Takeaway: EO uses ACA Demo model to avoid rulemaking, permit adjustments & target certain drugs; impact on Part D & what about GDRX?

Editor's Note: This is a complimentary research note published by Healthcare Policy analyst Emily Evans. CLICK HERE to get COVID-19 analysis and alerts from our research team and access our related webcasts.

Drug Price Policy In Midst of COVID Fatigue | Politics, Policy & Power - 9 14 2020 9 55 53 AM


On March 17th, I sent an internal email recapping a call I had with a health system leader about the US COVID-19 response and in reaction wondered if " the response – underreaction, bad data, overreaction – may be a bigger economic problem than the disease itself.

Something to ponder." What prompted me to consider the possibility of a potential backlash was the uniqueness of the response to the outbreak. 

For starters, New York City's experience with COVID was very different from the rest of the US and that was apparent very early on. Although Washington State was first to identify an outbreak, the disease never took off like it did in the Tri-States area. Not to minimize the seriousness of COVID-19 but today, despite a significant improvement in case identification, most state' SARS-CoV-2 infection, disease and death look more like Washington's than New York's. Of the roughly 180,000 excess deaths from COVID and COVID-related causes, 120,000 occured in March, April and May, which is to say primarily in the New York Metro area.

Second, the use of the American version of "lockdowns" had no precedent in public health in the U.S. and very little evidence to support it. In March, I was not able to find any research on the efficacy of ordering people to stay home.

Since then, I have found a 2006 paper that, while interesting, doesn't seem to suggest the scale and scope of restrictions that were and still are imposed. It was no surprise that many Governors, disproportionately located in the South, Southwest and Midwest, refused to mandate or extend business closures similar to those in the Northeast and West, despite withering criticism.

Third, public health orders in most of the US and especially in the large urban areas like Los Angeles and New York had a disproportionate impact on hourly wage earners. While millions of Americans in finance, technology and professional services worked from home, millions more in the entertainment, lodging, retail and restaurant sectors were laid off, many permanently, driving the wedge of inequality deeper than ever.

The varying impacts of the COVID-19 outbreak and the equally different responses means Americans view the crisis differently depending on where they live. The economic implications, however, are more uniform. When New Yorkers cancel a convention, it shows up in Florida's employment rate.

In wondering out loud in March about the economic fallout of the COVID-19 response, I pictured a circumstance where the catalyst for economic misery - the SARS-CoV-2 virus -  would be largely academic for many communities, particularly those in the suburbs and rural areas, while job and income losses would be uniformly palable.

It never occured to me in March that state and local government might fail to accomodate such disparate impacts and the evolution of medical and scientific know-how by modifying the public health response to meet the now quantifiable threat. Instead, under the theory that the absence of a national coordinated response is fully to blame for economic malaise and assuming, I suppose, that their constitutents are unable to discern the difference between the powers of a president and those of a school board member, a number of urban mayors are doubling down on misery. Schools districts in Los Angeles, Chicago and even here in Nashville, are not planning full in-person instruction until January, despite the American Academy of Pediatrics' urging to the contrary. 

Hardest hit by closed schools are likely to be the women to whom the burden for supervising virtual school falls, while either working from home or juggling the additional costs of child care.

Women, of course, are also a demographic in play in November. This highly sought after portion of the electorate, then, has the power to turn the economic implications of the COVID-19 response into very real political consequences.

We suspect the Trump campaign is banking on it.


The Trump administration appears to be banking on COVID fatigue which seems likely to turn into COVID anger as Americans end their extended summers and begin or demand to begin a return to normalcy.

It is a certainty, misplaced or not, that is informing some of the most aggressive health policy Washington has ever seen. We have highlighted some of the changes in telemedicine, AI, alternative site of care and payment parity. Today, the administration finally found a rather elegant way to reform America's drug pricing system, albeit slowly. More on that in a minute.

Next up appears to be changes to Medicare Advantage plans which, according to one official need to "take more ownership of their plans." Certainly, limitations on drug rebates suggested by today's Executive Orders will have an impact. Other problems identified are the way in which the annual federal share of the capitated payments are determined and the geographical disparities in coverage.

Most of us have gotten used to the significant policy accomodation to Medicare Advantage plans. That is likely to continue but with a few more string attached.


On Sunday, the White House released the long anticipated Executive Orders on drug prices suggesting the president was done with negotiations with the pharmaceutical industry.

The first order requires the Innovation Center at CMS to develop a payment model for Medicare Part B drugs in which Medicare would pay, for certain high-cost prescription drugs and biological products covered by Medicare Part B, no more than the most-favored-nation price.

The most-favored nation price would be defined as "the lowest price, after adjusting for volume and differences in national gross domestic product, for a pharmaceutical product that the drug manufacturer sells in a member country of the Organization for Economic Cooperation and Development that has a comparable per-capita gross domestic product."

The second order calls for a similar payment model to be developed for Medicare Part D where "insufficient competition exists and seniors are faced with prices above those in OECD member countries."

The implications for the Part D are many. First, the administration has found a way to address drug prices while managing downstream effects. In 2018, Sec. Alex Azar had proposed point of sale rebates for Part D drugs. The rule was withdrawn over concerns that rebates, which have been subsidizing Medicare Advantage premiums, would be economically damaging to seniors. The Part D order allows for a more targeted approach and one that can be managed without the encumberance of the rulemaking process.

Second, the orders contemplate one of drug price policy's most vexing problems: competition. By limiting the scope of the Part D rule to drugs where there is insufficient competition, thereby potentially only imposing price restrictions on sole source drugs makes all that pay-for-delay and patent thicket effort less rewarding.

Finally, the orders suggest, reiterated by the president's tweets on Sunday, that the models will limit and/or prohibit. Rebates in Medicare Part D can be quite significant and have contributed to the growth of Part D plan enrollment through cross subsidization of premium prices. For PBMs, Medicare represents a significant portion of their rebate income so this move does not seem like good news for GDRX, which relies heavily on its relationships with PBMs and the byzantine pricing system of drugs in general.

For Part B, the implications are a little less clear. Many drugs that would be included in a model are sole source. Many others are getting biological competition. A model that tests payments on certain drugs, rather than certain populations or certain geographies could discourage upward price pressure as drug companies try and avoid unwanted attention.

No doubt these orders and their associated actions are going to court. The reported brazenness of the drug industry suggest they believe they will win. Worth remembering that, when it comes to some of the Trump adminstration's radical rulemaking, the courts have mostly sided with the White House.