On May 11, the Trump Administration released the ‘American Patients First’ Blueprint[1] to tackle the rising cost of drugs, with major impacts to pharmaceutical companies and pharmacy benefit managers. Department of Health and Human Services (HHS) Secretary Alex Azar noted, “When it comes to the cost of prescription drugs, our healthcare system faces four major challenges:

• High list prices for drugs;
• Seniors and government programs overpaying for drugs due to lack of the latest negotiation tools;
• High and rising out-of-pocket costs for consumers; and
• Foreign governments free-riding off of American investment in innovation.”[2]

 

HHS has proposed the comprehensive Blueprint for addressing these challenges and identifying four key strategies for reform

• Improving competition;
• Better negotiation;
• Incentives for lower list prices;
• Lowering out-of-pocket costs.[3]

 

The Blueprint encompasses two phases for addressing these challenges:

 

1. Actions the President may direct HHS to take immediately” (or “immediate actions” for short); and
2. Actions HHS is actively considering, on which feedback is being solicited” (or “further opportunities”).[4]

 

The plan builds on elements included the President’s drug pricing proposals from the Fiscal Year 2019 Budget for HHS (HHS Budget)[5], which includes a five-part plan to restructure the Part D program to reduce drug costs. The budget includes proposals to apply rebates at the point-of-sale, cap patient out-of-pocket spending in catastrophic coverage, exclude manufacturer coverage gap discounts from patient true out-of-pocket costs, increase Part D formulary flexibility, and eliminate cost sharing on generic drugs for low-income beneficiaries.

 

Additionally, HHS, along with CMS[6] and FDA[7], explained how they expect to execute the plan aimed at curbing drug prices in the U.S.

 

• Modify rebate rules: As Azar explains it, the entire structure of the pharmacy benefit management industry is based on a safe harbor from the Anti-Kickback Statute that allowed rebates from drug companies.

 

“It is a very perverse incentive structure where the PBM actually can benefit from higher list prices when what they are negotiating are rebates,” Azar said. “Those rebates are based on a percent of the list price. If the list price goes up in the middle of the year after the pharmacy benefit manager has fulfilled any downstream guarantees to their downstream customers, that is profit.”

 

Since Azar and the HHS have authority over the Anti-Kickback Statute, he’ll be working with the Department of Justice (DOJ) to examine how the safe harbor could be “modified in the same way it was created,” he said.  He added that he imagines a model where PBM contracts are required to based on a fixed-price. “It obviously could be applicable as part of Part D under our authority under the anti-kickback statute.”

 

• Medicare negotiating power: the administration will issue a request for proposal to make new use of an alternative system for buying Part B drugs called a Competitive Acquisition Program and has called for HHS to merge Medicare Part B into Medicare Part D, which does have a system for negotiating prices.

 

However, the PCMA raised concerns that the changes to Medicare Part D would likely run counter to the stated goals and actually raise costs for seniors.[8] said in a statement earlier this year.

 

• Increase price transparency: CMS and FDA are examining how to require drug companies to advertise their list prices in direct-to-consumer advertising campaigns. For starters, they plan to send a letter immediately to pharmacy benefit managers telling them they find unacceptable the use of so-called “gag rules” which block pharmacists from being able to tell patients how to save money without using their insurance.

 

For example, the FDA will begin acting quickly to bring more generics and biosimilars to the market to address competition issues. The Administration plans to pursue ways to encourage sharing samples of generics and education on biosimilars to encourage more physicians to promote them.

 

Another area of particular focus is “foreign freeloading.” The U.S. pays for 70% of the profits of branded drugs among OECD countries[9] because many have government-run health systems that pay one price for drugs, senior administration officials said. Prescription drug prices have skyrocketed in recent years, especially prices of brand-name drugs, which have grown at 10 times the rate of inflation over the past five years, according to a congressional report.[10]

 

On May 14, HHS released a request for information (RFI)[11] on the Blueprint. In addition to setting forth the same four “challenges” in the US drug market and identical plans, the RFI also includes a new section titled “Additional Feedback.” There, HHS solicits any other suggestions to “improve the affordability and accessibility of prescription drugs” and comments regarding regulatory burdens posed by current and/or proposed drug pricing rules.[12]

 

Author Bradley Byars

Co-Author Shairoz H. Virani

 

Related Articles:

HHS looks to alter 340B patient definition, regulatory authority for drug pricing initiative;

 

Trump targets Medicare, PBMs in plan to lower drug prices;

 

To help digest the Blueprint, a summary that highlights key issues has been prepared. (See here.)

 

[1] American Patients First: The Trump Administration Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs (“Blueprint”).

[2] Blueprint at 5, 9.

[3] Blueprint at 9.

[4] Blueprint at 9.

[5] 2019 Presidents Budget for HHS–Budget in Brief (Feb. 19, 2018).

[6] With Seema Verma, the 15th Administrator of the Centers for Medicare and Medicaid Services (CMS) since March 14, 2017 (https://www.cms.gov/About-CMS/leadership/).

[7] With Dr. Scott Gottlieb, the 23rd Commissioner of Food and Drugs (FDA), since May 11, 2017 (https://www.fda.gov/aboutfda/centersoffices/ucm557569.htm).

[8] Pharmaceutical Care Management Association (PCMA) Statement on Health Care Proposals (Feb. 9, 2018).

[9] The Organization for Economic Co-operation and Development (OECD) is an intergovernmental economic organization with 35 member countries, founded in 1961, to stimulate economic progress and world trade.

[10] Brand name drug prices grew 10 times faster than inflation over last 5 years, report finds.

[11] HHS Blueprint to Lower Drug Prices and Reduce Out of Pocket Costs (May 14, 2018).

[12] HHS scheduled the RFI for publication in the Federal Register on May 16, and comments will be due on or before July 16.