Prescription Drug Developments (Benefit Minute)

Posted in: Benefit Minute, Employee Benefits

The Trump administration continues to introduce policy and regulatory initiatives addressing four major challenges in the current prescription drug system: high list prices, government programs that overpay for drugs due to lack of effective negotiation, rising out-of-pocket costs to consumers, and foreign government free-riding off American investment in innovation. These initiatives are being led by the Department of Health and Human Services (HHS) and focus primarily on public health insurance programs.

Manufacturer Coupons

Drug manufacturers often offer coupons to reduce patient out-of-pocket costs. While the availability of copayment support makes the drugs more affordable and may encourage patients to adhere to their medication regime, the availability of a coupon may cause physicians and patients to choose an expensive brand name drug when a less expensive and equally effective generic or other alternative is available. This practice can add significant long-term costs to the health care system and offset efforts to drive patients to more cost effective drugs.

In response to these concerns, HHS is proposing that, for plan years beginning on or after January 1, 2020, any form of direct support offered by drug manufacturers that reduces or eliminates a patient’s costs will not be required to count towards the plan’s annual limitation on cost-sharing when a generic equivalent is available. HHS rationale is that not counting such amounts will promote more prudent prescribing by physicians and better purchasing choices by patients based on the true cost of the drugs. It will also encourage more price competition in the prescription drug market.

HHS is seeking comments on this proposal, including how difficult it is for insurers to implement technology needed to manage the carve out of manufacturer coupons and other direct co-pay assistance programs, and whether this policy should apply to all insurance markets or only health insurance policies sold through the Marketplace.

Drug Rebate Proposal

On January 31, 2019, HHS issued a proposed regulation that would restrict existing safe harbor protection under the federal Anti-Kickback Statute (AKS) for pharmaceutical rebates paid by drug manufacturers in the context of Medicare Part D and Medicaid managed care organizations (MCOs) and their Pharmacy Benefit Managers (PBMs). The intent of the regulation is to reduce incentives for drug manufacturers to continuously increase list prices, with the expected result of lowering out-of-pocket costs to Medicare Part D and Medicaid MCO consumers. The regulation is also intended to curtail the current practice of using rebates to negotiate favorable formulary placement. In general, rebates and other price concessions paid by drug manufacturers to Part D sponsors, Medicaid MCOs and their PBMs would not be permitted unless the rebate/price concession is required by law or is paid by the manufacturer to pharmacists, drug wholesalers or hospitals.

Along with narrowing the existing safe harbor under the AKS, two new safe harbors would be created. The first would permit drug discounts to be offered when made directly to patients at the point of sale. These price reductions would have to be set in advance, paid directly to the dispensing pharmacy and be reflected in the price the pharmacy charges the patient at the point of sale.

The second safe harbor would allow for fee arrangements between drug manufacturers and PBMs for the services the PBM provides to one or more Medicare Part D plans or Medicaid MCOs so long as certain conditions are met. These conditions are meant to ensure that all services and fees are fully disclosed and that compensation paid is of a fixed nature (not tied to amounts of sales or volume of referrals) and based on the fair market value of the services being rendered.

In announcing the proposed regulation, HHS indicated that the average difference between list price of a drug and the net price after rebate is 26% to 30% which is currently kept by the Medicare Part D plans and the Medicaid MCOs. The intended result of the new regulation is to pass this difference on to the consumer in the form of lower cost-sharing. Sicker individuals or those with higher drug costs are expected to benefit the most. However, it is anticipated that insurance premiums for Medicare Part D plans and Medicaid MCOs will increase as a result of the loss of rebate revenue.

How this impacts a PBM working with private insurers and group health plans is not yet clear, as the proposed rule would not technically eliminate from safe harbor protection price reductions that are offered to other entities besides Medicare Part D plans and Medicaid MCOs. However, in order for a discount to qualify under the existing safe harbor, the price reductions offered to any payer also had to be offered to Medicare or Medicaid, especially in cases where the discounts may act as inducements for the purchase of products that are federally reimbursable. This means that while rebates to private insurers and group health plans are not explicitly prohibited by the proposed regulation, they would be highly scrutinized for potential violation of the AKS.  HHS has acknowledged that their regulatory authority is limited and Congress has more power to prohibit rebates paid to private insurers.

There is a 60 day comment period on the proposed rule, and if left unchanged these rules are set to take effect beginning January 1, 2020. However, it seems likely that there will be some revisions before the final regulation is issued and the final effective date could be delayed.

Drug Importation

While current federal law prohibits drug importation, the Food and Drug Administration is currently investigating the possibility of safely importing drugs from other countries. The focus of the working group is limited to cases where the U.S.-marketed equivalent drugs undergo dramatic price increases. It is unlikely that this limited importation would have a material impact on drug prices. Initiatives by certain states to import a broader range of drugs from Canada have not yet cleared regulatory hurdles, and it is unclear whether the Trump administration would support these more wide-ranging initiatives.

Comprehensive Drug Legislation?

These various prescription drug proposals begin to address drug prices that continue to escalate, but are unlikely to move the needle on prescription drug costs in a meaningful way. Ultimately it will fall on the shoulders of Congress to pass comprehensive prescription drug legislation that will benefit all Americans.