The increasing prices of prescription medications in the U.S. in recent years has had significant effects on both the federal government and patients. Medicare is one of the largest prescription drug payers in the nation, and its prescription drug benefit program, Part D, accounted for $101 billion (30%) of the total $333 billion that the U.S. spent on retail prescription drugs in 2017. Based on data from CMS’ Medicare Part D drug spending dashboard, the Kaiser Family Foundation found that list prices increased by more than 10% for 450 (14%) of all Part D covered drugs between 2018 and 2019.
For consumers, rising prices can have a negative effect on their personal health and habits. For instance, a survey by the Kaiser Family Foundation found that costs were the reason three in 10 respondents (29 percent) reported not taking their medicine as prescribed. Not taking medications as prescribed can not only this lead to poor health outcomes, particularly for vulnerable populations, but it also has deadly consequences. An estimated 125,000 deaths each year are because of medication non-adherence in the U.S.
Concerns about prescription drug prices have only increased over the past year, amid the COVID-19 pandemic. A study by Gallup found that nearly nine in 10 U.S. adults are "very" (55 percent) or "somewhat" (33 percent) concerned that the pharmaceutical industry will leverage the pandemic to raise drug prices. This sentiment is especially true for members of communities of color. For instance, 87 percent of Black Americans in an AARP survey say that they are “very” or “somewhat” concerned about being able to afford prescription medications for themselves or their family in the next few years.
Prescription drug prices is a key issue for President Joe Biden, just like his predecessor. In his first address to a joint session of Congress, Biden called for lowering prescription drug costs, noting that medications are “outrageously expensive” in the United States.
In this blog post, we take a look at the Biden administration’s early actions on prescription drug pricing, review Medicare-related drug pricing proposals from the previous administration, and preview what’s next for this important issue.
Biden Freezes Trump-era Prescription Drug Regulations
On Jan. 20, 2021, the Biden administration released a regulatory freeze memorandum, calling for federal agencies to temporarily delay implementation of final rules issued by the Trump administration that had not yet taken effect. Four of those rules involved Medicare and prescription drugs. The Biden administration can choose to implement them as proposed, modify certain aspects of them, or rescind them altogether. Here is a closer look at the regulations.
Removal of Safe Harbor Protections for Medicare Drug Rebates
Also known as the “Rebate Rule,” the Trump administration released a final rule on Nov. 30, 2020, that would:
- Eliminate the safe harbor under the federal anti-kickback statute for rebates negotiated between drug manufacturers and pharmacy benefit managers (PBMs) under Medicare Part D plans; and
- Establish a new safe harbor for rebates that manufacturers pass directly to Medicare beneficiaries at the point-of-sale.
PBMs are entities that act as “middlemen” between drug manufacturers and Part D plans and negotiate prescription drug prices. They have faced increased scrutiny in recent years because of their business practices, which tend to benefit the parties involved, rather than lowering out-of-pocket costs for Medicare patients.
Proponents argue that by eliminating rebates, drug manufacturers would have an incentive to lower list prices and pass discounts directly to beneficiaries. A fact sheet released with the rule noted that the new safe harbor for point-of-sale discounts would lower out-of-pocket costs for patients, particularly those using drugs with high list prices.
While some beneficiaries may experience lower out-of-pocket spending under this rule, eliminating Part D rebates could prompt some plans to raise premiums to make up for a loss in revenue. In a statement, former HHS Secretary Alex Azar disputed this, saying that “there will not be an increase in federal spending, patient out-of-pocket costs, or premiums for Part D beneficiaries under the final rule.” However, an initial Congressional Budget Office (CBO) analysis of the rule found that if implemented as proposed, the rule not only would increase premiums for beneficiaries, but it also would increase Medicare spending on Part D premiums by $170 billion over the next 10 years.
Where it stands | Not surprisingly, PBMs objected to the elimination of the safe harbor provision for rebates between PBMs and manufacturers and took legal action. A federal judge postponed the rule’s effective date until Jan. 1, 2023, and allowed the Biden administration until April 1, 2021, to decide whether to defend the rule in court. As part of the overall regulatory freeze, the Biden administration released a final rule further delaying the effective date of other provisions of the rule from Jan. 29, 2021 to March 22, 2021, a decision praised by payers and the PBM industry. Moving forward, the Biden administration can choose not to defend the rule and undergo new rulemaking to modify or eliminate it altogether. If the administration chooses to defend the rule, it would also likely require new rulemaking, as the rule’s current form is blocked by court order.
Most Favored Nations Model
On Nov. 27, 2020, the Trump administration published the Most Favored Nations Interim Rule, which proposed testing a new Medicare payment model that would:
- Align the amount Medicare pays for 50 high-cost drugs under Part B with the lowest price in certain other developed nations; and
- Replace the current 6 percent administration fee that is added to the average sales price of a drug with a flat amount.
Under the rule, the model would run for seven years beginning Jan. 1, 2021. By its fourth year, the model would move to a payment system aligned with the lowest price in the “most favored nation.” It would require mandatory participation from all Medicare providers and suppliers, with a few exceptions, such as cancer and children’s hospitals.
