By Stephanie Trunk and Erin Atkins

This article first appeared on the Arent Fox LLP Health Care Counsel blog. 

Following delays and much build up, the White House and the Department of Health and Human Services (HHS) have released their plan to address rising pharmaceutical prices and out-of-pocket costs directly impacting patients.  The plan is known as the “American Patients First” program, as outlined in “The Trump Administration Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs” (the Blueprint).   As part of this, HHS has published a formal request for information (RFI) seeking public comment on the questions and issues raised in Section V of the Blueprint (summarized below).  Comments are due to HHS on or before July 16, 2018.  We encourage all interested stakeholders to utilize this opportunity to submit feedback to the agency.

One initial impression of the Blueprint is that many of the proposed solutions are not defined in great detail and will take time and agency (and in some cases Congressional) action in order to implement.  In addition, many of the solutions were previously articulated in President Trump’s 2019 budget, and do not reflect novel policy.  Additionally, many of the issues raised in the Blueprint are familiar to those actively engaged in or following the drug industry, but will require active engagement between HHS and the industry to refine and address.

Outlining Challenges and Solutions, Generally

The Blueprint seeks to address four major challenges that the White House believes impact the pharmaceutical market through both “actions that the President may direct HHS to take immediately,” and longer-term policy and regulatory development: “(1) high list prices for drugs, (2) seniors and government programs overpaying for drugs due to lack of the latest negotiation tools, (3) high and rising out-of-pocket costs for consumers, and (4) foreign governments free-riding off of American investment in innovation.”  How does HHS propose to combat these challenges?  According to the Blueprint, by improving competition, engaging in better negotiation, providing incentives to manufacturers to lower list prices, and engaging in actions that will lower out-of-pocket costs.

The main substance of the Blueprint is contained in Section IV, “Responding to President Trump’s Call to Action,” and Section V, “Further Actions Under Review and Opportunities for Feedback.”   Interestingly, Section IV – which in some portions of the Blueprint is referred to as containing “immediate actions” available to HHS – includes no specific timeframes for agency action and the strategies listed are described as actions “HHS may undertake…to the extent permitted by law.”  (Emphasis added.)  While some of the proposed actions can be implemented by the Centers for Medicare & Medicaid Services (CMS) or the Food and Drug Administration (FDA) via sub-regulatory guidance or policy memos, the idea that any of these proposals are “immediate” may be overstated.  Full implementation of some proposals will certainly require regulatory amendments subject to notice and comment rulemaking, or even Congressional action, which will give stakeholders an opportunity to comment as to how to implement various actions aimed at lower drug pricing and whether such efforts will be effective.  In addition, Section V consists of some twelve pages of open ended questions posed to the public and industry stakeholders, which appear to have been copied verbatim into the RFI to which interested parties may submit comments.

Notable Silence on Hot Button Issues

While we have summarized the substance of the Blueprint below, it is interesting to note several potential solutions that did not make their way into the final plan.  Most notably, the Blueprint does not contemplate giving HHS or CMS the blanket authority to negotiate directly with drug manufacturers, and also does not promote importation of cheaper drugs from other countries (i.e., Canada).

‘Immediate’ Actions Available to HHS

The Blueprint outlines the following “immediate” actions that HHS may undertake, categorized by specific strategies necessary to combat the four main challenges described in the plan.  However, the Blueprint does not indicate proposed timing for implementation.  Below, we summarize those actions, as well as comment on some of the potential impacts they may have.

 Improving Competition

  • FDA will issue guidance to address some of the ways in which manufacturers may seek to use shared system Risk Evaluation and Mitigation Strategy (REMS) to delay or block competition from generic products entering the market.

Potential impact: Branded drug manufacturers often use REMS to avoid selling their drugs to generic manufacturers who want to study the brand drug for purposes of filing an Abbreviated New Drug Application (ANDA).   It is unclear what the proposed FDA guidance would entail, and it appears Congressional action would be required to mandate the sale of drugs to other manufacturers that are potential competitors.

  • FDA will issue new policies to improve the availability, competitiveness, and adoption of biosimilars as affordable alternatives to branded biologics. FDA will also continue to educate clinicians, patients, and payors about biosimilar and interchangeable products to increase awareness in the industry.

