Health Policy Report

February 4, 2019

The Week in Review

House and Senate lawmakers began border security negotiations last week in hopes of striking a border security compromise, yet a bipartisan agreement remains elusive. In addition to the debate over President Trump’s $5.7 billion border wall priority, lawmakers have been hamstrung over the possibility of adding deals on immigration policy and the debt limit to the underlying negotiations. If the negotiators fail to craft a product that can pass both chambers in that time and earn the president's signature, funding is likely to lapse again for the Departments of Transportation, Agriculture, Homeland Security, Treasury, Commerce, Housing and Urban Development, Justice, State and Interior, as well dozens of agencies including the Food and Drug Administration (FDA), National Science Foundation, Environmental Protection Agency (EPA), and Internal Revenue Service (IRS).

In the midst of the negotiations, Democrats unveiled a border security proposal that would allocate new funding for: (1) 1,000 customs officers; (2) imaging technology for land ports; and (3) modernizing Border Patrol stations. However, President Trump downplayed the Democratic suggestions, reiterating that if the Conference Committee cannot come up with a border security plan that includes wall money in the next two weeks, he is prepared to either declare a national emergency — which would likely bypass Congress and utilize military construction resources for wall construction — or shut down the government again.

Meanwhile, the Congressional Budget Office released a report detailing the economic impact of the 35-day partial government shutdown. According to the CBO, the funding lapse cost the U.S. economy $11 billion — a figure that will reduce first-quarter growth by roughly 0.4 percentage points. The agency also said it expects overall economic growth to be higher in the future as delayed spending takes place, but estimated that $3 billion in losses will never be recovered.

Additionally, Nancy Pelosi (D-CA) and President Trump have reached an agreement on a new date for the President’s State of the Union (SOTU) Address. The President will deliver his State of the Union Address on Tuesday, Feb. 5, 10 days before the next government funding deadline. The invitation comes after a contentious back-and-forth over the original date during the shutdown which saw Speaker Pelosi formally rescind her invitation to deliver the SOTU today due to the funding lapse.

The Week Ahead

Congress returns this week as lawmakers resume border security Conference Committee negotiations. The odds of another funding lapse were raised after Speaker Nancy Pelosi (D-CA) emphasized that the Democratic border security proposal will not include funding for President Trump’s border wall priority. If the Conference Committee is unable to produce a deal that appeases President Trump, the President has reiterated he is willing to either shut down the government again, or bypass Congress and utilize military construction resources for the wall through a national emergency declaration.

On the floor, the Senate will return to Washington today and resume consideration of a Middle East policy package (S.1) that would impose new sanctions on Syria, increase military aid to Israel and Jordan, and make it easier for states and municipalities to approve laws targeting the Boycott, Divestment, and Sanctions movement against Israel. House lawmakers will return on Tuesday, and have queued up a bill (H.R. 840) that would make permanent the Department of Veterans’ Affairs (VA) Child Care Pilot Program. 

Administration Releases Proposal to Remove Safe Harbor Protection for Drug Rebates

The Department of Health and Human Services (HHS) and Office of the Inspector General (OIG) released a proposed rule Thursday to remove safe harbor protection under the Anti-Kickback Statute for manufacturer rebates on prescriptions drugs for pharmacy benefit managers (PBMs), Part D plans, and Medicaid managed care organizations. The proposal would instead create a new safe harbor protecting discounts offered to patients at the pharmacy counter — point-of-sale discounts — and establish new safe harbor protection for flat fees paid by drug companies directly to PBMs for their services. The proposed rule will undergo a 60-day comment period, and could take effect as early as January 1, 2020 if implemented. The proposed safe harbor for pharmacy counter discounts would take effect 60 days after the publication of the final rule.

HHS Secretary Alex Azar called it the “most sweeping change to how Americans’ drugs are priced at the pharmacy counter ever” in an accompanying press release, and claimed the regulation will lower list prices by producing competition and transparency and reduce out-of-pocket spending on prescription drugs. Sec. Azar noted that under the current rebate system, PBMs pay on average 26 to 30 percent less than a drug’s list price but that those savings do not show up in patients’ costs. Instead, the administration argues that the proposal would e!1ncourage negotiated discounts to be reflected in cost-sharing methods like co-insurance. The Administration suggested that reduced out-of-pocket costs would be larger than potential increase in premiums for Medicare beneficiaries, and in turn would lead to reduced program spending.

