*Co-Authored By: Thatcher Sloan, Vice President, Practice Leader
What You Need to Know
- On September 13th, President Trump signed an executive order on drug pricing that expounds upon one that was signed but not publicly released in July. The stated purpose is to ensure that pricing for drugs covered under Medicare Parts D and B would not exceed manufacturers’ “most favored nation” price.
- “Most Favored Nation Price” in the executive order would be derived from pricing extended by pharmaceutical manufacturers to countries that are members of the international Organization for Economic Co-operation and Development. There would be adjustments made to address purchasing volume and GNP differences between those countries and the US and only brand name products and products that lack sufficient competition (i.e., ones with no generics or biosimilars) would be included. This would be the first time that an international pricing benchmark would be used to set pricing; currently “best price” rules which are deployed in Medicaid use a domestic pricing reference.
- The timeframe for implementation is unclear, but it is certain to be long if it occurs at all. The executive order has no immediate effect and experts question whether the Presidential Administration has authority to carry it out. Pharmaceutical industry leaders indicate that they intend to challenge the order in court.
- Commercial plans should see little effect from this order until/unless it is implemented and the federal government or states follow suit with similar legislation.
An executive order on drug pricing, signed by President Trump on September 13th, rescinds and replaces one that was signed but not released to the public in July. The president stated in July that he intended hold off on that order until August 24th to allow the pharmaceutical industry time to propose alternative solutions, but none have been announced. The new version of the order is more far-reaching and impactful to the PBM industry because, unlike the previous version, it includes drugs covered under the Medicare outpatient drug benefit, Part D.
In explaining the purpose of the order, the president noted that by paying higher prices for drugs than other countries, the US is essentially subsidizing innovation and lower costs enjoyed by those other countries. He has proposed a “most favored nation” drug pricing model.
The order provides a high-level description on how the most favored nation pricing would be calculated. For both, it would be derived from pricing only in member countries of the Organization for Economic Co-operation and Development which have per-capita gross national product (GNP) comparable to the US and would be adjusted for volume and GNP.
For both Medicare Part B and Part D, the order calls for the Secretary of HHS to implement payment models that would be tested to ensure that they “mitigate poor clinical outcomes and increased expenditures” related to high drug costs.
The section dealing with Part D has a couple of notable differences from the section on Part B. First, it limits the order’s scope to products with insufficient competition (e.g., where no generic or bioequivalent products exist). Second, it notes that the payment model should be implemented “to the extent feasible”. This last caveat suggests that the Administration may intend to evaluate at least some of the downstream impacts of proposed models.
Response to the order was swift, with executives from numerous parts of the pharmaceutical industry using terms such as risky, irresponsible, unworkable, flawed and dangerous. The US Chamber of Commerce stated that it is coming at “the worst possible time”, adding to others’ concerns related to the present struggles associated with COVID-19.
Because the order is limited to Medicare, it is not likely to have a large impact. We believe that strategies such as value-based pricing, lowest net cost formularies and other innovative ideas generated from within the payer and pharmaceutical communities hold greater promise for positive long-term results. The US shoulders more than its fair share of the cost of pharmaceutical research and development and large-scale implementation of this measure could have a significant negative effect on innovation from pharmaceutical manufactures.
Most-favored-nation pricing referenced in the executive order would include:
- Derivation from pricing extended to member countries of the Organization for Economic Co-operation and Development
- Adjustments based on relative purchasing volume and GNP
- Brand name products only and limited to those lacking sufficient competition (ones with no biosimilars or generics)