Trump executive order on drug pricing is both populist and shows policy sophistication
Despite his drug price proposals during his first administration, many felt like President Donald Trump would shy away from attacking Big Pharma and potentially even work against the Inflation Reduction Act’s Medicare drug price negotiations. After all, he went back and forth on the issue in the presidential campaign. But since re-taking office, Trump has sent clear messages he wants to pursue drug price reform for America.
First, after taking office, the Centers for Medicare and Medicaid Services (CMS) issued a statement indicating it was readying and taking seriously round two of negotiations, although it wanted greater transparency and input.
Next, on Super Bowl Sunday, Trump appeared on Fox News bemoaning the price of GLP-1s. He even quoted statistics that GLP-1s in America were ten times more than prices in the U.K.
Now, he has issued an executive order on drug prices that should send shivers down the spines of Big Pharma executives. While the order seemingly could lead to one compromise with brand drug makers on small molecule drugs, overall it sends yet another signal that lower prices will continue to come to embattled Americans.
As is often the case with Trump executive orders and declarations, details can be sparse. But if you read the tea leaves, Trump promises radical action. It is both politically populist and shows a policy sophistication. The order also touches yet another critical issue to healthcare reform – the sorry state of employer coverage.
Let’s take this apart piece by piece.
Trump 45 reforms
Let’s cover a bit on Trump 45 drug price reforms quickly.
- In Medicare, Trump created the first steps to capping insulin cost-sharing in Medicare Part D through a pilot. This led to broader action by Biden in the Inflation Reduction Act (IRA).
- Trump created a state waiver process to pursue importation of drugs. Thus far, the program has failed to have major impact.
- Trump took several actions to promote the uptake of generics and biosimilars.
- Trump proposed passing through rebates at the point of sale in Medicare Part D by removing the safe harbor that applied to manufacturer rebates given to pharmacy benefits managers (PBMs). The program was abandoned due to what would have been increased costs to the federal government.
- Trump passed a rule to set Part B drugs based on international reference pricing. Trump also said he would like to extend the program to Part D. The proposal was pulled back by President Biden due to various challenges in its set up.
- Trump also started major transparency initiatives for health plans and hospitals.
The new executive order and its significance
Now let’s take a look at the president’s new executive order and its potential significance.
Medicare drug price negotiations
The executive order calls for improving the transparency of the IRA’s Medicare Drug Price Negotiation Program. This is where it gets a bit nebulous and could include both positive and negative changes to what is in law. The order calls for:
- Prioritizing the selection of prescription drugs with high costs to the Medicare program.
- Minimizing any negative impacts of the maximum fair price on pharmaceutical innovation within the United States.
- Stabilizing and reducing Medicare Part D premiums.
- Modifying the program to align the treatment of small molecule prescription drugs with that of biological products and ending the distortion that undermines relative investment in small molecule prescription drugs.
- Developing and implementing a payment model to improve the ability of the Medicare program to obtain better value for high-cost prescription drugs and biological products covered by Medicare, including those not subject to the program.
On one hand, the order could lead to small molecule drugs getting a longer period of time of protection from negotiations. At the same time, it is possible that Trump could harmonize protection periods by reducing the protection period of other drugs.
The order also seems to contemplate a revamped way of negotiating prices, in large measure because the initial year of negotiations (in 2024 for CY 2026) reduced net prices by only about 22% on average. Could this mean the return of an international reference pricing approach in some form for both Part D and B drugs? As much as brand makers dislike Biden’s drug price law, they would hate this one even more. International reference pricing is relatively simple compared with the current negotiation process and shines a clear light on the huge price disparity between America and other developed countries. Whether international reference pricing is the solution or not, Trump’s reform could throw out the entire gross and net price system by eliminating rebates.
The reference to stabilizing premiums is interesting. As I have noted often, Biden and Democrats engaged in blatant politics when they passed the Part D cost-sharing reductions in the IRA. The changes were unfunded and have led to the threat of major premium increases in the standalone Part D (PDP) prorgam as well as benefit reductions and cost-sharing increases in Medicare Advantage (MA) and PDP. To stop a huge surge in premiums, CMS put in place an extra-legal program to fund premium reductions for three years in PDPs. Trump had no choice but to continue the program into the second of three years (through 2027). Trump’s executive order is attempting to determine the long-term damage done by Biden’s and the Democrats’ unwise and political cost-sharing reduction law.
Investigating and realigning hospitals’ and other entities’ acquisition costs, payments, and charges to consumers
The order also zeroes in on hospitals’ and other entities’ costs of drugs and how much they are paid and charge consumers.
The order calls for an investigation to determine the hospital acquisition cost for covered outpatient drugs at hospital outpatient departments. We know that many hospitals get 340B and other discounts and yet are paid high reimbursement through Medicare. Some studies suggest acquisition is 35% lower than what the government currently pays. There also is concern that hospitals do not discount drug costs for lower income consumers as the program envisioned. Post analysis, the government would recommend payment changes.
