Trump Administration Alarms PBMS with First Drug Pricing Initiative
The Department of Health and Human Services (HHS) issued its blueprint for dealing with the high price of prescription drugs in May, and the administration is finally undertaking a number of initiatives to operationalize the proposals. So far, as seen from the updates below, the proposals will have the biggest impact on pharmacy benefit managers (PBMs) and payers.
Voluntary Price Drops
Several weeks ago, President Trump tweeted that Pfizer was not following the intent of the blueprint and actually met with the Pfizer CEO at the White House to put pressure on the drug company to delay price increases. As a result, Pfizer will delay price increases on 40 drugs from July until early in 2019. Last month, Novartis postponed a price increase for its autoimmune drug Cosentyx in response to California’s new drug transparency pricing program. The Novartis CEO also announced this week the company would not have further price hikes this year after it raised prices for three costly cancer therapies a few weeks ago. Another major manufacturer, Merck, announced a 60 percent drop in the price of its hepatitis C treatment Zepatier and will make 10 percent pricing cuts to some other products. News sources report, however, HHS Secretary Azar is not counting on these voluntary actions, “We’re driving swift, firm regulatory action and legislative action that’s going to create every incentive to bring prices down in this country.” A deeper investigation by reporters also found these price decreases were mostly illusory, however, they do show drug companies are working with the administration and likely have no reason to fear future HHS proposals. This brings us to HHS’ first significant proposed rule, currently under review at Office of Management and Budget (OMB).
The End of Rebates As We Know It?
The Office of Inspector General sent a proposed rule to OMB to change the current safe harbor protection for manufacturer rebates paid to insurers and PBMs and establish a new safe harbor rule. Naturally, the proposed rule indicates it would have a substantial impact on the industry of over $100 million. While we don’t have details on the proposed rule at this time, Azar previously testified to Congress he was considering prohibiting rebates to PBMs because, in his view, PBMs whose role is to negotiate discounts can actually benefit from higher list prices. The Pharmaceutical Care Management Association which represents PBMs noted two studies, one from the OIG that found reducing or eliminating the safe harbor for rebates and other discounts would not reduce drug prices. The Pharmaceutical Care Management Association (PCMA) also challenged HHS’ authority to change the safe harbor requirements without congressional action. Depending on the severity of the new rule, a change in drug rebates could have immense implications for PBMs and insurers. It is also unclear which programs the new rule would impact. As Thomas Johnson, Gorman Health Group’s Medicaid expert, noted, “For Medicaid, the drug rebate has been crucial in encouraging states to use Medicaid managed care.”
Drug Importation?
In a third effort to reduce drug costs, the Food and Drug Administration (FDA) announced it will create a working group to explore drug imports to curb drug prices. The FDA will initially focus on imports of drugs when there is a sharp price increase in the U.S. for an off-patent drug produced by a single manufacturer. The Washington Post noted responses from stakeholders that such a limited response would not address the overall trend of increasing drug prices for brand name drugs.
The blueprint talked about increasing competitive pressures for drug prices to come down and the actions this week between the administration and the pharmacy manufacturers and PBMs suggest jaw-boning at least before the election may have an impact even if only temporary and symbolic. However, it should be noted proposed regulations like changing the safe harbor for rebates take months to get to a final rule and the voluntary price reductions are also only temporary – until the end of the year and after the election. The FDA working group will also take time to agree on a strategy to curb imports of drugs that have not been previously approved by the FDA.
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