority in the 340B arena,1 the EO applies only to FQHCs, and not to hospitals or other categories of 340B covered entities. The EO does not rely on HRSA’s authority under the 340B statute, and instead relies on HHS’s grant-making authority under Section 330 of the federal Public Health Service Act.
Most FQHCs qualify as 340B covered entities by virtue of their receipt of Section 330 grant funding, and the EO requires HHS to take action to ensure that future grants under Section 330 are conditioned on FQHCs’ having established practices to make insulin and injectable epinephrine available at 340B prices to low-income patients who (i) have a high cost-sharing requirement for either insulin or injectable epinephrine; (ii) have a high unmet deductible; or (iii) have no health insurance. While the EO does not specify what constitutes a low-income individual, FQHCs are currently required to provide discounted services to individuals at or below 200% of the federal poverty level, so it seems likely that low-income individuals for purposes of the EO would consist of the same cohort of patients.
The EO also leaves open a number of significant questions, not least of which is whether HHS has the authority to use Section 330 funding to require FQHCs to pass 340B discounts through to their patients. It is also not clear whether this requirement would apply only to insulin and injectable epinephrine provided by FQHCs directly to their patients, or whether it would also apply to 340B purchased insulin and epinephrine dispensed to FQHCs through contract pharmacies. Finally, the pathway to implement this requirement is unclear and may require rulemaking.
Under 340B program rules, FQHCs and other 340B covered entities may provide 340B drugs only to individuals who qualify as their patients under a 340B-specific patient definition. And FQHCs represent only a small portion of 340B program participants. In light of this, the overall impact of this EO, if implemented, is likely to be modest. However, at least two states appear interested in trying to direct patients to FQHCs to access lower cost drugs, so it is possible that this EO could create a new pathway for broader access to 340B prices.2
Based on the President’s comments and, subsequently, CMS Administrator Seema Verma’s description, it appears that the EO would direct CMS to proceed with their regulatory effort to create a Center for Medicare and Medicaid Innovation (CMMI) model test of reducing Medicare Part B reimbursement for drugs where such drugs have lower prices among referenced countries. In contrast to the proposal that CMS first made in 2018, the President described the EO as seeking to calculate prices based on the lowest price in any reference country as opposed to the average price in those countries.
Speculating on what this change might mean, it is possible that, instead of calculating the mandatory discount in Part B reimbursement based on the average price in the referenced countries, a new IPI proposed rule would base that discount on the lowest price. This change might not prove significant unless a product has a price in a referenced country much lower than the average price in all the referenced countries.
If the Administration proceeds with the EO at the end of August, the next step for this effort would be the release of a proposed or interim final rule describing the new CMMI model. It is therefore likely that this model would not be ready for implementation until sometime next year.
If eventually implemented, the model could have major implications for providers of Part B drugs. These providers are currently paid on the basis of a markup on the drug’s Average Sales Price. With reduced reimbursements for Part B drugs, provider income from the difference between their acquisition costs and reimbursement level would decline. It is also possible that, in some cases, reimbursement rates could actually fall below provider acquisition costs.
While the EOs have garnered considerable attention, action on prescription drug pricing will likely be most impacted by the results of the November election. Presumptive Democratic nominee Joe Biden has previewed a robust agenda on pricing reforms that leans heavily toward concepts championed by Democrats in the House of Representatives. These concepts, if enacted, would have impacts far beyond those claimed by the EOs.
Should President Trump win a second term, he can be expected to pursue the ideas contained in the EOs and possibly others to address drug prices. The impact of either a Biden or Trump presidency will also depend heavily on the makeup of the new Congress and the state of the nation’s economy and health.
1 HRSA’s authority and capacity to adequately oversee the 340B program have been the ongoing topic of debate, raising concerns among some lawmakers and government oversight agencies. For example, in a January 2020 Government Accountability Office Report regarding oversight of the program’s intersection with the Medicaid Drug Rebate Program, GAO indicated, “HRSA has noted that the agency lacks explicit general regulatory authority to issue regulations on most aspects of the 340B Program.”
2 See, e.g., Minn. Senate Bill H.F. 3100 (2020); Conn. H.B. 6003 (2020).