LGN Federal Relations Policy Brief: Health Care & Prescription Drugs

The final four months of 2019 will be a “now-or-never” time for Congress to take substantive action to lower prescription drug prices. So far in the 116^th Congress, the House and Senate have each taken actions on this issue. The House held nearly a dozen congressional hearings to examine the rise of drug prices, marked up and reported out about a half-dozen bills from three different committees. Of these, the House Energy and Commerce (E&C) Committee dedicated more hearings on the issue and also seemed to have packaged together a broader bill than the other committees. The More Efficient Tools to Realize Information for Consumers (METRIC) Act (H.R. 2296), passed the E&C Committee last month shortly before the House left town for the August recess. In short, the METRIC Act would increase public disclosures of drug pricing information as well as more oversight over pharmacy benefit managers (PBMs). The bill awaits House floor consideration once the House comes back from its recess in September.

On the other end of the U.S. Capitol Building, the Senate held more than six separate hearings on the drug pricing issue. In total, six bills were marked up and reported out from three different committees – four Senate Judiciary Committee bills related to anti-competitive activities within the drug supply chain; the Lower Health Care Costs Act (S. 1895) out of the Senate HELP Committee; and the Prescription Drug Pricing Reduction Act, which was most recently marked up by and reported out of the Senate Finance Committee. It is worth noting that several of the policies in these Senate bills mirror similar provisions included in House bills, particularly the METRIC Act mentioned above.

The Trump White House, the Department of Health and Human Services, and the Centers for Medicare and Medicaid Services have also been active on the issue. Following President Trump’s release of the “American Patients First” blueprint last year in May, his administration has proposed a number of regulations to bring down prescription drug prices and lower patients’ drug costs. The most notable proposals thus far include requiring drug manufacturers to show list prices in consumer drug advertisements (though PhRMA and its partners were successful in federal court to stop it from going into effect), eliminating drug manufacturer rebate payments to PBMs (which was withdrawn in the final rule earlier this year), tying Medicare Part B reimbursements to an index of international prices, and opening the U.S. drug supply to drug imports from other countries. Given that lowering prescription drug prices was one of President Trump’s campaign promises, it is expected that he will make an effort to deliver on that front before the end of his first term.

The word around Capitol Hill is that healthcare will still be front and center from the month of September to the end of the year, with most of the attention going to “drug pricing reform.” At the moment, everyone has trained their eyes on trying to answer the following three questions:

• Will Senate Finance Committee Chairman Chuck Grassley (R-IA) be able to get enough support from Republican members of his committee and the Senate Republican Conference for his drug pricing proposal, the Prescription Drug Pricing Reduction Act of 2019, so that it can become part of a package to come to the Senate floor for a vote?
• What are the details of the drug pricing bill that House Speaker Nancy Pelosi (D-CA) is currently working on and plans to release in September? The big question is whether it call for some form of direct negotiation by the federal government with drug manufacturers.
• What will President Trump announce in his September speech at the White House to lower health care costs, especially around prescription drug prices? Is he going to put the full weight of his administration behind controversial proposals that would tie Medicare Part B reimbursements to international prices; and allow drug importation of approved drugs from other countries?

However, with the recent tragic mass shootings, the focus of debate will likely center around gun control policies as soon as members of the House and Senate come back to Washington. As the drug pricing issue shares the September stage with gun control, the answers to these questions will dictate how the drug pricing reform efforts shape out in the coming months. That being said, in one way or another, these questions are also interrelated and could influence behind-the-scenes negotiations between Congress, the Trump Administration, and industry stakeholders.

There are still ways to go and obstacles remain on multiple fronts, each unique to the House, the Senate, and the Trump Administration. However, if there is one policy area with a likelihood of bipartisan agreement for the rest of 2019, lowering prescription drug costs looks to be on top of the list.

For a more detailed analysis on where things stand at this point in time, LGN’s Ed Kim has offered an analysis below on the drug pricing issue and provides additional insight on these questions before Congress.

Key Points:

• For those who know how things work in Washington, whatever drug pricing proposal that can pass the Senate and has the backing of President Trump will be the landmark legislation most likely to get signed into law. That is why it is our belief the bipartisan Senate Finance Drug Pricing Proposal, once packaged together with the bills reported out of the Senate HELP and Senate Judiciary Committees, has the better chance of passing both chambers of Congress.
• While concerns continue to remain with the Senate Finance proposal, there is little to no chance a potential House Democrat drug pricing package being constructed by Speaker Pelosi and seeking to require drug price negotiations between Medicare and drug manufacturers would pass the Republican-controlled Senate.
• However, the wild card in all of the drug pricing efforts will be President Trump. Specifically, will the President and the White House decide to continue pushing the Senate Finance proposal with House Republicans – particularly House leadership and Reps. Greg Walden (R-OR) and Kevin Brady (R-TX), the ranking member of Energy and Commerce Committee and Ways and Means Committee, respectively. Or, will he strike a deal with Speaker Pelosi on her proposal and convince enough Senate Republicans to get it through the Senate? We still think the Senate Finance proposal would be more tolerable to Republican members in both chambers than a Speaker Pelosi-led drug pricing negotiation package that would abandon one of their party’s core principles.