In a related move, the government would be required to ensure that community health centers, which also access deep 340B discounts, make insulin and injectable epinephrine available at or below the discounted price paid to individuals with low incomes and have high cost-sharing, unmet deductibles, or are uninsured.
One can view the order as putting hospitals and other entities on notice that the 340B program’s purpose will no longer be ignored and that deep reform may be coming.
Site neutral payments
If 340B reform was not enough, hospitals have to be reeling from the order’s mention of site neutral payment reform. In past Congresses, proposals were made to begin site neutral payment reforms but little has gone forward. This included equalizing drug administration of cancer and other drugs between hospital-owned facilities, other ambulatory centers, and physician offices. With more and more physicians being taken over by health systems and being directed to practice at high-cost hospital-owned settings, this is a critical reform. Costs are increasing dramatically because of excessive hospital payments for drug administration. Further, cancer paients on Medicare and commercial coverage are paying astcaronomical cost-sharing.
This could be the camel’s nose under the tent for broader site neutral changes. It would be undesirable from the hospital industry’s perspective, but good for America as a whole.
Medicaid rebates
The order would also ensure that manufacturers pay accurate Medicaid drug rebates, promote innovation in Medicaid drug payment methodologies, link payments for drugs to the value obtained, and support states in managing drug spending.
The order would also seek greater discounts (beyond the Medicaid rebate amounts) for extremely expensive drugs in Medicaid. There are programs for some drugs in place today.
Reforming the drug channel
Showing how sophisticated Trump’s approach is, a huge priority is being placed on reforming the drug supply channel overall. The order requires recommendations on how best to promote a more competitive, efficient, transparent, and resilient pharmaceutical value chain that delivers lower drug prices for Americans. We know that the drug channel is opaque and stakeholders have little understanding of financial and contractual arrangements (e.g., rebates, concessions, and more) of the myriad middlemen, including PBMs. This drives up overall costs to consumers, employers, and the government.
The order more specifically requires transparency regarding fee disclosures among PBMs, insurance plan sponsors, drug manufacturers, and pharmacies.
The order also attacks the issue of antitrust concerns. It requires recommendations to reduce anti-competitive behavior from pharmaceutical manufacturers.
Promoting biosimilars and generics
While some reforms have occurred here, the order would go further by requiring administrative and legislative recommendations to:
- Accelerate approval of generics, biosimilars, combination products, and second-in-class brand name medications.
- Improve the process through which prescription drugs can be reclassified as over-the-counter medications.
We know that there are numerous further reforms that can be made to clear the way for greater numbers and penetration of generics and biosimilars, including:
- Orange Book reform and attacking regulatory thickets.
- Constraining brand drug maker lawsuits and other arrangements that stop timely generic introduction.
- Regulatory and approval reforms.
- Physician education on biosimilars.
Importation
While importation has a number of complications and barriers, Trump again wants to promote the issue as one solution. Foreign governments, especially Canada, are concerned about impacts on their domestic supply.
Employer coverage reform
A great deal has been made of late about the lack of transparency in employer coverage arrangements between self-insured employers and health plans or PBMs administering healthcare. Employees are now suing employers and arguing that employers are not taking seriously their fiduciary duties to ensure low-cost and quality healthcare.
On the drug front, the order would improve employer health plan fiduciary transparency by requiring disclosure of direct and indirect compensation received by pharmacy benefit managers or health plans on covered drugs.
Could Trump extend the Medicare drug price law to employer coverage and the commercial world? That is unknown right now, but he should. Employer coverage has been facing 6% to 9% annual increases due in part to growing drug costs. The increases are unsustainable and could lead to major erosion of affordable and comprehensive coverage in the employer world.
Conclusion
Few expected that Trump would end up here at all and certainly not so fast. Usually uninterested in healthcare policy — it is more of a political issue for him – Trump and his policymakers have outlined a rather far-reaching approach to drug price reform. It spans so many of the current issues creating high prices for consumers, the government, and employers.
- Keeping the drug negotiation law but going further to get more aggressive on final price.
- Implementing 340B and related program reforms to ensure hospitals and community health centers offer prices that are low for those most in need as well as for savings to the government.
- Implementing site neutral reforms.
- Reforming and bringing transparency to the drug channel.
- Fostering additional biosimilar and generic adoption and acceleration.
With the Trump order out, this could make it easier for some of these reforms to be adopted in the coming budget reconciliation bill as well. But even if they don’t all make it in whole or part, the order as well as coming reports and recommendations lay a foundation for a comprehensive reform of the drug channel, pricing, and costs.
Populism has met policy in a major way here.
#drugpricing #ira #branddrugmakers #hospitals #siteneutral #trump #congress #budgetreconciliation
— Marc S. Ryan