The Administrtation suggested that beneficiaries in poor health and with the highest costs tied to drug use are projected to see the greatest savings. If Part D plans expand generic coverage, improve negotiation with drug manufacturers, or reduce overhead costs, HHS noted that premiums could be held constant and savings could be even greater. The Pharmaceutical Care Management Association immediately issued a statement opposing the proposal, arguing it will raise premiums.

Although the proposed rule technically only impacts Medicare, it could have extensive influence on the commercial marketplace as well. The Administration explained that manufacturers won’t be allowed to offer price reductions to some private plans but not to Medicare plans. In its statement, the Administration also called on Congress to take further action. A senior HHS official told reporters that Congress has more power to state clearly what they’d like to do here, and that HHS stands ready to work with them.

CMS Releases 2020 Medicare Advantage and Part D Draft Regulations

Last Wednesday, the Centers for Medicare and Medicaid Services released its Medicare Advantage and Part D Advance Notice Part II and Draft Call Letter for 2020. In it, CMS proposed to give Medicare Advantage (MA) plans more flexibility to offer supplemental benefits to chronically ill beneficiaries, such as providing home-delivered meals or transportation for non-medical needs. The Advance Notice and Call Letter also laid out several proposals for combating the opioid crisis that would encourage plan sponsors to, among other things, make opioid reversal agents such as naloxone more accessible. Furthermore, CMS proposed requiring Part D plans to place generic and brand-name drugs on separate formulary tiers. Wednesday’s proposals also laid out changes to plan payment methodologies, which CMS estimates will increase plan revenues by an average of 1.59 percent for plan year 2020.

CMS releases a Rate Announcement and Call Letter on an annual basis informing MA and Part D plans of changes to payment methodologies and policies. The documents shape how Medicare’s private sector plan structure their benefits and inform the bids that they submit to CMS. In preparation for the final release, CMS puts out an Advance Notice and Draft Call Letter to solicit input from stakeholders. CMS released Part I of the Advance Notice in December 2018.

At this time, CMS is soliciting comments on the Advance Notice and Draft Call Letter. Comments for Parts I and II of the Advance Notice as well as for the Draft Call Letter are due to the agency by March 1, 2019. This represents an extension of the comment deadline for Part I of the Advance Notice. CMS anticipates publishing the final 2020 Rate Announcement and Call Letter on April 1, 2019.

HHS Official Details Forthcoming Changes to Stark Law, Anti-Kickback Rule

Department of Health & Human Services (HHS) Deputy Secretary Eric Hargan announced Wednesday the administration was “very far along” in drafting new anti-fraud reform rules and that a draft ruling outlining the plans for Stark Law and Anti-Kickback Statute reform are expected sometime this year — the “earlier the better” according to the Deputy Secretary. Speaking at an event on Stark Law and Anti-Kickback Statute held by the USC-Brookings Schaeffer Initiative for Health Policy, the Deputy Secretary acknowledged that the anti-fraud laws continue to work well for a fee-for-service system, but that the administration is working towards advancing value-based, coordinated systems through incremental updates to the interpretation of the regulations. These rules would differ from the proposed revisions to the anti-kickback statute announced last week, which focused on the system of drug manufacturer rebates to pharmacy benefit managers. Although he had previously indicated legislation would also be needed to reform the Stark law, Dep. Sec. Hargan clarified Wednesday that the administration is focusing on the interpretation of the laws rather than pushing a legislative effort to take down or change the laws.

During his keynote address, Dep. Sec. Hargan explained that HHS is committed to moving payment systems from volume to value, and that the reason transition to value-based care has been so slow is because it requires a radical reorienting of how health care is paid for. He noted the administration was taking a holistic look at reforming all existing policies, and clarified regulatory reform was not a giveaway to industry. The Deputy Secretary said that it will be focused on reshaping barriers created by regulations to encourage new relationships and solutions to form. He highlighted the Administration’s Regulatory Sprint to Coordinated Care, which will target Stark Law, Anti-Kickback Statute, HIPAA, and 42 CFR Part 2.

The administration is sympathetic to what the laws stand for and acknowledges that the Stark Law works well for a fee-for-service system, according to Dep. Sec. Hargan, but it believes that it needs to work towards implementing a more coordinated, value-based system. He said that the government no longer has a need to interfere in “who is getting paid for which service,” and reported that these laws incentivize certain ownership structures. Kimberly Brandt, the Centers for Medicare & Medicaid Services (CMS) Principal Deputy Administrator for Operations, told reporters the agency can only make changes to the Stark law to a point, but within the confines of the current statute the agency has wide flexibility. She later said that the agency is coordinating the two proposed rules in hope that the time lines will "stay fairly close." She said she couldn't predict the exact timeline for their release, but the goal is to have the proposed rules out this year.

