Despite vigorous criticism of high drug prices from the public and politicians in both parties, drug companies have largely dodged bullets on drug pricing and payment reform. In 2018, Trump’s Department of Health and Human Services (HHS) released its Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs, but the edifice envisioned by the Blueprint largely failed to materialize. A proposal to move specified high cost drugs from Medicare Part B to Part D coverage to take advantage of formulary controls to negotiate better drug prices was never acted upon. A final rule to establish a Most Favored Nation model to base Medicare drug payment on international prices was enjoined by two federal courts, and HHS recently proposed to rescind the rule (see our post here). A final OIG rule to change the structure of manufacturer rebates to Medicare Part D and Medicaid Managed Care plans and their PBMs is enmeshed in litigation and is likely to be at least postponed until 2026 (see our post), and perhaps prevented from implementation altogether, by Congressional mandate. A May 2019 CMS final rule that would have required drug TV advertisements to disclose the WAC of the drug was challenged by a group of pharmaceutical companies and vacated on statutory grounds by the D.C. Court of Appeals (again, see our post).
Although drug manufacturers emerged from the Trump era relatively unscathed, a reckoning is almost certainly at hand with Congress and the Administration controlled by Democrats. The pieces of major drug pricing and payment reform are falling together. Today we offer the article below on one of those pieces: an HHS report released to the public last Thursday outlining the Biden Administration’s strategies on drug pricing and payment reform. Tomorrow, our post will focus on the second piece: the drug pricing provisions of the House’s budget reconciliation bill (the Build Back Better Act), also released last Thursday and currently undergoing committee markup. The third piece – the drug pricing provisions being developed for inclusion in the Senate version of the budget reconciliation bill – will be the subject of future articles here.
White House Drug Pricing Plan Offers Laundry List of Existing Democrat Priorities
As we await Congressional drug pricing reform proposals through the House and Senate budget reconciliation process, and a House of Representative vote on the infrastructure bill (both expected this month), the Biden Administration has published its own wide-ranging list of policy proposals to reduce drug prices and drug payment. Last Thursday, the U.S. Department of Health and Human Services (“HHS”) released a “Comprehensive Plan for Addressing High Drug Prices” (the “Plan”), which it had submitted to the White House last month in response to President Biden’s July 7, 2021 Executive Order on Promoting Competition in the American Economy. The Plan is the Biden Administration’s answer to the Trump HHS’ 2018 Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs, except that the Plan relies to a much greater extent on Congress to implement its principles.
The Plan identifies “a lack of competition” as a key driver for rising drug prices and promises a strategy “for equitable drug pricing reform through competition, innovation, and transparency.” The actual policy proposals read like a wish list. It outlines a host of legislative and administrative strategies and policy proposals aimed at reducing drug prices. Readers following drug pricing activity will recognize several strategies already associated with Senate Democrats (e.g., Medicare negotiation authority; encourage biosimilars and generic drug utilization).
The HHS plan’s proposals are defined in general terms, without estimates of taxpayer savings or timelines. Some proposals indicate what to expect in the Senate Democrats’ budget reconciliation package while others show the Biden Administration drawing its lines in the sand on its policy priorities for the remainder of this term. Below, we summarize the key proposals of the HHS plan.
- Drug Price Negotiation to Benefit Medicare and Commercial Plans
One of the more consequential proposals in the Plan is giving Medicare the authority to directly negotiate prices with drug manufacturers. Currently, individual Medicare Part D plan sponsors negotiate rebates but the government is explicitly prohibited from interfering in those negotiations. HHS believes that Medicare, the largest drug purchaser in the country by far, can force drug manufacturers to offer fairer prices. The Biden Administration also proposes to authorize HHS to negotiate Medicaid supplemental rebates on behalf of states, upon request, in order to strengthen their negotiation power. Senate Democrats are expected to include Medicare’s authority to negotiate prices in the budget reconciliation, which could be announced as early as this week. Significantly, the proposal allows employer-based plans, ACA Marketplace plans, and other commercial plans to access the prices negotiated by Medicare.
The repeal of the prohibition on Medicare negotiation with manufacturers under Medicare Part D is already included in the House’s reconciliation bill, the Build Back Better Act (watch for our post on that bill tomorrow). In the Senate, the repeal is also included in the Principles for Drug Pricing Reform issued by Senator Wyden, Chairman of the Senate Finance Committee, and is expected to be included in the Senate version of the reconciliation bill. The attraction of the repeal is that Part D negotiations can potentially save the federal government “hundreds of billions of dollars,” as explained in the Plan.
