“Nothing to see here” seems to be the general reaction to the four executive orders President Donald Trump signed Friday in an effort to reduce U.S. prescription drug prices.
Two of the orders – one on importing drugs from Canada and the other on kicking the safe harbor out from under the rebates pharmacy benefit managers (PBMs) get from drug companies – instruct Health and Human Services (HHS) to continue, or resume, rulemaking on those measures. So, basically, they’re nothing new.
A third order, which would give the U.S. “most favorable nation pricing,” is a twist on an earlier proposed international pricing index and a House effort to negotiate drug prices using such an index to set the ceiling price. The other order would require federally qualified health centers to pass the steep 340B discounts they get on insulin and injectable epinephrine directly to low-income patients who have no health insurance or who have high cost-sharing or a high unmet deductible.
“While the abruptness of the announcement may have taken some investors by surprise, none of these ideas put forth are new, or in fact any more implementable than before, especially without congressional action,” said Christopher Raymond, a senior research analyst with Piper Sandler. “We urge investors – especially newcomers to the space – to stay the course.”
Vamil Divan, managing director for Mizuho Securities USA LLC, agreed. “We believe resorting to Executive Orders as opposed to passing legislation through Congress will unlikely lead to material change in the near-term and these peculiar aspects of our drug pricing system will generally remain intact,” he said.
Regardless, the biopharma industry is taking no chances. Executives from several companies will be meeting with the president Tuesday, but whether they’ll offer their own pricing solutions or just try to dissuade him from going forward with most favorable nation pricing remains to be seen.
That order is what Trump called the “granddaddy of them all.” However, it isn’t to be implemented until Aug. 24 to give industry time to come up with something else that would substantially reduce drug prices.
Intended to end global freeloading that has U.S. patients bearing the brunt of the cost of drug development and innovation, the order would require Medicare to determine what other medically advanced nations pay for the most expensive drugs, and then instead of paying the highest price as it currently does, Medicare would pay the lowest price, as would other federal programs.
Industry is characterizing the proposal as a socialist move that will hamper innovation. Pharmaceutical Research and Manufacturers of America President and CEO Stephen Ubl called it “a radical and dangerous policy to set prices based on rates paid in countries that [Trump] has labeled as socialist.”
He added that the administration’s proposal “is a reckless distraction that impedes our ability to respond to the current pandemic – and those we could face in the future. … The president’s attempt to open our country up to socialized health care sets America, our economic recovery and scientific progress back at a time when we need them most.”
But in justifying his plan, Trump said the U.S. is “subsidizing the socialist health care systems of foreign welfare states and many other countries. We will end that abuse and restore the principles of free enterprise.”
When the executive orders were signed, Biotechnology Innovation Organization President and CEO Michelle McMurry-Heath immediately wrote to Trump, urging him to abandon implementation of the order imposing foreign price controls. In the letter, she reminded him of the warnings of his Council of Economic Advisors (CEA) about similar policies included in H.R. 3, which would require HHS to negotiate the price of certain drugs, using a ceiling of 120% of an average international market price. The price could then be negotiated downward, based on R&D and manufacturing costs for the specific drug.
The CEA estimated that H.R. 3 could lead to as many as 100 fewer drugs entering the U.S. market over the next decade. That’s about a third of the total number of new drugs expected to come to market in the next 10 years. Disregarding the CEA warning, the Democrat-controlled House passed H.R. 3 on a party-line vote last December. To date, the Republican-controlled Senate has refused to consider it.
McMurry-Heath told the president the CEA “estimate is supported by actual experience from the failed European experiments with price controls.” Years ago, biopharmaceutical R&D investment in Europe was 24% higher than in the U.S., she said. But after adopting international reference pricing and other government-mandated prices, Europe today trails the U.S. in biopharmaceutical R&D by more than 40%.
At the same time, she said, patients in Europe are often denied access to life-saving technology. For instance, she noted that between 2010 and 2014 in the U.K., a patient with brain cancer was nearly 40% less likely to survive five years after diagnosis than a patient in the U.S.
“We need to bring other countries up to the U.S. gold standard of innovation and patient care, rather than adopting their policies that lead to substandard care,” McMurry-Heath said. She suggested using trade agreements to make other countries shoulder a fair share of the cost of biopharma R&D.
Chasing perverse incentives
McMurry-Heath also encouraged Trump to look to other solutions. “Rather than impose patient-harming and innovation-killing price controls, we would like to work with you on solutions that will dramatically lower costs for patients and reduce perverse incentives within our system that lead to unnecessarily higher list prices,” she said.
Two of the executive orders signed Friday would do that, but only in government programs. For instance, the 340B order would change the current system, at least for a few drugs, in which eligible providers can purchase drugs at penny pricing, but then charge even low-income patients the full price of the drug. The profit becomes a revenue stream the providers can use for other purposes. Past efforts in Congress to force providers to pass the discounts to patients or to be more accountable for the 340B program have failed to gain bipartisan support.
The rebate kickback order, which has been applauded by the biopharma industry in the past, instructs HHS to resume its rulemaking to eliminate the Medicare antikickback safe harbor for the rebates PBMs negotiate with drug companies as part of their formulary placement. A year ago, HHS stepped away from the proposed rule, citing concerns that it would increase premiums for all Medicare beneficiaries.
“Medicare patients, whose cost sharing is typically based on list prices, pay more than they should for drugs while the middlemen collect large ‘rebate’ checks. These rebates are the functional equivalent of kickbacks and erode savings that could otherwise go to the Medicare patients taking those drugs. … Fixing this problem could save Medicare patients billions of dollars,” according to the order.
However, the executive order requires HHS, before it goes forward, to publicly confirm that the rule isn’t projected to increase federal spending, Medicare premiums or patients' total out-of-pocket costs.
As it did when the rule was first announced last year, the requirement to pass the rebates on to patients is drawing political fire. House Speaker Nancy Pelosi (D-Calif.) pushed back against the proposal Friday, saying it “would hand billions of dollars to Big Pharma.”
Pushing forward on importation
The importation order reiterated the administration’s support for the safe importation of drugs and calls on HHS to complete its rulemaking to allow importation from Canada. It also pushed HHS to go further by allowing the import of insulin for “emergency medical care.”
When HHS Secretary Alex Azar announced last year that, for the first time, HHS was going to use the 20-year-old law that gave it the limited authority to allow the import of drugs approved in Canada, he noted that the law prohibited the import of insulin and other biologics, controlled substances, infused drugs, intravenously injected drugs, drugs inhaled during surgery and certain parenteral drugs.
In December, the FDA issued a proposed rule to establish the Canadian import program, along with a draft guidance to allow much broader importation of lower-priced drugs and biologics that are a manufacturer’s foreign versions of its FDA-approved products. The catch was that the importation of those products would be at the manufacturer’s request.
In pushing for the importation rule to be finalized, the administration said, “One way to minimize international disparities in price is to increase the trade of prescription drugs between nations with lower prices and those with persistently higher ones. Over time, reducing trade barriers and increasing the exchange of drugs will likely result in lower prices for the country that is paying more for drugs.”
Analysts remain skeptical. Mizuho’s Divan said reimportation of drugs would “be challenging given the tight control our companies have of their supply chains and the likely shortages that would occur in Canada if drugs were reimported into the U.S. in any meaningful way.”