I wanted to give you two quick mini blogs today on recent topics after a number of inquiries from my blog readers and podcast listeners. They revolve around President Donald Trump’s proposal for most-favored-nation drug pricing and what is the GOP’s vision on healthcare.
So, let’s get to the questions:
1 – One reader/listener asked: “How can Donald Trump really implement his most-favored-nation (MFN) drug policies?”
As I have alluded to in a number of blogs and podcasts, it is unknown whether the president alone really has the ability to radically change drug prices in Medicare, and it is even more of a question for the commercial and employer world. We have a national rebate program with a state supplemental rebate program in Medicaid.
The posture of courts, especially in light of the Chevron decision last year, would seem to point to the likelihood that the Supreme Court might find that the president cannot implement MFN pricing and will need a congressional act.
The Inflation Reduction Act’s Medicare drug price negotiations and national laws on Medicaid rebates will likely be pointed to as evidence that Congress decides these threshold matters. Indeed, the Medicare Modernization Act (MMA) of 2003, which established Medicare Part D, barred the government from directly negotiating drug prices with pharmaceutical companies for Part D drugs. This provision is referred to as the “non-interference” clause.
The clause was overridden by the Inflation Reduction Act’s Medicare Part D drug price negotiation provisions, but the number of drugs subject to negotiations in Part D (and Part B) are clearly prescribed. Further, the law calls for the establishment of a maximum fair price based on a number of criteria.
HHS and CMS do not negotiate prices for drugs covered under Medicare Part B (usually administered by physicians). Medicare reimburses providers based on 106% of the average sales price (ASP).
But there are two arguments that the president through the Department of Health and Human Services (HHS) and the Centers for Medicare and Medicaid Services (CMS) could perhaps institute MFN for drugs in Medicare.
- HHS and CMS could use the Center for Medicare and Medicaid Innovation (CMMI) to seek to negotiate lower prices through a regulation or rule. The Affordable Care Act (ACA) created CMMI to test innovative payment and service delivery models to improve healthcare quality and lower costs in Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP). Indeed, Trump sought to use the power of the CMMI in his first time to set drug prices in Part B using MFN. Judges could argue that setting all drugs using the CMMI authority could exceed executive authority and contradict the MMA and IRA provisions.
- HHS and CMS could also use MFN pricing to set the maximum fair price under the IRA Medicare drug negotiation law. HHS and CMS want to renegotiate 2026 drugs when they negotiate 2027 drugs this year. But the law does not specifically call out drug prices in other developed countries as a criterion.
- How Trump will argue that he can impact commercial prices is anyone’s guess. There seems little to no authority for the executive to impact drug costs in the commercial world.
As I have said, I support Trump’s efforts to push for lower drug prices in the U.S. He is right to press the issue. But it is an open question from a legal front whether he will be able to do so solely with executive authority.
On a side note, there was a very good Health Affairs Forefront blog on MFN. The blog does side with defeatist opponents who say that MFN just can’t work in America for a variety of reasons. But the author is right that America has refused to invest in the analytic capabilities and social will to negotiate lower prices or the health technology assessment (HTA) infrastructure for comparative clinical and cost effectiveness. In addition, he argues innovation could be protected by government grants for product commercialization (beyond reseearch), expanded R&D tax credits, and advanced purchase commitments that de-risk market demand for innovative product. I would twin these investments with Trump’s efforts to establish lower prices.
2 – Another reader/listener asks: “Does the GOP have a coherent policy on healthcare coverage based on what is happening with budget reconciliation?”
Good question: On the face of it no, but the budget reconciliation act does show some changes that point to where the GOP would like to go.
First, the GOP leaders (not necessarily the moderates) do not really want to touch Medicare given the political fallout that could create. My view is that lawmakers on each side of the aisle have a duty to stabilize Medicare for the long term and should tackle costs in the program, regardless of whether solvency issues seem to be moving out a bit. Site neutral policies for hospitals and even some MA risk adjustment reform would be reasonable to attack. But so far, those issues have been punted.
Second, we know that GOP leaders and conservatives hate the concept of a broad social safety net for healthcare. They dislike the Affordable Care Act (ACA) but so far have been unwilling to attack the Exchanges and ACA from a fundamental policy basis. But they are clearly undermining the programs. The enhanced premium subsidies likely will expire at the end of 2025 and mean millions lose coverage, premiums increase dramatically, and a contraction of plans and geographic footprints.
On Medicaid, the current House-passed reconciliation bill includes about $625 billion in Medicaid reductions over ten years, including work requirements, limitations on provider taxes, and tough eligibility requirements and procedures. This will contract enrollment by millions as well, impact state budget resources, and further complicate Medicaid managed care margins and providers.
Third, there is little in the budget reconciliation bill to help commercial coverage, which is being impacted by huge drug trends and overall utilization increases. Employer coverage rates have gone up by 6% to 8% and this is likely to continue for the foreseeable future.
Where the GOP does seem to be going is promoting individual coverage options and decisions. The budget reconciliation bill includes promotion and additional flexibility of Individual Coverage Health Reimbursement Arrangements (ICHRA, which is renamed CHOICE Arrangements), which allows employers to contribute on a tax-deductible basis (including for employees as well) toward individual purchases of health insurance for an employee and family. The bill also includes a tax credit to encourage employers to implement CHOICE Arrangements. CHOICE Arrangements is a new and novel approach that was introduced under Trump 45. It has yet to gain a lot of momentum, but the GOP is underwriting its growth. The current major vehicle for individual coverage purchases ironically is the Exchanges, but the GOP would like to expand alternative individual products as well.
In addition, the reconciliation bill also proposes expanding Health Savings Account (HAS) eligibility, contribution limits, and allowable expenses. This would embrace further growth of HSA-type commercial and individual coverage options.
Last, the bill encourages expansion of direct primary care (DPC) arrangements and High-Deductible Health Plan (HDHP) provisions. HSAs can now be partnered with bronze and catastrophic plans on the Exchanges. In the case of DPC, employers directly pay a physician for primary care services. Employees would now be able to have a DPC and HSA and could use the latter to pay for primary care through a DPC.
In general, the GOP is reining in the scope of the Exchanges and Medicaid. Too, it is seeking to make healthcare coverage less generous and perhaps less entwined with employment. At the same time, one could argue that it is seeking to deal with the ongoing erosion of employer coverage, especially with smaller employers, and is offering coverage options where there might not be any in the future. I would, though, like to see the GOP tackle what is clearly a huge cost spiral in the employer coverage world. Site-neutral payments, anti-trust reform, and drug price reform would help a great deal.
In the end, though, whatever you think of the GOP’s views on cultivating more accountable healthcare through individual coverage, what is clear is that there will be huge coverage losses now because many of their novel changes will take years to evolve and bear any fruit.
Link to referenced article: https://www.healthaffairs.org/content/forefront/us-and-foreign-drug-prices-most-favored-nation-policy-unreasonable-answer-reasonable
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— Marc S. Ryan