- Controlling Medicare Part D Patient Out-of-Pocket Costs and Total Drug Costs
The Plan supports legislative action to control total drug costs and patient out-of-pocket (“OOP”) costs for Medicare Part D beneficiaries. One proposal is a cap on out-of-pocket costs, primarily to help beneficiaries with expensive chronic conditions that can face large, even catastrophic, out-of-pocket spending every year. Part D currently has no such cap.
The Plan also supports redistributing financial responsibility for Part D drug costs: below the OOP cap, Part D and the drug manufacturers would pay higher percentages than they do now; beyond the cap, Medicare would decrease its percentage, setting manufacturers up to have to pick up the majority of the costs. The Administration notes that such policies are already in place in most commercial plans. They incentivize manufacturers to offer lower prices and incentivize plans to offer cheaper drugs and biologics. Both the cap on OOP expenses and the redistribution of cost burdens under Part D are incorporated into the House reconciliation bill.
The plan also mentions mandates for the government to purchase the least costly alternative and to institute value-based or outcomes-based pricing arrangements. The Centers for Medicare and Medicaid Services (“CMS”) Innovation Center is already studying several regulatory proposals in this regard (see Administrative Actions, below).
- Controlling Drug Price Increases
The Administration proposes strategies and incentives to control drug price increases, which it noted are rising twice as fast as inflation. To counter this increase, the Administration threw its support behind proposals to levy an excise tax or a rebate for manufacturers that raise product prices faster than the rate of inflation with no clinical reason. The proposal to give manufacturers partial responsibility for drug costs above the OOP cap (see previous section) would also discourage manufacturers from pricing drugs in a manner that will cause beneficiaries to exceed the catastrophic costs threshold.
- Facilitating Entry and Prescription of Biosimilars and Generics
The Plan supports legislation to incentivize the development and use of biosimilars and generic drugs by streamlining the biosimilar licensure process to facilitate the prompt approval of biosimilars and generics. HHS proposes requiring brand manufacturers—or allowing FDA—to disclose full information about inactive ingredients in their labeling so biosimilar and generic producers can more easily manufacture and gain approval for interchangeable products. Other legislative proposals include reassessing exclusivity periods of biological products; exempting biosimilar manufacturers from the U.S. Pharmacopeia (“USP”) monograph standards; providing greater flexibility and clarity regarding the inclusion of data from animal studies; and incentivizing second-in-market brands to increase competition between brand drugs. The Plan supports legislation to expedite market entry of biosimilars and generics by providing federal support to develop nonprofit generic drug manufacturers.
The Plan also proposes strategies to prevent brand manufacturer practices to delay the entry of biosimilars and generic products and discourage competition. HHS criticizes brand drug manufacturers for exploiting their patents and statutory exclusivity to stifle competition and maintain a monopoly. The Plan advocates better cross-agency efforts between the Food and Drug Administration (“FDA”) and the Federal Trade Commission (“FTC”) and the U.S. Patent and Trademark Office (“USPTO”) to prohibit or decrease the impact of patent thickets, product hopping, pay-for-delay, “sham” citizen petitions, and Risk Evaluation and Mitigation Strategies (“REMS”) abuse that can stifle the development or approval of biosimilars and generics. The Plan proposes to address pay-for-delay practices by deeming such agreements anti-competitive by statute; by requiring first-to-file generic manufacturers to begin commercial marketing for the 180-day exclusivity to apply; and expanding the circumstances in which the 180-day exclusivity may be forfeited by first applicants who fail to market their product within a specified timeframe.
The Plan also proposes establishing payment models to support the increased utilization of biosimilars and generics by further incentivizing providers to prescribe them. According to HHS, Medicare Part D could have saved as much as $3 billion in 2016 if generics were substituted for brand-name drugs wherever they were available. One proposal involves using the same payment limit for both reference biological product and the biosimilars to spur a price competition and drive down the average sales price for all products involved.
- Increase Transparency and Strengthen Supply Chain and Research Capacity
Other legislative proposals included improving supply chain transparency. HHS proposes increasing price transparency generally, so plans and patients know the distribution of costs at the pharmacy counter, the physician’s office, or hospital outpatient department. This way, patients can know what they have to pay out-of-pocket, compare the price and value of alternative therapies, and decide whether they can get the drug at a lower price elsewhere. The plan also proposes prohibiting “spread pricing,” whereby manufacturers pay rebates to pharmacy benefit managers (“PBMs”) to incentivize prescribing the manufacturer’s branded drugs in formularies even if generics are available.