FDA Unveils Draft Guidance to Identify Areas Lacking Generic Competition

The Food & Drug Administration (FDA) on Wednesday unveiled new draft guidance and announced coming steps to enhance the Orange Book’s utility to generic drug developers and foster generic development by identifying areas which lack competition. The draft guidance —titled “Marketing Status Notifications Under Section 506I of the Federal Food, Drug, and Cosmetic Act; Content and Format” — will require developers of FDA-approved generics to update certain information on their drug in the Orange Book, including notification of a withdrawal from sale, notification of a drug not available for sale, and a one-time report on marketing status for actively marketed drugs. FDA Commissioner Scott Gottlieb noted in an accompanying statement that an updated picture of generic marketing and availability will allow the FDA and potential developers identify circumstances where generic competition is lacking and better understand circumstances in which generic medicines are being approved, but not launched. The draft guidance will provide developers applying for approval with clarity on the specific categories and descriptions of the information they are required to share with FDA on the marketing status for their brand and generic drugs and how to provide it in a timely and consistent manner. Close to 1,000 generic developers have already submitted marketing status reports.

The FDA will issue draft guidance describing how the agency evaluates therapeutic equivalence (TE) and assigns therapeutic equivalence codes, which are published in the Orange Book. The draft guidance will be intended to increase transparency around the FDA’s policies and procedures related to evaluation and assignment of TE codes to support applicants submitting requests for therapeutic equivalence and help advance pathways for achieving pharmacy-level substitution of therapeutically equivalent drug products, including products approved under the 505(b)(2) pathway, according to Commissioner Gottlieb. He reported that it may also be beneficial to those seeking to develop more complex generic products that often face greater scientific and regulatory challenges. Additionally, the agency will issue draft guidance to answer the most commonly asked questions about the Orange Book posed by applicants and approved application holders.

The FDA will solicit public comments on Orange Book use and potential enhancements, including a re-examination of what pharmaceutical patents should be listed in the database. In one example, the agency is considering whether patents approved for use with a digital application should be required to list other patents approved for use in conjunction with the digital application in the Orange Book. 

FDA to Hold Meeting on Use of Real-World Data, Technology in Clinical Trial Management 

Food and Drug Administration (FDA) Commissioner Scott Gottlieb announced last Monday the agency would hold a meeting to explore using digital technologies to monitor and manage clinical trials. During his keynote address at a Bipartisan Policy Center briefing on the use of real-world evidence, Commissioner Gottlieb explained how the use of real-world evidence and data could help make clinical trials more efficient and less costly, and eventually substitute for them. He indicated the agency’s goal is to develop a path for ensuring that real-world evidence solutions a play a more integral role in drug development and regulatory life cycle at the FDA.

Commissioner Gottlieb expressed his hopes to encourage collaboration with the clinical trial community and patient groups to develop scientific and technical standards for incorporating new technologies into clinical trials, and promoted the use of remote and risk-based monitoring. Additionally, decentralized clinical trials — in which clinical trials could be completed remotely through digital technology — were floated as an alternative to facilitate more diverse patient participation within varied community care delivery settings, and in the process generate information that’s more representative of the real world. A formal working group on decentralized trials has been established, and the FDA plans to publish guidance next month to outline their approach.

Sens. Cassidy & Warner Release Draft Bill to Promote Outcomes-Based Payment Models

Senators Bill Cassidy (R-LA) and Mark Warner (D-VA) are seeking comments on draft legislation aimed at facilitating new and innovative payment models for pharmaceuticals and medical services, and asked for stakeholder input to ensure “highly technical changes enabling value-based arrangements are thoroughly vetted and important oversight protections are preserved.” The Patient Affordability, Value and Efficiency Act would promote the development of value-based agreements, and would exempt performance-based drug-reimbursement contracts from the Medicaid Best Price Rule, Anti-Kickback Statute, and the Stark Law. Sens. Cassidy and Warner hope the legislation will promote the development of “innovative, market-based solutions to increase patient access to care and make medications more affordable.”

Stakeholder feedback is due to the senators offices by February 19, and can be emailed to Sen. Cassidy’s office at and to Sen. Warner’s office at The bill will be formally introduced after stakeholder input is considered.