The Drug Pricing Debate: Sizing Up Recent Actions and What May Come Next
What goes up must — or rather, should — come down.
Such is the thinking of the Trump administration when it comes to prescription drug pricing, at least. Over the past five years, 12 of the 20 most commonly prescribed brand-name drugs have seen price increases of more than 50 percent.
To date, most of what we’ve seen from the federal government is messaging and some initial proposals, with the majority coming from the administration. Congress, for its part, has initiated a series of drug pricing hearings and begun introducing meaningful legislation. The result is a wide array of policy alternatives, some of which stand a chance of being enacted.
The Current Landscape
The administration’s clearest statement so far is its drug pricing blueprint, which provides an explanation for rapid price increases as well as potential solutions. But the blueprint’s lofty proposals stand in contrast to what’s transpired since its publication last May.
The administration has finalized some measures, such as the Food and Drug Administration’s (FDA) efforts to create wider pathways for generic drug approvals and a series of final regulations that align with priority areas. For example, the administration reduced the Medicare add-on payment for new drugs covered under Part B (a reimbursement to physicians on top of Medicare’s payment for the drug acquisition cost) and also lowered reimbursement for hospitals within the 340B program (though a federal district court ruling puts this change into question). The imminent departure of FDA Commissioner Scott Gottlieb, however, creates unwelcome uncertainty about the continuation of the administration’s efforts to bring down prices through greater competition from cheaper generic and biosimilar drugs. (More on the implications of Gottlieb’s exit in a future post.)
Most of the administration’s other actions take the form of proposed regulations that are much more ambitious in scope. However, they face strong opposition from stakeholders, raising doubts about whether they’ll be finalized. Most notably, the Centers for Medicare and Medicaid Services (CMS) released an advance notice of proposed rulemaking outlining a comprehensive strategy to reduce payment for drugs administered in physician offices under Medicare Part B. Called the International Pricing Index, the new policy would establish a mandatory demonstration, through CMS’s Innovation Center, to phase in caps on Medicare reimbursement for these drugs based on prices paid internationally.
With regard to Part D prescription drug plans, the administration has proposed several measures to mandate greater pricing transparency, encourage competition among available therapies, and augment plans’ negotiating powers. Part of this proposal homes in on Medicare’s six protected drug classes, a group of therapies for high-risk patients that plans are required to cover, with some exceptions. As written, the rule would loosen coverage requirements for these classes, opening the door for plans to expand their use of utilization management tools like step therapy and prior authorization. The proposal also would allow plans to exclude a protected-class drug from formularies if it doesn’t represent a significant improvement upon an older version of the same drug, or if the list price has increased dramatically.
More recently, the U.S. Department of Health and Human Services proposed a rule that would eliminate drug manufacturer rebates paid to health plans and pharmacy benefit managers under Medicare and Medicaid, which some argue contribute to high list prices. Instead, the rule would encourage manufacturers to offer discounts to beneficiaries themselves, at the point of sale.
Even if the proposed rule is finalized, it remains to be seen whether consumers will see substantial benefit. Some analysts believe certain beneficiaries may see premium increases that exceed out-of-pocket savings. Moreover, the proposal does not extend to consumers with employer-sponsored health insurance.
While congressional interest in drug pricing has gained momentum in the form of hearings — four held since January and two more this week — there has been less legislative action overall. Last year, Congress did prohibit gag clauses in pharmacy contracts, which prevent pharmacists from informing customers when a cheaper option exists. And the Senate unanimously consented to an amendment requiring drug manufacturers to include pricing information in direct-to-consumer advertisements. Both measures echo the administration’s proposed regulations.
Congress also advanced another measure, the CREATES Act, which aims to prohibit tactics employed by some drug makers to delay competition from generic manufacturers; the bill awaits final disposition. Other measures regarding pay-for-delay settlements and Medicare drug price negotiation have been introduced but not yet reviewed by relevant committees.
Congress will continue to hold more hearings on drug pricing, but consequent action from these will take time to unfold. In the meantime, the Trump administration will have to navigate the considerable opposition to its proposed rules and decide whether and how to finalize them. We also may see more work on value-based payment reform, as the administration continues to approve waivers and pilot programs that give insurers and manufacturers greater flexibility to engage in value-based contracting under Medicaid (see Oklahoma, Michigan, and Colorado) and Medicare Part D.
In the Democratic House, there may be more proposals to complement the regulatory agenda, such as requiring that manufacturers disclose their spending on research and development and reasons for price increases, as well as providing Part D insurers with greater power to negotiate prices. More far-reaching proposals — such as a bill from Sen. Elizabeth Warren (D-Mass.) allowing the federal government to manufacture generic drugs — may grow more commonplace, especially as the 2020 election approaches.
Though much has been said on the topic, the public does not yet have the solutions to high drug prices it has been demanding, under either law or regulation. However, there’s now a spate of proposals for stakeholders to respond to, and Congress has begun stepping up its role. Time will tell whether this momentum will generate the gravitational pull needed to bring prices down to earth.