Finally, the HHS plan encourages Congress to create incentives to foster scientific innovation. The Biden Administration proposes the creation of an Advanced Research Projects Agency for Health to focus on diseases like cancer, diabetes, and Alzheimer’s. Similar to the Defense Advanced Research Projects Agency (DARPA), this agency would build high-risk, high-reward capabilities to drive biomedical breakthroughs and spur private innovation in these disease areas. The Biden Administration also proposes to generally incentivize supply chain resilience, build domestic capability, especially for critical drugs, and promote investments in breakthrough medicines.
The Plan listed a litany of administrative actions that federal agencies have undertaken to promote competition and reduce drug prices and proposals to develop them further.
The CMS Innovation Center has been exploring or testing several innovative payment and service delivery models to reduce program and beneficiary spending on prescription drugs. These include Medicare Part B models that link payment for drugs and biologics to patient outcomes, reductions in health disparities, patient affordability, and lower overall costs. The Plan further proposes to make these models available to commercial payers to have a greater effect on prices and expand biosimilars and generics use across the board. HHS also claims to be continuing to study the Trump era Most Favored Nation model, an international reference pricing demonstration model for select Medicare Part B drugs, although it was proposed to be rescinded last month. The CMS Innovation Center is also studying models to share the savings from the utilization of biosimilars and generics with prescribing providers.
The Center is also exploring models to bundle payments for episodes of care over a period of time instead of paying for drugs and other administrative and related services separately. This would incentivize providers to use cheaper biosimilars and generics to get appropriately compensated for the remaining, non-drug services. The Center is also studying Total Cost of Care models that supplement bundled payments with incentives to redesign care to enhance care coordination, patient engagement, and quality. HHS proposes to incentivize the use of biosimilars and generics in these models, especially for conditions like hepatitis, C, HIV/AIDS, opioid use disorder, and diabetes. The Plan also supports legislation to allow states to apply the Medicaid Drug Rebate Program requirements to bundled drugs provided as part of outpatient hospital and physician services.
Though drug pricing is not technically within FDA’s mandate, the Plan describes several FDA initiatives to encourage competition and implement drug importation programs “so that consumers can access the medicines they need at affordable prices.” Chief among those programs are the Biosimilar Action Plan (“BAP”) and the Drug Competition Action Plan (“DCAP”), both of which have been in effect for several years. Both programs seek to facilitate competition by increasing efficiency, clarity, flexibility, and collaboration in the follow-on product development process, in addition to reducing the gamesmanship that can lead to delays in approval. Highlighting the success of the BAP, the Report touts the July 28, 2021 approval of the first interchangeable biosimilar, Semglee. The Report also features FDA’s efforts as part of DCAP to encourage development and approval of complex generic small molecule products for which generic development is challenging. These initiatives, combined with CREATES Act provisions that facilitate access to reference product samples for follow-on development, are specifically intended to address additional product approval.
As an aside, the Report also references the “recent litigation” that has raised industry concerns regarding the future of “skinny labelled” generics due—the GSK v. Teva case—and the possibility of delays in the approval due to threats of induced infringement liability. Providing no specifics, HHS assures industry that it is “committed to taking steps as appropriate to ensure these critical practices remain available for generic drugs and biosimilars.”
FDA and HHS have also adopted provisions to allow the import of certain prescription drugs from Canada to achieve a significant reduction in the cost of these products (see our blogpost on these provisions here).
What most differentiates President Biden’s Plan from Trump’s Blueprint is Biden’s reliance on Congress for major drug price and payment reforms. President Biden has made known since the beginning of his presidency that he would primarily rely on Congress in this area. As a result, most of the legislative proposals in the Plan have already appeared in previously proposed legislation, and/or are included in current bills destined to be incorporated into budget reconciliation. As for the administrative actions described in the Plan, these are largely a catalogue of activities already underway at CMS and FDA. In short the “Plan” is not so much a strategy for future action as restatement of ideas that have already been, or are in the process of being, brought to fruition. The real interest for drug manufacturers is in how the major ideas in the Plan will be incorporated into a budget reconciliation bill that is able to pass the House and Senate, and what specific form they will take. Tomorrow’s post will focus on how the rubber is meeting the road in the House.