By Vrushab Gowda
On September 13th, President Trump issued an executive order aimed at addressing ballooning pharmaceutical expenditures.
The order seeks to apply a “most favored nation” scheme to prescription drug payments made through Medicare Parts B and D, which are currently on track to exceed $130 billion. Although ambitious in scope, the order’s ultimate impact remains to be seen.
The Recent Proposal
“Executive Order on Lowering Drug Prices by Putting America First” (“Lowering Drug Prices”) is a relatively short document. Its statement of purpose comprises nearly half of its length, primarily acknowledging the high cost of prescription drugs in the United States vis-à-vis the remainder of the developed world.
In light of this disparity, the proposal aims to index drug prices paid by Medicare to the lowest rate paid by a peer OECD state. The order’s substantive provisions are vaguely worded; one calls for the scheme’s implementation with “immediate effect,” but no timeline is otherwise provided. It appears to apply to the entirety of Medicare Part B, but only to those portions of Part D “where insufficient competition exists and seniors are faced with prices above those in OECD member countries.” Moreover, “Lowering Drug Prices” is to be executed by separate HHS pilot programs for Medicare Parts B and D, rather than as a full-fledged initiative or component of an established pathway.
The Broader Context of Medicare Drug Payment Reform
In some respects, this proposal is nothing new. “Lowering Drug Prices” represents one venture in a long line of federal attempts to rein in Medicare drug spending. The issue has proven something of a Gordian knot, prompting a variety of recent proposals which include permitting CMS to directly negotiate prices, referencing pharmaceutical product price growth to the rate of inflation, and redesigning rebate packages. More specifically, “Lowering Drug Prices” comes on the heels of a quartet of executive orders announced on July 24th.
Three were signed into force on that day: “Executive Order on Access to Affordable Life-saving Medications,” “Executive Order on Increasing Drug Importation to Lower Prices for American Patients,” “Executive Order on Lowering Prices for Patients by Eliminating Kickbacks to Middlemen.”
A fourth unreleased and nebulously framed “most favored nation” proposal was slated to come into effect on August 24th. It was purportedly withheld to secure a more advantageous bargaining position with the pharmaceutical industry, whose counterproposals were unsatisfactory to the administration. When the text was later made available, it outlined a scheme largely similar to “Lowering Drug Prices,” only limited to Medicare Part B. In this vein, it is strongly reminiscent of a 2018 CMS proposal soliciting public comment which was never subsequently developed.
What Does It Mean?
“Lowering Drug Prices” goes further than earlier proposals to relate Medicare drug spending to international benchmarks.
A CMS model suggested pegging prices to an average of those negotiated by peer nations; this approach was much less ambitious in scope, aiming to reduce Medicare payments from 180% to 126% of an international mean. It largely ended up nowhere and expectedly prompted a fierce broadside from industry.
Although pharmaceutical manufacturers garner meager public sympathy, the effect of such a measure in the context of the ongoing pandemic could be profound. “Lowering Drug Prices” risks exerting a chilling effect on research and development, straining budgets at a critical juncture, and potentially affecting the availability of COVID-19 therapies. If industry views the proposal as a credible threat, it may prompt lawsuits to delay or even enjoin its execution.
Leveraging international price indices is not a conventional Republican position. In fact, tying domestic prices to those negotiated by single-payer jurisdictions is diametrically opposed to the operation of free market principles.
Both “Lowering Drug Prices” and earlier proposals triggered a wave of criticism among conservative policy circles, including a tweet by Newt Gingrich and a declaration from one strategist that such reforms are tantamount to importing price controls. Nevertheless, significant political pressure remains on the administration to contain runaway pharmaceutical expenditures and consolidate key bases of electoral support before November.
It remains to be seen how and when the measures outlined in “Lowering Drug Prices” will be implemented, but its expansive scope requires HHS rulemaking authority – a lengthy and procedurally intensive undertaking. The pilot programs envisioned will almost certainly not be brought to fruition prior to Election Day, although this has not prevented the President from tweeting its signing as a victory.