Senate Finance Drug Pricing Proposal: The Prescription Drug Pricing Reduction Act of 2019

The Prescription Drug Pricing Reduction Act (PDPRA), or what is technically known as the Chairman’s Mark, was marked up by and reported out of the Senate Finance Committee on July 25, 2019. It is also referred as the Grassley-Wyden proposal and being drafted into bill form as we speak.

PDPRA is a package of specific policy concepts that tackle drug pricing reform by modifying primarily three federal drug pricing programs – Medicare Part B, Medicare Part D, and Medicaid. There are significant policy changes within each program, and unless there are major modifications, if it becomes law, PDPRA will impact drug prices, the drug supply chain, and government and patient spending.

Medicare Part B

About 25 percent of all Medicare drug spending is for physician-administered drugs covered under Medicare Part B. These drugs are provided in a doctor’s office or other outpatient facility, as opposed to drugs that require a prescription and are picked up at a pharmacy by the patient. The most common types of drugs under Part B include chemotherapies and treatments for end-stage renal disease, rheumatoid arthritis, Crohn’s disease, and other inflammatory diseases.

Of the various sections relating to Part B, these two policies should make a noticeable impact:

• Increasing the payment rate for biosimilars for the first 5 years they are on the market, thereby incentivizing providers to use more biosimilars (rather than the more expensive reference product, i.e., biologic) and help these products gain market share.
• Placing a new price control measure by penalizing any brand-name drug manufacturers that increase their drug prices faster than inflation (“price inflation penalty”) with additional rebates to Medicare.

Unlike Medicare Part D where private drug plans and pharmacy benefit managers (PBMs) either manage formularies or negotiate with drug manufacturers or do both, the current Medicare Part B system generally requires Medicare to pay providers and hospitals based on the average sales price of a Part B drug, plus a 6 percent add-on for properly storing the drug.

Medicare Part D

The federal government spent nearly $100 billion on prescription drugs under the Medicare Part D program in 2018, covering more than 43 million beneficiaries. Enacted in 2003 as part of the Medicare Modernization Act, Part D is commonly referred as the Medicare prescription drug benefit and helps pay for prescriptions that a patient picks up at a retail pharmacy and/or receives in the mail and self-administers.

Much like the approach for Medicare Part B, most of the policies for reforming drug price spending in Part D focus on more data transparency, behavioral incentives, and pricing controls. With that in mind, the following provisions are the highlights under this section of the bill:

• Restructuring the Part D benefit design – this proposal is likely the most significant change in PDPRA. The reforms included center around three key concepts:
  1. Imposing an out-of-pocket cap on beneficiary spending;
  2. Eliminating the current manufacturer Coverage Gap Discount Program (also known as the “Doughnut Hole”) and replacing it with a mandatory manufacturer discount in the Catastrophic phase; and
  3. Revising the cost liability of insurers and Medicare in the “catastrophic phase”.

The goal of this redesign is to increase the incentives of drug manufacturers and insurers to control drug spending by making them liable for more of the costs. More importantly, once the beneficiary reaches the catastrophic phase, they are no longer on the hook for any of the cost of their prescription drugs.

• Similar to the Part B policy, subjecting drug manufacturers to a “price inflation penalty” for Part D drugs for increasing their drug prices faster than the rate of inflation.
• Adding a new quality measure to the Part D Star Rating system on how drug plans’ benefit and formulary design encourages patient access to biosimilars.

Medicaid

The federal government pays roughly $30 billion for prescription drugs provided to Medicaid beneficiaries under the Medicaid Drug Rebate Program. As a condition of having Medicaid cover their drugs, the program requires drug manufacturers to pay a rebate for all of their prescription drugs, including biologics.

Here are the policy proposals in the PDPRA related to Medicaid that deserve most of the attention:

• Increasing the maximum rebate amount to 125 percent of the drug’s average manufacturer price. Under current law, the maximum rebate that drug manufacturers provide to the Medicaid program is capped at 100 percent of the drug’s average manufacturer price. By lifting the cap to 125 percent, drug manufacturers would have to pay for the use of their drugs in the Medicaid should their drug prices increase too rapidly.
• Banning spread pricing in PBM contracts with pharmacies when dispensing drugs to Medicaid beneficiaries so that the full payment that PBMs receive from Medicaid Managed Care Organizations are completely passed on to the pharmacy that dispenses the drugs.
• Allowing states to enter into risk-sharing value-based agreements with drug manufacturers of certain outpatient drugs, such as gene therapies, where states would be able to make installment payments over a 5-year period and reduce the payments if relevant clinical outcomes are not achieved as agreed.

