This week, the Trump administration unveiled in its federal budget for fiscal year 2020 a number of concrete proposals to lower prescription drug costs — a significant departure from its FY 2019 budget. It’s the strongest signal yet from the administration that it would support legislation to tackle high drug prices.
According to the Office of Management and Budget (OMB), drug cost savings in the president’s package of proposals are estimated at $69.2 billion, compared to $5.7 billion in last year’s package. The proposals build on efforts by the Food and Drug Administration (FDA) to increase market competition from lower-cost drugs and, importantly, include some reforms that have bipartisan support in Congress. Here’s a look at specific proposals related to Medicaid, Medicare, and drug manufacturers’ anticompetitive behaviors that may be in step with congressional action over the coming months.
Like last year, the president’s budget includes proposals to ensure the integrity of the Medicaid Drug Rebate Program, which requires participating manufacturers to sell their drugs to all state Medicaid agencies and provide rebates (with certain exceptions) in exchange for Medicaid coverage of the drugs. The mandatory manufacturer rebates represent 23.1 percent of the average price for brand-name drugs and 13 percent for generic drugs.
Misclassifying a brand-name drug as a generic greatly reduces the rebates a manufacturer owes under the program — as revealed in a 2016 whistleblower case against Mylan, whose misclassification of EpiPen as a generic drug resulted in a $465 million federal settlement. That’s why the administration’s budget asks Congress to increase civil monetary penalties for this practice.
The administration also proposes to end drug companies’ manipulation of net prices under the Medicaid program — practices that drive up Medicaid reimbursement for certain drugs. One provision would exclude prices for brand-name drugs and authorized generics (which brand-name manufacturers either make or license for distribution) from Medicaid’s Federal Upper Limit, or maximum reimbursement, thus lowering what Medicaid pays for generic drugs. Another would prevent brand-name manufacturers from reporting artificially lower prices that effectively reduce the rebate amounts they owe Medicaid.
The proposals targeting manufacturers’ practices within the Medicaid Drug Rebate Program are intended to close loopholes that have been used to increase Medicaid spending on prescription drugs. The budget estimates the changes collectively would save Medicaid $2 billion over 10 years.
The administration’s budget package of Medicare proposals focuses on limiting beneficiary out-of-pocket costs and reducing the program’s prescription drug spending. Many of the proposals repackaged from last year’s budget received higher savings than last year. For example, the administration estimates 2020 budget savings of $74.7 billion for excluding manufacturer discounts from the calculation of “true out-of-pocket” beneficiary costs in the Part D coverage gap (the “donut hole”). This policy would reduce the number of beneficiaries entering the more generous catastrophic coverage phase, in which Medicare pays 80 percent of total drug costs. Last year’s budget estimated $47 billion in savings for the same proposal, and it is unclear if and how the proposal has changed. It will be interesting to see why savings estimates increased when additional budget details are released in the coming weeks.
Addressing Anticompetitive Behaviors
President Trump’s budget also signals the administration would support Congress in counteracting the anticompetitive behaviors that some brand-name manufacturers use to delay competition from generic drugmakers.
For example, the president’s budget would reduce Medicare Part B reimbursement for brand-name manufacturers that enter into “pay for delay” settlements — from average sales price (ASP) plus 6 percent to ASP minus 33 percent — rather than prohibit these settlements altogether. In other words, the budget does not address the impact of pay-for-delay settlements with respect to Medicare Part D, Medicaid, or other payers. Given recent changes in ASP policy, the administration’s budget may be signaling its intent to implement this policy through regulatory action.
Other proposals also seem ripe for congressional action. For example, the administration asks that Congress tamp down on “product hopping” — when a manufacturer switches from one version of a drug to another in a bid to delay generic drug competition. The budget proposes that a manufacturer’s request for a five-year period of market exclusivity for a “new chemical entity” only be granted if the product’s molecular structure contains a significant change from the existing drug.
In addition, the budget calls for Congress to prohibit manufacturers’ overuse of the citizen petition process — intended to allow individuals and community organizations to raise safety and efficacy concerns for drugs under review by FDA — in order to speed generic drugs to market. Some believe that the filing of citizen petitions has been used to block market entry of generic drugs, for example, through the raising of meritless issues during the approval process. Just as one example, Shire ViroPharma filed 43 unsupported petitions over a six-year period to block the generic competitor to its drug.
Can Congressional Efforts on Drug Spending Be Aligned with Administration Policy?
If enacted, this panoply of proposals would likely lower prescription drug costs for patients, possibly alleviate growth in government drug spending, and address some drugmakers’ anticompetitive behaviors. Congress is already taking some steps that align with these reforms.
For instance, the proposal to eliminate Medicaid misclassifications in the drug rebate program is similar to the Right Rebate Act of 2019 (S. 205 and H.R. 937), introduced in January by Sens. Chuck Grassley (R–Iowa) and Ron Wyden (D–Ore.), along with Reps. Kurt Schrader (D–Ore.) and Peter Welch (D–Vt.). House Speaker Nancy Pelosi (D–Calif.), meanwhile, has indicated that forthcoming drug pricing legislation will include steps to lower prices in Medicare as well as out-of-pocket costs paid by beneficiaries. Senate and House committee hearings have touched on a range of potential policy solutions to lower drug prices in Medicare, including some of those reflected in the president’s budget (as well as in our report, Getting to the Root of High Prescription Drug Prices: Drivers and Potential Solutions).
The president’s 2020 budget proposals for prescription drugs show the administration has identified areas of commonality, and that’s a positive sign it may be seeking bipartisan consensus with Congress to lower drug costs. But lowering prescription drug costs for all Americans will likely take broader, bolder action.
To meaningfully affect drug costs, Congress will have to address all of the known drivers of high prescription drug prices as part of its effort to reach bipartisan consensus.