Trump Drug Pricing Plan Includes Part D Surprises, Challenges PBM Business Model
Executive Summary
The reform 'blueprint' might actually live up to its hype.
The Trump Administration’s much-anticipated drug pricing plan proposes ideas for finding savings in Medicare Part D by modifying the protected classes policy.
The notion of changing the protected classes is among several policy proposals that had not been previously discussed by the Administration but are included in its “Blueprint to Lower Prices and Reduce Out-of-Pocket Costs”
The 44-page document, which includes more than 50 policy proposals, was released by President Trump and HHS Secretary Alex Azar during an event in the White House Rose Garden May 11. The breadth and number of policies included surprised many stakeholders and was greeted with concern by biopharma and pharmacy benefit managers.
“Today my administration is launching the most sweeping action in history to lower the price of prescription drugs for the American people,” Trump said. “We will have tougher negotiations, more competition, and much lower prices at the pharmacy.”
For example, the blueprint suggests, HHS may “support” better drug price negotiation in Medicare by “providing 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.”
Currently, "Part D plans are unable to negotiate lower prices for high-cost drugs without competition,” the document says. “This change could allow Part D plans to use the tools available to private payers outside of the Medicare program to better negotiate for these drugs.”
Part D plans are required to cover “all or substantially all” drugs in six protected classes, including antineoplastics, antidepressants, antipsychotics, immunosuppressants, anticonvulsants, and antiretrovirals.
The protected classes policy has hampered plans’ ability to negotiate price concessions with manufacturers because they are not able to threaten manufacturers with non-coverage – every drug in a class must be on formulary. As a result, pricing for those drugs has not been subjected to the same pressure as non-protected classes.
“It will take months for the kind of actions that we need here. … It took decades to erect his very complex, interwoven system.” – HHS Secretary Azar
The protected classes policy has long been the subject of criticism by insurers. The Centers for Medicare and Medicaid Services attempted to narrow the number of drugs that could benefit from the protected classes policy in a proposed rule released in early 2014. But fierce opposition from biopharma and patient groups led CMS to abandon the effort. (Also see "CMS Drops Proposal To Change Part D Protected Drug Classes" - Pink Sheet, 10 Mar, 2014.)
Should Drugs With Price Increases Lose Protected Status?
The blueprint also seeks stakeholder feedback on whether manufacturers of protected classes drugs that have increased prices or failed to provide rebates should have their protected status revoked.
“Should manufacturers of drugs who have increased their prices over a particular look-back period or have not provided a discount be allowed to be included in the protected classes?” the document asks.
“Should drugs for which a price increase has not been observed over a particular look-back period be treated differently when determining the exceptions criteria for protected class drugs?”
Part D Negotiations Haven’t Kept Pace with Private Sector
Medicare Part D has effectively used negotiating tools since it was launched but its approach needs an update, Azar later told a White House briefing with reporters.
“Over 15 years, as so often happens with government programs, it got frozen into place,” he said. “And the private sector kept adapting and learning, especially after the economic crisis in 2007, how to control drug spend even better…We need now to bring the same tools that are available to the private sector to those Part D drug plans so they can negotiate even better.”
Azar also highlighted a lack of price negotiation in the Medicare Part B program, which covers drugs administered by a physician. A plan to move at least some Part B drugs to the Part D program to subject them to more pricing pressure was included in the President’s 2019 budget proposal. (Also see "At Cross-Purposes? How Trump Budget's Part D Gap Discount Policy Aligns With New Law" - Pink Sheet, 12 Feb, 2018.)
“We’ve got to figure out ways to move those drugs, especially the high-cost ones, into the private Part D plan negotiations so that we can get a deal and start getting bargains on that for our seniors and for taxpayers,” he said. The blueprint seeks comment on how that might be accomplished.
The Pharmaceutical Research and Manufacturers of America took issue with such policies in a statement on the blueprint. “The proposed changes to Medicare Part D could undermine the existing structure of the program that has successfully held down costs and provided seniors with access to comprehensive drug coverage,” the group said.
“We must also avoid changes to Medicare Part B that could raise costs for seniors and limit their access to lifesaving treatments.”
PBMs and Rebating Under Fire
Azar highlighted several other points in the blueprint during the briefing. Notably, he raised serious questions about how pharmacy benefit managers are compensated and of the rebating system altogether.
His comments about rebates echoed those made recently by FDA Commissioner Scott Gottlieb, who questioned whether the post-transaction price concessions should have a place in drug pricing anymore. (Also see "A World Without Rebates: Is FDA’s Gottlieb Offering New Vision?" - Pink Sheet, 9 May, 2018.)
“We are calling into question today the entire structure of using rebates as the method of negotiating discounts in the pharmacy channel,” Azar said. “What if instead we said: ‘No rebates; flat price; fixed price in the contracts?’" The blueprint seeks comments on that approach to Part D contracting.
It also invites input on imposing a fiduciary duty on PBMs to act “solely in the interest of the entity for whom they are managing pharmaceutical benefits,” without receiving payment or remuneration from manufacturers.
“We…have a real issue that we’ve got to look at, which is the role of compensation for pharmacy benefit managers,” Azar maintained. “They’re taking it now from both sides. They’re getting compensated by their customers – the insurance companies – but they’re also getting compensated by the drug companies they’re supposed to be negotiating against.”
In a statement on the blueprint, the Pharmaceutical Care Management Association argued that “getting rid of rebates and other price concessions would leave patients and payers, including Medicaid and Medicare, at the mercy of drug manufacturer pricing strategies…Simply put, the easiest way to lower costs would be for drug companies to lower prices.”
No Follow-Up On POS Rebates
Another important theme in the blueprint is out-of-pocket costs for patients. One policy proposal that has been strongly supported by pharmaceutical manufacturers is a requirement that plans redirect a portion of negotiated rebates to the point-of-sale to offset patient cost sharing.
The President’s proposed budget includes a plan to implement point-of-sale rebates, the blueprint notes. However, the document does not solicit further comments on how such a program could be designed.
Asked how long it would take to implement the reforms in the blueprint, Azar said many of the proposals could be implemented relatively quickly through administrative action. Others would need legislation, which would be a more drawn out process.
Still, “it will take months for the kind of actions that we need here," he cautioned. "It took decades to erect his very complex, interwoven system. We’re talking about entrenched market players, complex financial arrangements that would have to be redesigned. So I don’t want to over promise that somehow on Monday there’s a radical change. But there’s a deep commitment” to pursue change.