It’s no secret that the pricing model for prescription drugs in the U.S. is highly convoluted and difficult to explain to anyone outside the pharmacy supply chain. It’s also true that the end result of this complexity and lack of transparency results in higher prices for payors and patients here than in other countries.
With President Trump’s latest proposed executive orders on drug pricing, we are once again reminded that what sounds good as rhetoric is often less promising when viewed against the reality of the current system. We’ve never suffered from a shortage of ideas about how to fix the system; however, every solution requires deep analysis to understand the downstream effects and unintended consequences. Additionally, these executive orders are subject to extensive rule-making processes that include public comment periods and potential legal challenges. As a result, we expect minimal, if any, impact in the current calendar year.
However, we do see glimmers of hope in the ideas that are being planted, and in the spotlight these orders shine on a problem that must eventually be addressed. Here, we’ll take a closer look at each executive order to understand its desired effect and offer our own take on the actions needed to affect meaningful pricing impact for patients.
What it is: With this order, President Trump is ordering the Secretary of Health and Human Services to require 330 grantees (federally-qualified health centers, or FQHCs), to provide insulin and injectable epinephrine at a cost equal to the 340B price plus a small administrative fee to low-income patients with no insurance, a high unmet deductible or a high cost-sharing requirement for these medications.
The challenges: It is unusual for an action targeting the 340B program to be aimed only at FQHCs. In a statement from the National Association of Community Health Centers (NACHC), President and CEO Tom Van Coverden said, “By law, regulation, and mission, every penny that health centers save through 340B discounts is used either to make medication affordable for low-income patients, or to support other activities that expand access to care.” However, attorney Helen Pfister, partner at Manatt, Phelps & Phillips, explained in a statement to 340B Report that this is likely due to recent challenges to the authority of the Health Resources and Services Administration’s (HRSA’s) over the 340B program. By limiting the scope of this order to FQHCs, it is enforceable strictly through Health and Human Services’ (HHS’s) authority to issue Section 330 grants. While clearing up this point, she raises another area of confusion: “It’s not clear whether the Executive Order would apply only to insulin and injectable epinephrine provided by FQHCs directly to their patients, or whether it would also apply to 340B purchased insulin and epinephrine dispensed to FQHCs through contract pharmacies. If the latter, that would expand the universe of patients who would be able to obtain insulin through FQHCs.”
Our take: No one can argue that paying roughly $500 a month for insulin or $400 per epi kit is reasonable for these critical medications. The cost of insulin has tripled over the last decade. And even after the shocking cost increases for epi pens grabbed headlines in 2016, and some generic alternatives were brought to market as a result, the price for these emergency rescue injectors remains high, at an average cash price of $399 for a kit with two pens. The answer here is not to target the providers prescribing these life-saving meds – but to work with manufacturers to price them appropriately.
What it is: This order is requesting that the Food and Drug Administration (FDA) and HHS finish the rulemaking process they started last year to allow for the importation of certain prescription drugs from Canada.
The challenges: The challenges here are mainly related to the willingness of the stakeholders to comply. It’s predicted that resistance from Canada, as well as drug makers, could disrupt inventory and impact the supply chain. More importantly, the FDA’s own economic analysis is unable to prove a cost savings. Their regulatory impact report on the proposed rule, titled “Importation of Prescription Drugs,” states: “We are unable to estimate the cost savings from this proposed rule, as we lack information about the likely size and scope of SIP programs, the specific drug products that may become eligible for importation, the degree to which imported drugs would be less expensive than non-imported drugs available in the U.S., and which SIP eligible products are produced by U.S. drug manufacturers.”
Our take: It’s nonsensical that in a country that is home to many of the world’s leading drug manufacturers, we would have to ship in drugs from across the border in order to make them affordable to our own citizens. But with limited negotiating power on pricing when pitted against the deep pockets of drug manufacturers, health plans and PBMs have few options for lower costs, and individual patients have none. As the system currently operates, Americans continue to subsidize drug costs for the world, as is the case for the potential COVID-19 treatment, remdesivir. Despite a $99 million taxpayer investment to underwrite its development, it will cost American taxpayers $130 more per vial than it will cost anywhere else in the world.
What it is: This order is requesting that HHS finish the Rebate Rule introduced in 2019 that seeks to direct all manufacturer rebates on prescription drugs directly to patients at the point of sale. There is one new caveat: the new executive order requires the HHS secretary to ensure that any final rule will not increase premiums or federal spending. We shared our detailed thoughts on the original rule and its impact last year.
The challenges: Industry stakeholders are in agreement that the new proviso guarantees that the rule will not be finalized, as financial analysis by the Centers for Medicare and Medicaid Services (CMS) included in the proposed rule showed that the proposed policy changes would raise both beneficiary premiums and federal spending. Research from the CMS’s Office of the Actuary (OACT) showed that the rule would cost taxpayers $196 billion over 10 years, reduce costs for manufacturers by nearly $40 billion over 10 years, increase revenue for drug manufacturers and result in slightly higher net drug costs for plan sponsors and beneficiaries. In addition, Medicare beneficiaries would experience an overall cost increase, as any drug savings would not be enough to offset the higher premiums required under this model.
Our take: The idea of rebates tends to conjure up the stink of “kick-backs” and shadowy goings-on behind the scenes. But across our client base, we see PBMs, health plans and plan sponsors generally working together within this convoluted system to keep premiums as low as possible for plan members. While removing rebates would simplify the pricing model and provide greater transparency, it’s likely it would also raise premiums for consumers – at least in the short term as the market adjusts.
The Fourth Executive Order (aka The One We Have Yet to See)
What it is: President Trump has spoken of a policy that would cap U.S. drug prices based on what other countries pay for the same drugs. But for now, that plan is on hold while drug makers take 30 days to produce their own alternative plan for reducing drug prices.
The challenges: While launch prices are a major driver of high costs across the pharmaceutical supply chain, drug companies have also found other ways to increase costs for patients, including me-too drugs (a new formulation or strength of an existing drugs, introduced at an exponentially higher price point), high-cost, low-value drugs (new dietary supplements or combinations of OTC medications designed to steal market share) and high-cost generics (often resulting when a manufacturer has a monopoly). Plan sponsors, health plans and PBMs must continually monitor their drug spend and take action to steer members toward more cost-effective, clinically-appropriate options to avoid wasted drug spend. It remains to be seen whether the new executive order will provide safeguards to improve transparency into these marketing schemes and protect patients from unnecessary costs.
Our take: The biggest opportunity for meaningful change in drug pricing lies with implementing value-based pricing methodologies, where drug prices appropriately reflect long-term, improved patient outcomes. This is especially important to the launch price of the drug.