On November 30, 2018, the Department for Health and Human Services (“HHS”) Health Resources and Services Administration (“HRSA”) will publish its final rule to change the effective date for its 340B Drug Pricing Program ceiling price and manufacturer civil monetary penalty final rule to January 1, 2019.

After two years of proposed rulemaking, HHS published a final rule on January 5, 2017 outlining requirements of manufacturers to calculate the 340B ceiling price for a covered outpatient drug and the process by which HRSA can levy civil monetary penalties on drug manufacturers for knowingly and intentionally charging beyond the statutory ceiling price. This final rule was initially announced to be effective March 6, 2017 but was delayed on several instances. HHS’s most recent delay was announced on June 5, 2018, when HHS published a second final rule delaying the regulation’s effective date until July 1, 2019 so it could develop “comprehensive policies to address the rising costs of prescription drugs.” HHS then issued a proposed rule on November 2, 2018 soliciting comments on potentially changing the effective date from July 1, 2019 to January 1, 2019 to eliminate further delay. HHS’s latest announcement solidifies the effective date as January 1, 2019.

HHS maintains that finalizing the 340B ceiling price and civil monetary penalty rule will not interfere with its plan to develop separate drug pricing policies. Commenters expressed concern that HHS has not established adequate guidance to implement the rule appropriately, responded to public questions, or provided adequate rationale for its change of view on the need for additional rulemaking. HHS addressed these concerns by explaining that issuing additional guidance is unnecessary to implement the rule and that it would be more efficient for the rule to go into effect sooner and to “assess the need for further rulemaking and guidance after the rule is in effect.” Other commenters feared that they would be unable to achieve compliance in time for a January 1, 2019 effective date. HHS responded that, since HHS published the initial final rule in January 2017, these stakeholders have had “sufficient time” to adjust their systems and update their policies and procedures.

After January 1, 2019, drug manufacturers must calculate the 340B ceiling price for covered drugs on a quarterly basis consistent with the January 5, 2017 final rule. Most significantly, drug manufacturers will newly be subject to financial sanctions for knowingly and intentionally overcharging a covered entity, although HRSA anticipates using such penalties in “rare situations.”   For additional information about the issues discussed above, please contact one of the authors or the Epstein Becker Green attorney who regularly handles your legal matters.

On October 25, 2018, the Centers for Medicare and Medicaid Services (CMS) released an advance notice of proposed rulemaking (ANPRM) to solicit feedback on its newly proposed International Pricing Index (IPI) model for Medicare Part B drug reimbursement.  The IPI model will be tested by the CMS Innovation Center as a potential means to dismantle and replace the current buy-and-bill model and advance the Trump Administration’s agenda for drug pricing reform, as described in its May 2018 Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs.  The framework of the IPI model is characterized by three components designed to achieve the following objectives:

  • Utilize private sector vendors to purchase and take title (but not necessarily possession) over single source drugs and biologicals (including biosimilars) and bill Medicare.  The vendors would then have flexibility to offer a variety of delivery options to ordering physicians.  This concept, which was inspired by Medicare Part D’s use of competing private-sector companies to facilitate the provision of Medicare-covered items and supplies, would leverage and improve upon the Competitive Acquisition Program (CAP) previously implemented in the mid-2000s.
  • Phase in, over a five-year period, a reduced Medicare payment for selected drugs based on a composite of international prices.  CMS would reimburse vendors for drugs purchased from manufacturers based on international pricing (except where the ASP is lower), as benchmarked against more than a dozen other nations with economies comparable to the United States that have significantly lower acquisition costs for physician-administered drugs.
  • Replace the percentage-based Part B add-on payment (i.e., ASP+6% (ASP+4.3% post-sequestration)) with a set payment amount, which would be based on 6% of a Part B drug’s historical drug costs.  Under the new model, physicians would continue to receive payment for drug administration.  Because physicians would be obtaining drugs from vendors, and no longer assuming financial risk, the add-on payment would be decreased to remove physicians’ incentive to prescribe higher cost drugs but be calibrated to hold providers harmless to the extent possible.

CMS plans to issue a proposed rule fully describing the IPI model in Spring 2019, with the goal of testing the model over a five-year period, from Spring 2020 to Spring 2025.  The IPI model would involve selected Part B-covered single source drugs and biologicals (including biosimilars) and would apply to all physician practices and hospital outpatient departments (HOPDs) in certain designated geographic areas.  Providers, beneficiaries, and drugs not included in the model will remain under the current Medicare Part B reimbursement system.

The ANPRM signals the Administration’s determination to dramatically overhaul the Medicare Part B drug reimbursement system through a new competitive acquisition program based on international pricing that would seek to reduce government and beneficiary costs while keeping providers revenue neutral.  While CMS appears committed to the general outlines of the IPI model, it has invited industry feedback on a wide range of matters pertaining to the configuration and details of each of the model’s components as well as certain quality measures that CMS will consider in assessing the impact of the model on beneficiary access and quality of care.  Stakeholders have until December 31, 2018 to submit comments on the ANPRM.

Epstein Becker Green (EBG) will be closely analyzing the proposed IPI model and related developments while working with its clients to assess its impact and formulate and advance new ideas to shape the model and its future implementation.

On October 15, 2018, the Centers for Medicare and Medicaid Services (CMS) unveiled its proposed rule requiring direct-to-consumer television advertisements for prescription drug and biological products to contain the list price (defined as the Wholesale Acquisition Cost) if the product is reimbursable by Medicare or Medicaid. Medical devices are not included in the proposed rule, although CMS seeks comment on how advertised drugs should be treated if used in combination with a non-advertised device. If finalized, the requirement will be sweeping and only purports to exclude products costing under $35 per month for a 30-day supply or a typical course of treatment.

