President Trump Signs Executive Order Seeking to Link U.S. Drug Reimbursement to Foreign Prices

Manatt on Health

The Big Picture

In the latest election year action to address politically salient concerns with high drug costs, President Trump on Sunday signed an “Executive Order on Lowering Drug Prices by Putting America First.”  The Order, a replacement for a similar order that he issued on July 24 but never released publicly, seeks to tie some Medicare drug payments to the lowest amounts paid in other countries. The goal is to reduce the cost that both the federal government and Medicare beneficiaries pay for certain prescription drugs.

As with the other three orders related to drug pricing that the President signed and released in July, this Order has no immediate impact. Its implementation will require regulatory action, and the timetable for such action is unclear. In addition, it is likely that the plan will bring legal challenges.

When the President announced his drug pricing orders in July, he described this Order as the “granddaddy” of the four, designed to ensure that Americans get the lowest price of any country. He refers to the concept as “most favored nation.” However, he said at the time that he was withholding the order for a month to provide the drug industry the opportunity to meet with him and deliver an alternative. That meeting never occurred, and the Administration reportedly rejected rumored offers by the drug industry.

The Order that the President signed Sunday confirms some expectations of his plans but also goes further by extending the reach of his effort beyond Medicare Part B to the Medicare Part D outpatient drug benefit. In 2018, the Department of Health and Human Services (HHS) released an Advance Notice of Proposed Rulemaking (ANPRM) that sought comments on creating a Center for Medicare & Medicaid Innovation (CMMI) model test of reducing Medicare Part B reimbursement by 30% across all drugs based on a formula that would factor in the difference between a drug’s U.S. cost and the average cost in a group of foreign countries. (For more information, see Manatt Insights’ analysis of the ANPRM).

Responding to the President’s view that the U.S. should pay the lowest price and not the average price, the Order tasks HHS with implementing a Part B plan that would result in the U.S. paying “no more than the most-favored-nation price.” The Order defines that price 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 Organisation for Economic Co-operation and Development (OECD) that has a comparable per-capita gross domestic product.”

The Order does not further define what a comparable per capita gross domestic product (GDP) might be or how the price would be adjusted for differences in GDP. Many countries that might be used as comparators have lower GDPs than the U.S., in some cases significantly lower.

The Order goes beyond what had previously been discussed by tasking HHS with extending the most favored nation concept to certain Medicare Part D drugs. The Order directs HHS to initiate rulemaking for a CMMI model test that would reduce payments for Part D drugs “where insufficient competition exists and seniors are faced with prices above those in OECD member countries that have a comparable per-capita gross domestic product to the United States, after adjusting for volume and differences in national gross domestic product.”

The flow of payments to Part D plans makes the design of such a model test difficult. How to select the included drugs, how to direct plan sponsors to reflect the model in their bids, and how plan sponsors would acquire included drugs at the model test prices are among the questions that will challenge CMMI.

Next steps and timing on the Order’s implementation are unclear. In June, the Centers for Medicare & Medicaid Services (CMS) sent a proposed rule, “International Pricing Index Model For Medicare Part B Drugs,” to the Office of Management and Budget for their review and clearance. However, there are also rumors that CMS might proceed directly to an interim final rule, an action that could advance the implementation timeline. Moving directly to a final rule might, however, trigger legal challenges.

As preparations for the 2021 Medicare Part D plan year are well advanced and rulemaking to create a CMMI model would take many months, it is likely that the Administration could not implement any model impacting Part D until 2022 at the earliest without creating serious disruptions. It is also possible that any plan would face legal challenges that test how CMMI authority relates to Part D’s so-called non-interference clause that prevents the government from interfering in the negotiations between manufacturers and plan sponsors.

Of course, the ultimate fate of the Order’s plans for Parts B and D will depend on the election results. A Biden Administration may choose to continue any efforts begun now or scrap them in favor of seeking drug price negotiation legislative authority as proposed by House Democrats in H.R. 3. A second Trump Administration might also change course on tying U.S. prices to those in other nations.

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