Ah, the vexing problem of prescription drug prices. As a share of healthcare expenditures, prescription drugs account for about a dime for every dollar spent. And it’s been that way for a very long time. Yet, for patients, because coverage of prescription drugs is much less comprehensive than reimbursement for hospital and physician services they feel the pain of ever-rising out-of-pocket costs.
Launch prices of a number of high-profile treatments, for example, gene and cell therapies, have breached the $1 million mark. And, for branded drugs that are already on the market their list prices continue an unrelenting ascent while the growth in net prices of existing drugs remains stagnant. The gross-to-net bubble is alive and well.
So, what will the Biden Administration do? Less than you might think, at least initially. The Biden Administration is freezing a number of Trump era drug price reforms, initiated by the executive branch through executive orders and regulatory changes issued by the Department of Health and Human Services (HHS), pending further review. This includes a controversial drug rebate rule, and a requirement that Federally Qualified Health Centers pass along to patients the discounts they receive through the 340B program for insulin and epinephrine products.
On prescription drug prices, the Trump Administration certainly raised many issues in the 2018 HHS Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs. But in the end there wasn’t a lot to show for it with respect to actually moving the needle on list prices, rebates, and patient cost-sharing.
Maybe this was an intended consequence of the way our system of government is supposed to work. An executive order sidesteps the legislative process to attempt to accomplish certain policy objectives. However, executive orders may not go against what is considered “Congressional intent.” As such, they’re often deemed unlawful by federal courts.
or example, the Trump Administration’s last-gasp effort – a most favored nation model – to lower the prices of Medicare Part B drugs by pegging reimbursement to the lowest price drug manufacturers receive among a large group of Organization of Economic Cooperation and Development (OECD) nations, has been scuttled by a temporary court injunction.
Evidently, governing by fiat isn’t an optimal way to attain lower list prices for drugs. It also runs the risk of bumping up against a new Administration’s agenda. A case in point, on November 30th, 2020, the Department of HHS published a final rule that removes safe harbor protection for prescription drug rebates. This had the potential to be significantly impactful, particularly for Medicare Part D and supplemental rebates for Medicaid managed care. It would upend the current system and force 100% pass-through of rebates to Medicare beneficiaries at the point of sale. And, it was to go into effect in January 2022. But, now it is on pause, as the Biden Administration delays it until 2023 and perhaps indefinitely. The reasons for this are manifold. Perhaps the number one consideration is the fear that removal of rebates would raise premiums. Many experts have suggested that premiums would rise for a majority of Part D beneficiaries, if the rebate rule were to be implemented.
But unlike the Part D drug rebate and Part B drug executive orders, the Biden Administration may countenance Trump Administration efforts to increase drug price transparency. For the pharmaceutical market, the Trump Administration’s “Transparency in Coverage” final rule, released in December, requires that health insurers disclose current list prices and historical net prices for prescription drugs and provide patients with personalized estimates of cost sharing, such as co-payments and co-insurance.
Though increased transparency is not a direct pathway towards lower list prices, it could help. However, insurers and pharmacy benefit managers strongly oppose the rule, which they will likely challenge in court.
Moving forward, what gets done by executive order or Congress will depend on how the Biden Administration sizes up the legislative branch’s willingness to act in certain areas in which it has indicated a preferred path for prescription drug prices.
For instance, the Biden Administration may wish to amend existing law that currently bans Medicare from negotiating lower prices with drug manufacturers. Whether this could happen under an executive order, however, remains to be seen. Furthermore, it’s not at all clear that this would necessarily benefit patients. Part D plans have done a reasonably good job at keeping a lid on net costs. It’s the increase in list prices that has driven Medicare beneficiaries’ out-of-pocket costs higher; especially in the deductible phase, and in the coverage phase as a consequence of co-insurance being calculated on the basis of list prices.
Also, for Medicare Part D, during the campaign the Biden team suggested it would seek to set a ceiling for launch prices of all branded, biologic, and “abusively priced generic drugs” by referencing the average price of these drugs in other developed countries. At the same time, the Biden team proposed limiting Medicare Part D and public option drug prices through a tax penalty on drugmakers for hikes above the general inflation rate.
Several of these price containment measures are included in two recently drafted pieces of legislation – H.R.3 (Lower Drug Costs Now Act) and S.2543 (Prescription Drug Pricing Reduction Act) – which the Biden Administration may want to hitch a wagon to.
The Biden Administration will in all probability continue down the long and winding road taken by successive Administrations to modify the Medicare Part D benefit design, and could do so in collaboration with Congress. To illustrate, the House bill, H.R.3, introduced by Speaker Pelosi (D-CA), and the Senate bill, S.2543, sponsored by Senators Grassley (R-IA) and Wyden (D-OR), would establish much lower out-of-pocket spending caps for Medicare beneficiaries than presently exist. Equally important, both bills would drastically reallocate liability for catastrophic costs, from government to insurers; Part D and Medicare Advantage plans. These plans would then have to do a better job of containing costs in the pre-catastrophic phases, which could mean a more pro-active approach to negotiating prices with drug makers. Furthermore, the bills would require drug companies to pay a 20% to 30% rebate above the catastrophic threshold.
Both bills also aim to keep the annual growth of Medicare Parts B and D drug prices under the increase in the consumer price index. And, H.R 3 contains provisions for price controls that may partly align with the Biden Administration’s objectives concerning establishment of ceilings for launch prices of branded, biologic, and “abusively priced generic drugs.” H.R.3 isn’t just targeting launch prices of new products, and this could be a sticking point. Yet, both H.R.3 and the Biden Administration look to reference the average price of drugs in a select group of other countries with very similar Gross Domestic Products per capita, instead of the most favored nation approach – or lowest price among a large group of OECD nations – promulgated by the Trump Administration.
For those looking for inflammatory rhetoric on drug prices – like Trump’s “the drug industry is getting away with murder” – or executive orders calling for direct price controls, such actions are unlikely to come from the current Administration. Rather, it’s expected that a more methodical approach will be adopted, building on Congressional initiatives.