Takeaway: Drug prices are such a populist issue we doubt Trump will resist throwing red meat to his base but mostly look for policy to track budget

So far this week, President Trump has voided the Iran nuclear deal, rescinded $15 billion in prior year appropriations, and accused former Secretary of State John Kerry of treason, sort of.

And it is only Wednesday.

It is with some trepidation, then, we approach the president’s announcement on drug price policy scheduled for Friday. We believe we can count on our standard sources for policy making prognostications like speeches, testimony, rulemaking, budgets and the like. But we won’t rule out some dramatic gesture by the president who, as Secretary Azar said, “wants to go much, much further [than the FY 2019 budget proposals].

As Secretary Azar indicated, the starting point for responsible speculation on the president’s policy direction, is the FY 2019 budget. Those proposals that probably can be accomplished administratively – though likely accompanied by a lawsuit – with our best guess on their inclusion on Friday are::

  • Require Medicare Part D plans to apply at least 1/3 of rebates at the point of sale. This proposal has been part of HHS talking points since January when CMS released a preliminary call letter for Medicare Advantage plans. A number of commercial insurers have provided cover for CMS with their announcement that they would be voluntarily sharing rebates at the point of sale. Count on inclusion.

POPPING THE GROSS TO NET BUBBLE |  BEST GUESSES FOR TRUMP'S BIG DRUG SPEECH | ABBV, CVS, CAH, UNH - Trump Drug Policy

Reportedly, the PBMs and sponsors that are also PBMs plan to respond by raising premiums. That result is one that CMS certainly anticipates. However, egregious behavior will not be welcomed by CMS which beefed up reporting of rebates, fees and other concessions as part of the CY 2019 Medicare Advantage call letter. CMS has the power to prohibit a plan sponsor from enrolling more beneficiaries when justified as they did with CI several years ago.

  • Increase Medicare Part D plan formulary flexibility. CMS would propose that that they change Part D formulary standards to require a minimum of one drug per category or class rather than the current mandate of two. When there is only one drug per category or class, plan sponsors would be able to play manufacturers against one another.

Additionally, CMS would permit plan sponsors to deploy utilization management tools for specialty drugs in protected classes.

An easy provision to implement, so expect inclusion.

  • Establish an inflation limit for reimbursement of Part B drugs. Under this proposal, each quarter when CMS establishes the ASP+6 percent payment amounts, they would pay the lesser of a.) actual ASP+6 percent or b.) the inflation adjusted ASP+6 percent. The base for determining the growth of a drug's price will be the initial ASP or the first quarter of CY 2017. (Note: the reimbursement under sequester is actually ASP + 4.2 percent.)

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The provision won’t be implemented without a fight. The Obama administration’s proposal to adjust Part B reimbursement was met with a lot of resistance from community oncologists, hospitals and Pharma. We would expect the same to happen here. The difference this time is President Trump doesn’t appear to care what lobbyists think if he gets a win in the form of lower cost-sharing for beneficiaries at the drug counter.

  •  Improve manufacturers' reporting of average sales prices to set accurate payment rates. CMS would require all Part B drug manufacturers to report average sales price data and provide the Secretary with the authority to apply penalties for manufacturers who do not report required data, similar to Medicaid.

 Price transparency is a hallmark of this administration. Expect inclusion.

  • Reduce Wholesale Acquisition Cost-based payments. When ASP data are not available, Medicare largely reimburses new, single source Part B drugs at 106 percent of WAC. Unlike ASP, a drug's WAC does not incorporate prompt pay or other discounts. If discounts are available on these new Part B drugs, Medicare is paying more than would otherwise be the case under an ASP-based formula. This proposal would reduce the payment rate for drugs from 106 percent to 103 percent of WAC.

Expect a big fight over this proposal if included in the president’s plan. Unlike the proposal to limit Part B reimbursement to an inflation adjusted growth rate, here the White House appears to be selecting an arbitrary number.

The budget contains some additional provisions that appear to require Congressional action – though without more detail we cannot be sure. An act of Congress seems unlikely as most Senate floor time for the rest of the summer and fall is dedicated to nominations, budget and a few other priorities like funding the Veterans Affairs Choice Act. Short-term demonstration type pilots could probably be initiated administratively, however.

  • Establish a beneficiary out-of-pocket maximum in catastrophic phase. This proposal would increase plan sponsors’ risk in the catastrophic phase by increasing plan liability over 4 years from 15 to 80 percent and simultaneously decreasing Medicare liability from 80 to 20 percent. Beneficiary co-insurance would decrease from 5 to 0 percent.
  • Exclude manufacturer discounts from the calculation of beneficiary out-of-pocket in Part D. Under the current program, discounts paid by manufacturers in the coverage gap are counted toward calculation of beneficiary true OOP costs, which determine the beneficiary's progression through the coverage gap. The incentive created by this arrangement is to use costlier drugs to hasten entry into the catastrophic phase.
  • Eliminate cost-sharing on generic drugs for low-income beneficiaries. This proposal would encourage use of high value products among low-income subsidy enrollees by reducing cost sharing for generics to $0, including biosimilar and preferred multiple source drugs.
  • Authorize the HHS Secretary to leverage Medicare Part D plans' negotiating power for certain drugs covered under Part B. This proposal would give the Secretary authority to consolidate drugs currently covered under Part B into Part D.

Thematically, all these efforts are designed to reduce upward pressure on drug prices and bring gross prices more in line with what is actually being paid by the end-user.

There is nothing like a Social Security Act code citation to take the rhetorical flourish out of any speech. For that reason, we have a lot of trouble imagining President Trump getting to far into the details of the aforementioned budget provisions.

Fortunately, the Council of Economic Advisers and FDA Commissioner Scott Gottlieb have a few policy suggestions that will appeal to Trump's love of the dramatic.

From the CEA:

  • Implement policies to decrease concentration in the Pharmacy Benefit Manager market and other segments of the supply chain such as wholesalers and pharmacies to increase competition and further reduce the price of drugs paid by consumers.
  • Discourage foreign nations from “free-riding” on American drug innovation through enhanced trade policy or through policies that tie public reimbursements in the US to prices paid by foreign governments.

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From the FDA:

  • Prohibit PBM practices that limit beneficiary access to biosimilars, including restrictive contracting, rebating and distribution agreements.
  • Prohibit practices where brand name drug manufactures restrict access to product samples for the development of generic and biosimilar drugs.

Since Secretary Azar has indicated that Trump wants to go “much, much” beyond proposals in his FY 2019 budget, expect some or all these last four items to be included in the context of Federal Trade Commission, Department of Justice and/or U.S. Trade Representative involvement.

It will make for some great t.v.

Call with questions.

Emily Evans
Managing Director
Health Policy


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