On July 24, 2020, President Trump signed several executive orders directing the secretary of Health and Human Services (HHS) to take steps to lower drug prices.
The directive includes the following measures:
1. International pricing index
The most aggressive policy directive tasks the HHS secretary with linking the price of Medicare prescription drugs to an international benchmark. In other words, taking action to ensure the Medicare program and seniors pay no more for the costliest Medicare Part B drugs than any economically comparable country.
Implementation of this proposal will be delayed until after Aug. 24, giving manufacturers time to “come up with something.” The use of international reference pricing is a common tool to lower prices based on the choice of countries included in the reference basket (an alternative IRP proposal by Speaker Pelosi would tie prices to those in Australia, Canada, France, Germany, Japan, and the United Kingdom).
2. Kickbacks and discounts
This directive would put an end to the rebates manufacturers pay PBMs and redirect them as discounts paid to Medicare Part D enrollees. It would also require federally qualified health centers participating in the 340B program to pass savings from discounted drug prices to low-income patients. Trump argues the change would result in billions of dollars in savings.
3. Imports from Canada
This directive would finalize a rule allowing states to develop importation plans for certain prescription drugs. It would also authorize the re-importation of American-made insulin products for emergency medical care and allow individuals to use waivers to purchase drugs at lower cost from Canada.
What are the implications for pharmaceutical companies?
1. The international pricing index order is tough on pharmaceutical companies but comes at a time when the Administration is relying on manufacturers to deliver coronavirus treatments. This order gives drug makers a leg up and room to negotiate prior to the Aug. 24 deadline, after which the index proposal would theoretically take effect.
2. The order concerning rebates paid to PBMs is conditioned on the HHS secretary confirming the policy won’t bring about increased federal spending and higher premiums. That may be difficult considering that the Congressional Budget Office found a similar rule proposed in 2019 would have raised Medicare premiums and cost the federal government $177 billion over 10 years.
3. Federal law prohibits the government from entering direct negotiations over retail pharmacy drug prices, so implementing wide-ranging control over Medicare drug prices will likely require legislation.
4. Notably, a planned meeting between Trump and pharma executives on July 27 was cancelled after industry officials expressed concerns over how productive the meetings would be.
5. The pharmaceutical industry may see fit to raise legal objections to these policy directives, making it unlikely these rules will be in place by the election. November’s election – involving both Congress and the White House – will likely shape the future of any pricing reforms in the U.S.
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