 Better Negotiation

  • CMS would be directed to develop demonstration projects to test innovative ways to encourage value-based care and lower drug prices to hold manufacturers accountable for outcomes, align with CMS’s priorities of value over volume and site-neutral payments, and provide Medicare providers, payers, and states with additional tools to manage spending for high-cost therapies.

Potential impact:  Health outcomes and value-based contracting has picked up some traction in the commercially insured and Medicare Part D markets in recent years.  The Centers for Medicare and Medicaid Innovation (CMMI) could authorize demonstrations related to Medicare Part B drugs in a similar manner.   The CMMI also might authorize Medicaid demonstrations aimed at covered outpatient drugs, such as potentially permitting state Medicaid programs to utilize restrictive formularies to limit coverage of drugs in certain therapeutic classes in an effort to negotiate better net pricing for the drugs that remain on the Medicaid program formulary.

  • Allow Part D plans to adjust formulary or benefit design during the benefit year if necessary to address a price increase for a sole source generic drug.
  • Provide plans full flexibility to manage high cost drugs that do not provide Part D plans with rebates or negotiated fixed prices, including in the protected classes.

Potential impact:   This action could result in re-visiting drug coverage in the protected classes and moving away from the current two drugs per therapeutic class mandate to more limited formularies.

  • Update the methodology used to calculate Drug Plan Customer Service star ratings for plans that are appropriately managing utilization of high-cost drugs.
  • Allow high-cost drugs to be priced or covered differently based on their indication.

Potential impact: Indication based pricing is a concept that has been discussed for some time by proponents of drug pricing reform and has some adoption in the industry.  For example, pharmacy benefits manager Express Scripts, Inc. has negotiated different pricing and rebates for oncology products based on efficacy for the given tumor type/indication.   However, there are numerous legal challenges that could impact indication based pricing and such arrangements could negatively impact Medicaid Best Price. Operational challenges related to complying with diagnosis information presents another hurdle, as such information is not generally known by pharmacies dispensing drug products for self-administration.

  • Identify particular drugs or classes of drugs covered/reimbursed under Medicare Part B where there are savings to be gained by moving them to Part D.

Potential impact:  This would allow for Part D plans to negotiate pricing (including rebates) on Medicare Part B drugs and could in some instances lower beneficiary cost-sharing for such drugs.   In addition, it would likely result in certain Medicare Part B drugs not being covered, since Medicare Part D plans utilize formularies and must currently cover only two drugs per therapeutic class.  Also, implementation of this proposal would be challenging and would likely result in “drop shipping” drugs to a patient’s treating physician for administration, which could delay treatment.

  • Revive the Competitive Acquisition Program (CAP) for Part B Drugs & Biologicals to provide physicians a choice between obtaining Part B drugs and biologicals from vendors selected through a competitive bidding process or directly purchasing these drugs and being paid under the current average sales price (ASP) methodology.

Potential impact: The CAP was authorized under the Medicare Modernization Act of 2003 and was postponed by CMS on December 31, 2008.   The CAP is completely voluntary and most physicians elected not to participate and to continue to buy and bill for drugs administered to Medicare Part B beneficiaries under the ASP methodology.  It is difficult to imagine a different result under a revived system absent Congressional action to mandate CAP participation or create some sort of shared savings between the CAP vendor and prescribing physicians.

  • Work with the Department of Commerce, the S. Trade Representative, and the U.S. Intellectual Property Enforcement Coordinator to address the disparity between the drug prices in America and other developed countries.

Lowering List Prices

  • Require the inclusion of list prices in direct-to-consumer advertising.

Potential impact:  We anticipate that implementation of this goal will face strong opposition from industry, and will require further guidance from the FDA.  Guidance will be required to define “list price” in a way that will be accurate and meaningful to consumers.

  • Make Medicare and Medicaid prices more transparent, hold drug makers accountable for their price increases, highlight drugs that have not taken price increases, and recognize when competition is working with an updated drug pricing dashboard.

Potential impact:  Several states (Vermont, California, Nevada, Oregon) have enacted laws in recent years that require drug manufacturers to report specific metrics to state authorities (sometimes in advance of a pricing increase) justifying increases in the Wholesale Acquisition Cost (WAC) of their drugs over a specified period of time.  In most cases, the information disclosed to the state can and will be made publicly available. The proposed action from the Blueprint referenced here does not provide further explanation of how HHS would “hold drug makers accountable” or impose transparency requirements on manufacturers, but perhaps the Trump Administration intends to encourage Congress to pass legislation that might mirror and perhaps preempt some of the requirements currently in place on the state level.

