On September 9, 2021, the U.S. Department of Health & Human Services (HHS) published their Comprehensive Plan for Addressing High Drug Prices.  This plan was established in accordance with an executive order from President Biden and focuses on three principles:

1. Make drug prices more affordable and equitable
2. Improve and promote competition
3. Foster innovation to promote better health care and improve health

This review will focus on certain ideas from the HHS Plan and does not opine upon every specific target action.

HHS Drug Rebate Negotiation

One focus of the report is the legislation that currently prohibits the HHS Secretary from negotiating directly with drug manufacturers for Medicare rebates.  The report briefly describes how this portion of the law and Medicare program contrasts with the Veteran’s Affairs (VA) drug procurement program and mandatory rebates in Medicaid.  The report indicates that HHS could negotiate lower prices (greater rebates) that reduce patient out-of-pocket costs and premiums; those lower prices could be extended to employer coverage, the ACA marketplace, and other individual market health coverage.  This description lacks the detail to answer questions around how this potential change would impact the current commercial pricing and administration system, i.e., what could be the unintended consequences of this action?

In the current Medicare Part D system, drug manufacturer rebates are negotiated through plan sponsors/PBMs and passed on to the Centers for Medicare & Medicaid Services (CMS).  If the HHS Secretary were to gain the ability to negotiate drug rebates, how might this impact Medicare Part D plan sponsors?  PHSL has identified the following four scenarios:

1. HHS/CMS intervention would dictate formulary selections and limit options for plan sponsors to differentiate between covered drugs, making most plans very similar and reducing the plan options to beneficiaries
2. HHS/CMS continues to permit unique formularies, and lower pricing would only be invoked when CMS rebate is greater than the plan obtains
3. New HHS rebates may be a supplemental rebate for CMS only, permitting unique plan sponsor formularies
4. New HHS rebates may be a required rebate on all negotiated drugs, similar to the Medicaid Rebate system, permitting unique plan sponsor formularies and cost profiles

Proposals being discussed are focused on limiting negotiations to 10 drugs in 2025 and increasing to 20 drugs in 2028.  The maximum price Medicare pays would be the non-federal average manufacturer price.  The focus will be the top 50 high-cost drugs but exempts small-molecule drugs for their first 9 years and biologic drugs for their first 13 years after approval or licensure.  The implementation and impact to Medicare Part D plan sponsors is still unclear.

For Medicare Part B, where there are no current rebates and no current method to direct treatment to discounted options (formulary and utilization management), PHSL sees two main options for HHS to lower drug prices through negotiation:

1. Allow formulary/utilization management edits in Medicare Part B to direct therapy to lower cost drugs (due to newly negotiated rebates)
2. Require mandatory rebates on all negotiated drugs, similar to the Medicaid Rebate system

Lowering costs for Medicare Part B has already encountered one hurdle, as the U.S. House of Representatives Energy and Commerce Committee did not pass this legislation. The debate continues in the House Ways and Means Committee and in the Senate.

Biosimilars and Generics

The HHS plan also advocates for reforms to reduce delays and barriers to introducing additional competitors, including generics, biosimilars, and competing brands prior to generic entry.  PHSL agrees that generics, biosimilars, and competing brands all offer competition and help to reduce net drug prices to payers, pharmacies, and patients.

The HHS plan advocates for the FDA to work with the Federal Trade Commission (FTC) to identify and address efforts by parties to impede generic and biosimilar competition.  This is already an existing function of the FTC, but any efforts to streamline the process and curtail false, misleading, or deceptive statements about generic and biosimilar products could have a meaningful impact.

Drug Pricing

There are several points focused directly on drug pricing, including an idea to stop unreasonable price increases by applying an excise tax.  This is a general action that would impact all stakeholders (payers, pharmacies, and patients) and would be opposed by drug manufacturers.  This option does not impose price restrictions and continues to permit drug price changes with taxes/penalties for larger price increases.  We would expect this provision to be challenged in court by the pharmaceutical industry.  What other industries face an excise tax based on their pricing behavior?  Why is the government targeting the pharmaceutical industry?

Specifically for patients, the plan describes caps on catastrophic and out-of-pocket spending, using an example for insulin products.  Depending on the implementation of this option, government and payer costs could increase, unless price concessions are shared by manufacturers to offset the difference between the previous uncapped patient cost and the new capped patient cost.

There are current efforts to increase price transparency, which allow market pressure to be exerted to influence prices.  The discussed legislation would require many health plans to annually report currently confidential information about prescription drug and other medical costs to the Departments of HHS, Labor, and the Treasury.  This information will inform leadership, and potentially the public, on prices experienced in the market.  Similarly, CMS is also implementing Affordable Care Act (ACA) provisions that require issuers of Marketplace plans or their PBMs to provide drug, rebate, and spread pricing information.

Testing New Models

The report also notes that the Medicare Part B payment methodology may be a potential area to test new models to determine if drug savings can be achieved.  The report identifies that a single payment limit, applicable to the reference biological product and the biosimilar product(s) of that reference biological product, could spur price competition and drive down average sales prices (ASP) for all products included in the payment limit calculation, resulting in savings for Medicare and supplemental insurers.

Conclusion

The HHS plan offers many targets to impact competition and drug pricing.  It offers a guide for legislators and policy makers to investigate and consider.  The probability of implementation and impact will vary for each target.  PHSL has reviewed several of these options and proposes some alternatives where a more meaningful impact could be achieved.  Of the options that PHSL has reviewed, which do you think are most likely to occur?

 

Posted January 5, 2022

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