Sunday, July 26, 2020

Trump’s Executive Orders on Drug Pricing: The Drug Channels Guide to Industry Implications

Surprise! President Trump signed four executive orders (EO) last Friday afternoon. They cover:
  • Pass-through of 340B discounts for insulin and EpiPens
  • Rebate reform (!)
  • Importation
  • Most Favored Nation (MFN) pricing for drugs
The fourth order on MFN has not been publicly released, so I will reserve comment for now.

I see significant challenges in implementing these far-reaching orders. Below, you’ll find the text of the first three along with my commentary and links to Drug Channels articles that will help you make sense of them.

Read on and see if you agree with me.


Text: Executive Order on Access to Affordable Life-saving Medications

The administration wants to mandate that 340B discounts for insulin and EpiPens be passed on to patients. Currently, 340B covered entities can buy these products for $0.01 (penny pricing). The EO therefore aims to eliminate the unfair hidden subsidies that I model in How Hospitals and PBMs Profit—and Patients Lose—From 340B Contract Pharmacies. (Check out the lively discussion in the comments below that article.)

However, the EO applies only to the roughly 1,000 Federally Qualified Health Centers (FQHCs) in the 340B program. That’s surprising, because I generally consider these covered entities to be the good guys of 340B. FQHCs account for less than 2% of the 112,000 relationships between covered entities and contract pharmacies. Notably, the executive order doesn’t mention hospitals, which are the worst abusers of the 340B program.

The executive order is also limited to “individuals with low incomes,” who are defined as having either:
  • a high cost sharing requirement for either insulin or injectable epinephrine;
  • a high unmet deductible
  • or no health care insurance.
There are no details on how the government will operationalize these qualifications.

Some of you may doubt the motivation for a 340B executive order. I suggest that you revisit Federal Oversight of Compliance at 340B Contract Pharmacies Needs Improvement, a 2018 United States Government Accountability Office (GAO) study.

The GAO found that an astounding share of covered entities—33% of federal grantees and 57% of hospitals—do not provide discounts to low-income, uninsured patients. Poor patients paid full price, while the covered entities collected a big discount. See the dark blue segments of Figure 9, reproduced below. Seriously?!?

[Click to Enlarge]

Nonetheless, this executive order’s impact will be small relative to the total dispensing of insulin and epinephrine. I’m also unsure about whether the executive branch has the authority to make this change to the 340B program.

But perhaps this is a useful first step toward reforming and modernizing it. That's why you can expect tremendous pushback from hospitals, PBMs, and pharmacies. They will all recognize the existential threat to their 340B profits.


Text: Executive Order on Lowering Prices for Patients by Eliminating Kickbacks to Middlemen

As Drug Channels readers know, I have long advocated for reforming the rebate system to address the warped incentives of the U.S. drug channel. I’ve covered this topic extensively in more than 60 Drug Channels articles with the gross-to-net bubble tag.

I suggest that you start with my thoughts on why the rebate rule stalled in 2019: Six Reasons Why the Rebate Rule Failed—And What’s Next.

For now, I remain skeptical that the administration can pull off rebate reform for Medicare Part D given the political and practical challenges. Here’s what I wrote last August:
“Rebate reform was always going to be a tough sell. It represents a complex, multifaceted change to an opaque system that few people understand. The effects were highly unpredictable and subject to great debate. Few politicians were willing to roll the dice on the administration’s promises that the rebate rule would reduce drug prices.”
These issues remain. Also, note the very important caveat in the text of the executive order:
“Prior to taking action under section 3 of this order, the Secretary of Health and Human Services shall confirm — and make public such confirmation — that the action is not projected to increase Federal spending, Medicare beneficiary premiums, or patients’ total out-of-pocket costs.”
To clear these three hurdles, perhaps the administration could narrow its focus to highly rebated therapies or specialty drugs that treat few seniors but have very high out-of-pocket costs.

Consider hepatitis C treatments, which meet both of these criteria. Part D plans often prefer high list price drugs with high rebates. These choices raise the federal government’s Medicare spending and needlessly cost seniors thousands in out-of-pocket spending.

The problem: Plans’ rebates from the high list price products reduce monthly premiums for healthier seniors. This reverse insurance problem is baked into the weird math of Part D bidding and its benefit structure. For my Part D primer, revisit this article: Why Part D Plans Prefer High List Price Drugs That Raise Costs for Seniors.

Bottom line: I'm keeping a hopeful but skeptical eye on this order.

P.S. For my futuristic vision of how a new system could work, you can also revisit A World Without Rebates: Predictions for How the Channel Will Evolve and Why Drug Prices Will Go Down. I can dream, can’t I?


Text: Executive Order on Increasing Drug Importation to Lower Prices for American Patients

Like a narcoleptic Jason Voorhees, importation is back … again!

Last December, the FDA and HHS issued a notice of proposed rulemaking (NPRM) that would permit importation of prescriptions from Canada. The NPRM would allow states and certain other non-federal government entities to submit importation program proposals to the FDA for review and authorization. The HHS claimed that these regulations would be comparable to those of the Drug Supply Chain Security Act (DSCSA) and would pose “no additional risk to the public’s health and safety.”

Friday’s executive order essentially asks the government to finish this rulemaking process.

Unfortunately, importation is a fantasy "solution" that won't provide any meaningful savings and can't work without trashing the DSCSA track-and-trace law. To understand why, read my op-ed with Dirk Rodgers: Drug Importation Can’t Coexist with U.S. Track-and-Trace Law. Our op-ed was written six months before the proposed rule, but it remains valid.

HHS and the FDA tried to finesse the track-and-trace realities with a ludicrously convoluted, impractical, and likely illegal scheme to bypass the DSCSA. And of course, there are many other significant barriers to commercial importation, including opposition from Canada and lack of cooperation from industry participants.

ICYMI, the FDA released an economic analysis of cost savings from this plan. It concluded: "We are unable to estimate the cost savings from this proposed rule." And in case anyone missed the snark, the FDA published a blank table titled “Benefits, Costs, and Distributional Effects of Proposed Rule.”

[Click to Enlarge]

LOL. Can’t make this stuff up!

What’s more, I believe that states would lose their Medicaid rebates on drugs that are imported under this system. Say goodbye to paying $0.01 for many brand-name drugs! HHS punted on this subject in its proposed rule. None of the state analyses even contemplate this topic.

Bottom line: Importation is infeasible and not cost-effective. I expect it to fail due to the practical realities of rulemaking and legal challenges based on the DSCSA.


It’s hard to see any of these executive orders having a major impact before the election. Regardless of the proposals’ individual merits, I view them as political theater rather than implementable, near-term policies. All require substantial additional rulemaking and could be subject to various legal challenges.

But if Trump is reelected, expect these initiatives to form the backbone of our drug pricing discussions over the next few years. After the announcement, Secretary of HHS Alex Azar said:
“So what the President did today is, through executive order, make clear that these are the policies of his administration. These will happen; he has ordered them to happen. Debate is over. They will occur, and so it’s a commission, as with all executive orders across the executive department, to ensure alignment and make sure that we implement according to his directives.”
A bold promise—or the triumph of hope over experience?

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