President Trump unveils a Blueprint to Lower Drug Prices

On May 11, 2018, President Trump unveiled his Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs entitled “American Patients First”. The President emphasized lowering drug prices as one of his greatest priorities during the campaign and promised to use the federal government’s purchasing power to negotiate lower drug prices to protect consumers, in particular Medicare beneficiaries, from being ripped off by greedy drug companies.

While the administration has continued to discuss the problem of unaffordable drugs since the election, the Blueprint is the first concrete plan to improve affordability of drugs for Medicare beneficiaries. But is it merely a laundry list of ideas on how to reduce the list price of drugs or a concrete, step-by-step process of addressing a complex drug pricing system that has grown out of control for patients and payers? The Blueprint clearly does not call for direct government to drug manufacturer negotiations as a way to lower drug prices as discussed during the campaign, but does it provide a better way of using Medicare’s purchasing power by empowering private plans combined with changes to government-administered drug pricing formulas to accomplish the same goal as claimed by the Department of Health and Human Services (HHS) Secretary Azar after the President’s speech?

An analysis of the Medicare proposals in the Blueprint reveals there are a number of very specific proposals that could strengthen the ability of Medicare to tighten its purchasing power over many prescription drugs Medicare covers, however, there is a lack of a legislative authority to negotiate the costs of many of the more expensive Part B drugs used by a population with high drug chronic care needs and a lack of authority to implement a number of more aggressive purchasing strategies that would lower Part D costs. As background, Medicare covers outpatient prescription drugs under the Part D benefit, which uses private health and drug plans to negotiate discounts on behalf of their respective enrollees. Medicare also covers drugs under Part B that are administered by a physician in an office or outpatient setting and are paid with prices set through an administrative formula based on average sales prices and are not negotiated. Medicare also covers a smaller number of drugs under Part A in an inpatient setting.

There are a number of proposals included in the Blueprint the Administration could implement through its regulatory and administrative authority to lower the costs of the Part D program, although it should be pointed out that even changing regulations often involves a multi-year process of proposing regulatory changes, seeking comments, and finalizing the new policies. Subject to legal review, these could include the following:

• Updating Medicare’s drug pricing dashboard to make price increases and generic competition more transparent. It should be noted CMS has already updated the dashboard since the Blueprint was announced, and further updates would be expected.
• Giving plan sponsors more power when negotiating with manufacturers similar to the provision in the 2019 regulation that would allow mid-year substitution of generic drugs on formularies in response to a price increase. This could include prices for high-cost drugs that lack competition or drugs that do not provide rebates.
• Implement more measures to inform Medicare beneficiaries about lower-cost alternatives, e.g., improving the usefulness of the Part D Explanation of Benefits.
• Prohibiting Part D contracts from pharmacist gag clauses, e.g., preventing pharmacists from telling patients when they can pay less out-of-pocket by not using insurance.
• Permit Part D plans to pay a different price for a high-cost drugs based on the indication.
• Develop demonstrations to test innovative ways of encouraging value-based purchasing that would hold manufacturers responsible for outcomes and offer value over volume.

Additional proposals were included in the Blueprint to improve Part D that are more controversial and will most likely need Congressional action include the following:

• Reducing the minimum number of drugs per class or category in Part D formularies from two to one
• Excluding manufacturer discounts from out-of-pocket costs in the coverage gap and establishing an out-of-pocket maximum in the catastrophic phase of the Part D benefit
• Eliminating or further restricting drugs in the protective classes
• Eliminating cost sharing for generic drugs for low-income beneficiaries
• Requiring Part D plans to apply a substantial portion of rebates at the point of sale

A number of proposals in the Blueprint could improve the purchasing power of Part B. These include the following:

• Leveraging the Competitive Acquisition Program in Part B, e.g., allow physicians to obtain drugs from vendors approved through a competitive bidding process or directly purchasing drugs through the current average sales price method
• Finalizing a policy in which each biosimilar for a given biologic gets its own billing and payment code under Medicare Part B to incentivize development of additional lower-cost biosimilars

• Modifying the Wholesale Acquisition-cost based payment for Part B

More controversial proposals to improve Part B drug pricing that were included in the Blueprint will need new authorities:

• Leveraging Part D plans’ negotiating power for certain drugs covered under Part B by moving them to Part D
• Modifying site-neutral payment policy for physician-administered drugs under Part B or between inpatient and outpatient settings

Other proposals not specific to Medicare included in the Blueprint that could also reduce Medicare drug prices include the following:

• Using specific incentives that are yet to be defined to discourage manufacturer price increases
• Including list prices in advertising
• Speeding up Food and Drug Administration (FDA) approval of generic drugs
• Reviewing and modifying the role of patent exclusivity
• Considering the role and fiduciary status of Pharmacy Benefit Managers
• Measures to restrict the use of rebates and discounts and create incentives for manufacturers to lower list prices

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