On November 20, the Trump administration released two late-term rules to make good on a promise to address drug pricing. The so-called Most Favored Nation (MFN) rule, also called international reference pricing, would establish a mandatory seven-year demonstration starting in 2021 that would tie prices for drugs under Medicare Part B to lower prices in other countries. The second rule would effectively ban rebates from Medicare Part D in order to force pharmacy benefit managers (PBMs) and insurers to pass along discounts from manufacturers to patients at the point of sale rather than using those rebates to lower overall premiums or provide other benefits.
The future of both rules is uncertain; the industry has pledged to fight them. The pharmaceutical industry opposes the MFN rule and PBMs oppose the rebate rule. They plan to challenge the legality of the rulemaking process; they also claim the demonstration exceeds the Centers for Medicare and Medicaid Services’ (CMS) authority to test new payment models.
These rules reflect only two of many approaches to increase drug affordability. Comprehensive drug reform will require a broader set of policies to improve transparency, address misaligned and perverse incentives, and foster competition. When President-elect Biden takes office, he will have several options to fight unaffordable drug prices.
If these rules survive their legal challenges, the Biden administration could fully implement them as a first step toward addressing drug prices. Or the administration could rescind the rules in favor of other policies.
One option is to pursue drug legislation, a bipartisan priority of the past several years. Last year, the House passed legislation that was never taken up by the Senate; this could serve as a starting point for negotiations. Key aspects of the proposal include international reference pricing coupled with government negotiation of drug prices, along with Medicare Part D reform that would decrease patient cost burdens. In addition, a bipartisan bill was introduced and passed by the Senate Finance Committee, which also would reform Part D while capping price increases and promoting transparency. Lastly, the Senate Judiciary Committee unanimously approved a bipartisan bill that would curb abuses of the patent system used to block competition.
In addition to working with Congress, the Biden administration could issue new rules as part of a broader strategy to address high drug prices. Beyond international reference pricing and rebates, the administration could employ two approaches.
First, promoting the uptake of lower-cost, highly effective drugs would save money immediately for patients through lower out-of-pocket costs. This could be done, for example, by updating the Medicare Part D formulary rules to require plans to add generic and biosimilar drugs to their formularies as soon as they come to market and favor them, through formulary management or copayments, over costlier reference or biologic drugs. Another option is creating a shared Medicare Part B reimbursement billing code for both a reference biologic and all corresponding biosimilars. This policy could reduce the buy-and-bill incentives that can encourage the prescribing of high-cost reference products and instead reward the prescribing of lower-cost biosimilars. CMS also could test new reimbursement options to encourage clinicians’ use of lower-cost biosimilar products when they are available. Lastly, Biden supports efforts to move toward value-based payment that improves coordination and outcomes and decreases overall costs. Such payment arrangements could include Medicare Part D spending in total cost-of-care calculations to drive the prescribing of high-value drugs.
A second, longer-term option would be to fight patent and exclusivity abuses that create extended monopolies and block competition, enabling high prices and unsubstantiated price increases over time. By using existing U.S. Patent and Trademark Office (USPTO) and Federal Trade Commission (FTC) oversight, the administration could take on patent gaming. While these changes would not lead to large savings in the short term, they are critical to long-term affordability.
To minimize the number of invalid patents granted, the administration could increase the scientific expertise of USPTO examiners to allow them to review patents with greater efficiency, give examiners more time to review applications, and limit the number of repeat applications filed for the same invention. They also could challenge anticompetitive practices by maximizing the use of the USPTO Patent Trial and Appeal Board and prioritize funding for the FTC to challenge patent settlement rules and to review settlements. Lastly, the administration could reform the citizen petition process to prevent abuses that prevent the entry of generic drugs to market.
The causes of high drug prices are complex and multifaceted. Addressing them to ensure that patients have access to and can afford prescription drugs will be challenging. Using the full scope of its power and oversight, the Biden administration can make a difference in drug spending in both the short and long term.
For more on Congressional and administrative options for addressing high drug prices, see Getting to Lower Prescription Drug Prices: The Key Drivers of Costs and What Policymakers Can Do to Address Them and Commonwealth Fund Task Force on Payment and Delivery System Reform: Six Policy Imperatives to Improve Quality, Advance Equity, and Increase Affordability.