Speaker Pelosi’s Drug Pricing Package

Speaker Pelosi has been promising to introduce the House Democrat’s drug pricing bill since this past April. Right before the August recess, she informed the Washington media of her intent to release her drug pricing proposal in September, rationalizing that sharing specific policy details in late July would allow PhRMA to lobby against it during August while Congress was away.

At this point, there is not much information on what exactly her bill would do, except for the fact that many expect it will include a policy allowing, or possibly requiring, the federal government – i.e., Medicare – to directly negotiate with drug manufacturers on prices of at least 25 drugs. According to several news reports, there have been discussions of imposing an excise tax for companies that do not participate as well as creating an arbitration process to help resolve disputes between Medicare and drug companies, overseen by another federal agency such as the Federal Trade Commission.

President Trump’s September Announcement

While most of Washington is speculating what exactly President Trump will announce next month, some people who have been in touch with the administration believe much of the attention will be geared towards lowering drug prices. That said, with the President seen as experiencing setbacks recently, first with a federal court preventing the Department of Health and Human Services (HHS) from requiring drug manufacturers to disclose list prices in direct-to-consumer drug advertisements, and then with the withdrawal of the drug rebate rule that would have ended many of the rebates that drug manufacturers pay to PBMs under Medicare, many are anticipating that he will promote the administration’s efforts to lower drug prices by aligning Medicare reimbursements for Part B drugs to an index of prices drawn from 16 foreign countries (commonly known as the International Pricing Index (IPI) payment model), and allowing the importation of certain drugs from Canada.

Both proposals are not only controversial but also run contrary to long-held free market principles of the Republican party. Most conservative Republican members of Congress view these ideas, particularly the IPI payment model, as a form of price controls. There is conversations that instead of the IPI model, the President is also looking at imposing a “most favored-nation” clause through an Executive Order where the pricing could be pegged to whatever the lowest nation’s price is. It is safe to assume such action would do little to ease concerns from members of his party.

The recently proposed drug importation plan would explore two pathways: first, through a demonstration waiver granted by HHS to states, pharmacies, and wholesales to import Canadian-approved drugs that comply with U.S. Food and Drug Administration regulations; and second, by allowing drug manufacturers to import drugs produced in other countries and, if they are exactly the same product as those sold in the U.S., be marketed under a separate identification code for registration and tracking.

The Outlook Ahead

Not only is the prescription drug supply chain very convoluted, but any attempt to reform the pricing structure through legislative policy will be highly contentious. The fact remains that the drug manufacturers and its trade group, PhRMA, are powerful entities that not only fund research for the next generation of cures and therapies in their labs but also contribute to the many non-profits and policy think tanks around Washington and the country. Additionally, these companies are employers for hundreds of thousands of American employees who are constituents of many Members of Congress, Democrat and Republican. While there is now more outrage over high drug prices than before, it is important to keep this in mind as debate intensifies over the coming months on how successful Congress will be to enact meaningful reforms to lower drug prices, while the drug industry does its best to maintain their profit margins for the foreseeable future.

Furthermore, while there has been a good amount of bipartisan work on surprise medical bills, sources on the Hill reveal that, if push comes to shove, prescription drug pricing would be what President Trump chooses to get across the finish line. Just to reiterate, lowering drug prices was a promise the President made while he was running for president and said he would do during his first term, so this issue remains his top priority above anything else.

Lastly, we are heading into the 2020 Presidential election season, so there are different dynamics at work, particularly what, if any, kind of legislative win do Democrats want to give President Trump for his reelection campaign. Also, it should not come to anyone’s surprise that Senate Majority Leader Mitch McConnell (R-KY) is looking not only to assist the President with a policy achievement but also strengthen his own positioning for reelection next year. So, some have advised that Leader McConnell has little appetite to bring any major healthcare bill to the Senate floor knowing that there are several Democrat Senators running for president who are undoubtedly looking to exploit President Trump on his administration’s actions on Obamacare while pushing their own healthcare priorities. Should this be the case, whatever the final agreed-to drug pricing package, including other healthcare issues like surprise medical billing, could be attached to a must-pass legislative vehicle where voting against it would be difficult for most members in both political parties.

So, how things stand now on what we can expect seems to be either there is an agreement by the “four corners of the Capitol” on the Grassley-Wyden proposal or the President strikes a deal with Speaker Pelosi on her drug pricing package on what could be his signature legislative achievement heading into 2020. Either way, the President has made his intentions known – he wants to get something done and show the American people that he has delivered on his promise to drive drug prices down. More than anyone, and for different reasons, drug manufacturers (and their trade group, PhRMA) and congressional Republicans are most nervous about these prospects.