  • Develop proposals related to the Affordable Care Act’s Maximum Rebate Amount provision, which limits manufacturer rebates on brand and generic drugs in the Medicaid program to 100% of the Average Manufacturer Price.

Reduce Patient Out-of-Pocket Spending

  • Prohibit Part D plan contracts from preventing pharmacists from telling patients when they could pay less out-of-pocket by not using their insurance (i.e., prohibit “gag clauses”).
  • Require Part D Plan sponsors to provide additional information about drug price increases and lower-cost alternatives in the Explanation of Benefits they currently provide their members.

Opportunities for Comment

As mentioned earlier, HHS has memorialized Section V of the Blueprint in an RFI seeking public comment and input on some 29 discrete topics related to drug approval, pricing, coverage, and reimbursement.  While many of the issues reflected have been previously debated and discussed by regulators, Congress, and industry for some time, there continue to be some interesting and potentially controversial topics, such as:

  • Whether additional steps should be taken to review FDA-mandated REMS requirements to prevent manufacturers from “gaming…distribution limitations to prevent generic developers from accessing drugs to conduct the tests that are legally required for a generic drug to be brought to market.”
  • Evaluation of whether rebates and fees paid to pharmacy benefit managers (PBMs) based on the percentage of a drug’s list price creates an incentive to favor higher list prices (and the potential for higher rebates) rather than lower prices. HHS also wants to know whether PBMs should be obligated to act solely in the interest of the entity for whom they are managing pharmaceutical benefits, commonly referred to as the “fiduciary duty requirement.” HHS seems to contemplate that payment or remuneration from manufacturers should be prohibited and PBM contracts be forbidden from including rebates or fees calculated as a percentage of list prices.
  • Should CMS consider restricting or reducing the use of rebates in federal health care programs? For example, HHS wishes to explore whether Medicare Part D should prohibit the use of rebates in contracts between Part D plan sponsors and drug manufacturers, and require contracts to be based only on a fixed price for a drug over the contract term. HHS seems to suggest that regulatory changes such as repealing the discount safe harbor could better restrict the use of rebates and reduce the effect of rebates on list prices, but Congressional action appears required to implement such a change.
  • HHS is also interested in understanding whether eliminating the requirement that manufacturer sponsored drug discount card programs be excluded from the determination of Average Manufacturer Price and Best Price would have an effect on drug prices. The government is also interested in exploring the circumstances under which it would be appropriate to allow beneficiaries of federal health care programs to utilize co-payment discount cards, despite concerns about the effects on list price and program integrity.
  • Not surprisingly, HHS seeks input regarding the 340B Drug Pricing Program (the 340B Program) and specifically wants to explore whether changing the definition of “patient” or changing the requirements governing Covered Entities contracting with pharmacies or registering off-site outpatient facilities (i.e., child sites) would help refocus the Program towards its “intended purpose.”

Ultimate Impact Unknown

While the Blueprint has certainly provided the industry with some insight into the Trump Administration’s current thinking about issues surrounding drug pricing, it is clear that there are few immediate steps ready for full implementation and there are no “fast fixes.” Pharmaceutical manufacturers and others participating in the pharmaceutical supply chain should seize the opportunity to submit comments to HHS on the Blueprint proposals to shape the continued conversation about drug pricing.

If you have additional questions or comments, Stephanie Trunk or Erin Atkins.

Stephanie Trunk is a Partner and Co-Practice Group Leader of Arent Fox’s  Health Care practice group, and focuses her practice on counseling pharmaceutical and device manufacturers, distributors and their customers, including pharmacy benefit managers, on policy, regulatory, reimbursement and compliance matters. Her practice extends to counseling on drug pricing and government price reporting, HIPAA and privacy matters, counseling on Medicare Part D, and developing corporate compliance programs.

Erin Atkins is an Associate in the firm’s Health Care practice, and is also a member of the North Carolina Bar and the NCBA Health Law Section.  Erin’s practice focuses on counseling pharmaceutical and device manufacturers and their customers on statutory and regulatory compliance, reimbursement, transactional issues, and policy matters related to the Medicare, 340B, and Medicaid programs. Erin also provides her clients with fraud and abuse counseling under the federal Anti-Kickback Statute.