White House Offers Plan to Lower Drug Prices

President Donald Trump unveiled a wide-ranging plan on May 11 to reduce the cost of prescription drugs. Focused mainly on reforms to Medicare and Medicaid, the plan offers more than 50 initiatives under four broad objectives for reform: ending drug industry practices that prevent or slow access to lower-costs drugs; creating more competitive drug pricing; encouraging drug makers to lower list prices; and reducing out-of-pocket costs for consumers, especially Medicare beneficiaries.

The president also proposed to make drug pricing part of trade agreements with other countries, some of which the Trump Administration says are "free-riding off of American investment in innovation." The Administration is also evaluating whether to require that drug makers disclose drug prices in direct-to-consumer advertisements.

The plan does not give Health and Human Services (HHS) Secretary Alex Azar authority to negotiate drug prices for Medicare beneficiaries or allow for the reimportation of prescription drugs. Many Democrats have called for these changes, and the president has supported them in the past.

Changes would take time. The outlook for the proposed changes is unclear, but few could be implemented immediately. Most would be subject to formal rulemaking by HHS and the Food and Drug Administration (FDA), which could take many months or years. Others need approval by Congress, which isn’t likely this year. Still, the president and Secretary Azar appear intent on moving aggressively to implement parts of the plan where possible, and some initiatives are already underway, so more activity and proposed rules on drug pricing are probably in the offing. For instance, in a move to bring more transparency, HHS released new data on annual drug price increases in Medicare and Medicaid.

White House priorities. Some specific policy changes are targeted for action as early as possible. Among them: getting more generic drugs and biosimilars to market faster; giving Medicare Part D plan sponsors more power to negotiate prices with drug makers; FDA consideration of forcing drug makers to include list prices in advertising; barring Part D contracts that bar pharmacists from telling patients when they could pay less out-of-pocket by not using insurance (so-called "gag" clauses); and including information about drug price increases and lower costs alternatives in Part D benefit documents. Some states have also been actively pursuing banning gag clauses, as well as requiring certain disclosures of drug cost increases.

Potential employer plan impacts. The plan also suggests areas where future action might be taken without providing details, including applying fiduciary standards to Pharmacy Benefit Managers (PBMs), one of the few initiatives with a potential direct impact on the private employer system. Specifically, the proposal asks whether PBMs should be obligated to act solely in the interest of the entity for which they are managing pharmaceutical benefits. The blueprint does not make a specific proposal on this, but asks for comment on what effect putting a fiduciary duty on PBMs "on behalf of the ultimate payer (i.e. the consumer)" would have on the PBM's ability to negotiate drug prices.

Cost shifting to the private sector? In addition, the proposal asks: “Are government programs being cross-subsidized by higher list prices and excess costs paid by individuals and employers in the commercial market?” It also suggests that the Affordable Care Act’s taxes and an increase in Medicaid drug rebate amounts are contributing to higher costs in the private sector.

HHS is soliciting comment on these and many other questions in a Request for Information published in the Federal Register on May 16, 2018. The comment period ends July 16, 2018.

Geoff Manville
by Geoff Manville

Partner, Mercer’s Law & Policy Group

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