White House Economic Advisers Release Drug Pricing Proposals

February 11, 2018

The White House Council of Economic Advisers has released a white paper addressing prescription drug prices, detailing the administration’s plans to “reduce the price Americans pay for biopharmaceutical products” and “rais[e] innovation incentives for products in the future.” The 30-page proposal has significant implications for stakeholder across the health care spectrum, as it offers wide-ranging policy changes impacting Medicare drug reimbursement (both Part B and D), Medicaid drug rebates, pharmacy benefit managers (PBMs), biosimilar competition, the 340B program, and more.

  • What's next? While some of the proposed reforms could be enacted through guidance or rulemaking, many of the more controversial policy changes would require congressional action. As the Trump administration pushes on Congress to move on drug pricing reforms, stakeholders are likely to apply significant pressure to lawmakers to tread lightly on changes that could significantly disrupt their businesses. Meanwhile, look for formal rulemaking from the administration later this year (including the CMS Innovation Center) to serve as the catalyst for drug pricing reforms.

Among the key reforms proposed in the white paper:

  • Medicare Part B Drugs — The proposal outlines several potential changes to the current Average Sales Price (ASP) plus 6 percent reimbursement rate for Medicare Part B drugs administered by physicians. Options highlighted in the white paper include: (1) introducing physician reimbursement that is not tied to drug prices; (2) moving Medicare Part B drug coverage into Medicare Part D, “where price-competition over drug prices is better structured;” and (3) changing how pricing data is reported to increase transparency.  
  • Medicare Part D — The white paper makes several recommendations around reimbursement design for Part D outpatient drugs:

    • Two-Drugs Per Category and Class — The proposal suggests revising the Social Security Act’s requirement to include two “non-therapeutically equivalent” drugs within each category and class. The document suggests that “this requirement eliminates the ability of Part D sponsors to negotiate for lower prices when there are only two drugs on the market since drug manufacturers know that CMS must cover both.” The document later suggests “allowing plans to manage formularies to negotiate better prices for patients,” which could also allude to Medicare’s six protected classes policy.
    • Cost-Sharing for LIS Enrollees — The white paper recommends that Part D plans be permitted to vary cost-sharing amounts for low-income subsidy (LIS) enrollees, as formulary tier-based cost-sharing can drive utilization away from low-value drugs or towards generics.
    • Donut Hole Reforms — The proposal suggests that the Medicare Part D Coverage Gap Discount Program structure creates perverse incentives for plan sponsors and pharmacy benefit managers (PBMs) to generate formularies that favor high-price, high-rebate drugs that accelerates patients through the early phases of the benefit structure where plans are most liable for costs. The proposal broadly encourages lawmakers to “discourag[e] plan formulary design that speeds patients to the catastrophic coverage phase of benefit and increases overall spending.
  • Medicaid Drug Rebates — The proposal broadly suggests changes to the Medicaid Drug Rebate Program, suggesting that “CMS could revise rules to specify how manufacturers calculate best prices after the sale and the patient’s recovery. This may encourage competition and lower prices.” The paper also notes that “CMS could provide more guidance on how value-based contracts and price reporting would affect other price regulations. This would encourage drug purchasers to negotiate, thus increasing competition and lowering prices.”
  • Pharmacy Benefit Managers (PBMs) — The proposal argues that the PBM market is “highly concentrated,” allowing companies “to exercise undue market power against manufacturers and against the health plans and beneficiaries they are supposed to be representing, thus generating outsized profits for themselves.” In pointing directly to a report from the USC Schaeffer Center, the white paper suggest that the system “encourages manufacturers to set artificially high list prices, which are reduced via manufacturers’ rebates but leave uninsured individuals facing high drug prices.”  Moreover, they conclude that “policies to decrease concentration in the PBM market and other segments of the supply chain can increase competition and further reduce the price of drugs paid by consumers.”
  • Food and Drug Administration (FDA) — The document suggests expanding the criteria for expedited FDA review to include new molecular entities that are second or third in a class, or second or third for a given indication for which there are no generics. The proposal goes on to suggest that “to avoid imposing policies retroactively on the industry, this policy change could be phased in slowly so that current drug manufacturers of single-source drugs would retain the value of their efforts to be the first in a given therapeutic space.” Further, the Council goes on to outline how FDA can improve the process for approving new drugs by facilitating the validation and qualification of new drug development tools that allow sponsors to demonstrate safety and efficacy more efficiently and earlier.
  • 340B — The proposal diagnoses two distinct issues with the 340B Drug Pricing Program: (1) the imprecise eligibility criteria has allowed for significant program growth beyond the intended purpose of the program;” and (2) providers earn significant profits from qualifying for the program, which can be used to fund other forms of care or shareholders’ dividends rather than provide care for low income patients.”  Among the possible solutions, the Council notes that “drug reimbursement could be restricted under the program to cover only uses the drugs are intended to treat,” which would constrain the ability of providers to use 340B to cross-subsidize other care. Additionally, the proposal suggests that “eligibility of lower priced drugs could be used restricted to the intended poor patient populations.”
  • Biosimilars — The Council highlights the need for additional competition in the market for biosimilars, noting that “regulatory uncertainty, driven in part by concerns over safety, has impeded biosimilar development.” The white paper notes that while FDA has indicated it will not finalize guidelines on demonstrating biosimilar interchangeability for another two years or more, “speeding up the issuance of final guidelines could add certainty and attract additional biosimilar applicants.”
  • Global Competition — The paper extensively notes how underpricing in foreign countries can increase the cost of research and development, or force drug makers to bring higher list prices in the United States. The Council notes that “meaningful reforms could address the free-riding that takes unfair advantage of American innovation, whether through enhanced trade policy or policies that tie public reimbursements in the United States to prices paid by foreign governments that free-ride or other methods.” The report continues by suggesting that “the United States could take actions that change the incentives for these countries to price drugs at levels that appropriately reward innovation, rather than disproportionately putting that burden on American patients and taxpayers.