Last week the Trump Administration announced a plan to lower US drug prices and reduce consumers’ out-of-pocket costs. The wide-ranging blueprint lists dozens of initiatives – some for immediate action and others for further evaluation. As expected, most of the initiatives are directed to reducing cost in government health programs. But, on our first reading, here are proposals we think might have some bearing on employer health plans:
Increasing competition. One proposal seeks to speed up the FDA approval process for generics, biosimilars (alternatives to branded biologics) and over the counter (OTC) medicines. Approval of more products can favorably impact some drug classes. For example, the availability of new Hepatitis C drugs in late 2014/early 2015 led the way for the first outcomes-based guarantees as well as some lower-cost alternatives. If this proposal goes into effect, you’ll want to review pharmacy plan designs and utilization management strategies to ensure your plan is positioned to reap the benefits of any increased competition.
Improving transparency. The blueprint considers having the FDA require manufacturers include a drug’s list price in direct-to-consumer advertising. Today, there’s very little visibility into how manufacturers set drug prices. Mandating that prices be disclosed in consumer advertising could add more transparency to drug costs and provide an incentive for drug makers to change their pricing behavior. However, especially for the most expensive medications, consumers may continue to lack an incentive to shop around.
Restricting rebates. The blueprint also mulls the idea of reducing or restricting the use of rebates. President Trump specifically mentioned, “middle-men will not keep rebates and discounts.” We suspect the intent is to lower out-of-pocket costs for consumers. Revisiting how rebates are handled won’t necessarily lower drug prices and we think it’s fair to assume that PBMs/insurers will make up any lost revenue in a different way. Check your PBM contract – PBMs/insurers frequently include a provision that allows them to re-rate the contract in the event of a change in the laws and regulations around rebates.
Providing negotiating power. One immediate recommendation is to give Medicare plan sponsors greater negotiating power with drug makers, although the blueprint doesn’t authorize HHS itself to negotiate on behalf of Medicare beneficiaries. Specific proposals include value-based contracting, drug substitutions to address significant price increases, and Trump administration efforts to reduce pricing disparities between the US and foreign countries. We’ll have to wait and see whether these tactics result in lowering drug prices in the US, and whether any of the strategies to lower prices in the public sector would cause an increase in costs in the private sector.
Identifying fiduciary responsibility. The blueprint asks whether PBMs should be obligated to act solely in the interest of those for whom they manage drug benefits. If PBMs were identified as plan fiduciaries, they would be accountable for negotiating in the best interest of the plan and its members. This could certainly change the dynamics of current PBM relationships and, if adopted, keep PBMs from accepting certain types of payments from both manufacturers and health plans.
While we’re happy the Trump Administration is shining a spotlight on drug costs, we’d like to see greater focus on managing the price of these medications, not simply re-shuffling costs. Many of these proposals could result in public sector gains at the expense of private health plans. That would certainly be a disservice to the 178 million Americans covered by employer-sponsored health plans.