Under the Trump administration, CMS officials had estimated that the model would result in savings of $85.5 billion over the seven years and a 65 percent reduction in Part B drug reimbursement. Despite the significant savings, some expressed concern that the model could harm patients’ access to lifesaving medications and lead to higher prices in other countries. CMS at the time acknowledged that a portion of the savings is due to lower use of medications and beneficiaries not accessing their drugs through Part B.
Where it stands | Following considerable legal pushback from health care providers and the pharmaceutical industry, CMS in December 2020 said the rule “will not be implemented without further rulemaking.” Given this, the Biden administration could reevaluate the model or pursue alternative approaches, such as establishing an independent review board to recommend “a reasonable price” for Medicare drugs based on the average price in other countries, which was one of Biden’s campaign proposals on health care reform.
Prescription Drug Importation
The FDA issued a final rule in October 2020 to allow states and American Indian tribes to implement time-limited Section 804 Importation Programs to import drugs from Canada. Pharmacists and wholesalers would be permitted to do so in the future. The rule came in response to research showing that Canadian drug prices are significantly lower than those in the United States. For instance, one study found the average pharmaceutical list price in Canada was $132.59 compared with $466.15 in the U.S.
While this rule aims to lower costs for the average American, the Trump administration did not release an estimate of expected savings, and it is unclear how much the rule could save patients and the federal government.
Where it stands | In response to the final rule, the Pharmaceutical Research and Manufacturers of America filed a lawsuit, and the Canadian Minister of Health signed an interim order limiting bulk exports of drugs to safeguard Canadian supplies. During his presidential campaign, Biden did support drug importation, but it is not entirely clear how his administration will respond to the rule. In the meantime, states such as Colorado, Florida, Maine, New Hampshire, New Mexico, and Vermont are moving forward with drug importation programs.
Insulin/Epinephrine Pricing Through Medicare 340B
In December 2020, the Trump administration released a final rule requiring federally qualified health centers to provide low-income patients with insulin and epinephrine at the price they were purchased for through the 340B Drug Pricing Program. The 340B Drug Pricing Program was designed to help providers serving vulnerable patient communities access outpatient drugs at discounted prices. While the rule aimed to improve access to these drugs for uninsured patients and those with high cost-sharing requirements, the National Association of Community Health Centers and other groups have criticized the rule, noting that it would add a burden to health centers ”without doing anything to lower how much drug companies charge for drugs.”
Recent Actions by the Biden Administration
On March 11, 2021, Biden signed the American Rescue Act of 2021 into law, a $1.9 trillion stimulus package aimed at providing COVID-19 relief. The new law includes a provision to eliminate the statutory rebate cap for drug manufacturers under the Medicaid Drug Rebate Program (MDRP). Previously, rebates paid by drug manufacturers participating in the program could not exceed 100% of the average manufacturer price of the drug. However by eliminating the rebate cap, drug manufacturers may now have to pay states more than the amount that their Medicaid programs pay for the covered drug, which the CBO estimates could save Medicaid $15.9 billion over the next decade. This is the first major legislative action the administration has taken to address drug pricing since Biden took office at the beginning of the year.
In April, Biden signed two other bills—the Advancing Education on Biosimilars Act and Ensuring Innovation Act—that aim to support biosimilar use and generic competition in the pharmaceutical market. Despite these efforts, the changes from both laws are minor and unlikely to yield significant cost savings in the near future.
Further, Biden’s wide-ranging COVID-19 relief package, the American Families Plan, aims to “lower prescription drug costs for everyone by letting Medicare negotiate prices.” Currently, the federal government is not permitted to negotiate the price of medications covered by Medicare. A CBO analysis estimates such negotiation could reduce the average price of these drugs by nearly 55 percent.
In addition to the various regulatory pathways that the Biden administration could take to reduce drug prices, Congress also could pass meaningful legislative reform. Despite the bipartisan support for addressing this issue, there is disagreement between Democrats and Republicans on how to do so.
The Elijah E. Cummings Lower Drug Costs Now Act (H.R. 3), introduced in 2019, would allow HHS to negotiate the prices of 25 brand name drugs under Medicare. With Biden’s recent call for Congress to take action this year to lower drug prices, Democratic lawmakers have reintroduced key provisions of H.R. 3, including allowing the federal government to negotiate prices for certain Medicare drugs and establishing inflationary rebates for drugs covered by Medicare Parts B and D. Based on a CBO analysis, allowing Medicare to negotiate drug pricing could lower spending by $456 billion over a decade. Republican lawmakers oppose the bill, arguing that lower prices could harm innovation in the market.
Additionally, while both the House and Senate have proposed plans to redesign Medicare Part D to lower out-of-pocket costs and premiums, their approaches are expected to have varied outcomes. Specifically, the CBO found that Prescription Drug Pricing Reduction Act of 2019 (S. 2543) would save the federal government $3.39 billion over a decade, while H.R. 3 would increase spending by $9 billion.
This is a rapidly developing issue, and IMPAQ’s experts will continue to monitor it and provide our insights.