CMS prescribes specific language for manufacturers to use at the end of an advertisement:

The list price for a [30-day supply of ] [typical course of treatment with] [name of prescription drug or biological product] is [insert list price]. If you have health insurance that covers drugs, your cost may be different.

The list price is determined “on the first day of the quarter during which the advertisement is being aired or otherwise broadcast.” This pricing statement must be legible, “placed appropriately against a contrasting background for sufficient duration,” and must be in an easily read font and size. Manufacturers are permitted under the proposed rule, “[t]o the extent permissible under current laws,” to include a competitor’s current product list price, so long as the disclosure is done in a “truthful, non-misleading way.”

CMS proposes that drug and biological products in violation of the proposed rule would be publically listed on its website. Although CMS acknowledged that it was proposing no other HHS-specific enforcement mechanisms, CMS anticipates an influx in private actions under the Lanham Act as the primary enforcement mechanism if the proposed rule is finalized.

Health and Human Services Secretary Alex Azar emphasized the proposed rule’s intent to mitigate consumer out-of-pocket costs and reduce unnecessary Medicare and Medicaid expenditures. Interested stakeholders can submit comments online to the regulations.gov docket or by mail until December 17, 2018.

On October 10, 2018, President Donald Trump signed into law the “Know the Lowest Price Act” and the “Patients’ Right to Know Drug Prices Act,” which aim to improve consumer access to drug price information by banning gag clauses. The Trump administration previously announced its intention to enact this legislation in its May 2018 Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs and will likely point to these new federal laws as affirmation of its commitment to drug pricing reform that favors patients and consumers.

These bills—one of which applies to Medicare and the other to commercial insurance plans—ban “gag order” clauses in contracts between pharmacies and pharmacy benefit managers (“PBMs”) that are designed to prevent pharmacists from disclosing to a patient at the pharmacy point of sale whether or not a drug’s cash price would be lower than the patient’s cost-sharing burden under his or her insurance plan. Pharmacies that had violated contractual gag orders have traditionally risked losing their network contracts with PBMs or faced other sanctions. Under these new federal laws, pharmacists are not required to disclose information about lower costs but cannot be contractually obligated to keep quiet regarding possible patient cost savings. The bill affecting Medicare beneficiaries will go into effect on January 1, 2020, while the bill banning “gag order” clauses for commercial insurance contracts took effect immediately upon signing by President Trump.

These new federal bans on pharmacy gag clauses represent a significant reform at the federal level and a victory for pharmacy interests, which have long decried these clauses as unfairly intruding into pharmacy practice. This federal reform has broad bipartisan support, as reflected by the Senate’s passage of the bills by a resounding vote of 98-2. Thus, in contrast to some of the other proposed reforms in the Trump administration’s Blueprint, including PBM fiduciary duties and restrictions on manufacturer rebates, the gag clause issue represents “low-hanging fruit” for the administration’s efforts at drug pricing reform.

While these new federal laws will ensure and promote transparency between pharmacists and patients and the potentially improved disclosure of pricing information, it is unclear whether these new federal laws will dramatically reduce costs for consumers. Some industry observers have questioned whether PBMs still routinely impose “gag order” clauses in pharmacy agreements and the extent to which they are actually enforced by the PBM and adhered to by a pharmacy. In a statement to CNN,[1] Mark Merritt, president and CEO of the Pharmaceutical Care Management Association, said that “gag order” clauses are “very much an outlier.” Likewise, a spokesman for Express Scripts, the nation’s largest PBM, expressed support for the ban and noted that Express Scripts does not engage in this “anti-consumer practice.”[2] Additionally, many states already had passed their own laws banning “gag order” clauses in the past two years, meaning that many PBMs operating across state lines already had begun to reduce their use of gag orders in order to comply with these state laws.[3] Further, the legislation does not directly regulate the actual pricing of prescription drugs.

These new federal laws will provide the Trump administration and members of Congress with an important talking point during these 2018 midterm elections. In the meantime, industry observers are closely monitoring other developments relating to the Blueprint and whether additional, and perhaps more controversial, reforms will be implemented in the near future.

____

[1] Vazquez, Maegan, Trump signs bills aimed at increasing drug price transparency, CNN (Oct. 10, 2018) https://www.cnn.com/2018/10/10/politics/drug-prices-legislation-signed-into-law-donald-trump/index.html.

[2] Firozi, Paulina, The Health 202: ‘Gag clauses’ mean you might be paying more for prescription drugs than you need to, Wash. Post (July 5, 2018) https://www.washingtonpost.com/news/powerpost/paloma/the-health-202/2018/07/05/the-health-202-gag-clauses-mean-you-might-be-paying-more-for-prescription-drugs-than-you-need-to/5b3a36ca1b326b3348addc4a/?noredirect=on&utm_term=.f724b985ae49.

[3] See, e.g., Me. Rev. Stat. Ann. tit. 24-a, § 4317(13); Va. Code Ann. § 38.2-3464.

Eighty years ago today, President Roosevelt signed the Federal Food, Drug, and Cosmetic Act (“FD&C Act”).  In recognition of this anniversary, EBG reviews how the FD&C Act came to be, how it has evolved, and how the Food and Drug Administration (“FDA”) is enforcing its authority under the FD&C Act to address the demands of rapidly evolving technology.

I’m Just a Bill

The creation of the FD&C Act stems from a sober event in American History.  In 1937, a Tennessee drug company marketed elixir sulfanilamide for use in children as a new sulfa drug.  The diethylene glycol (“DEG”) used as a solvent for the elxir is poisonous to humans.  The untested drug killed over 100 people, including children.  The public’s response to the disaster prompted and ensured the passage of the FD&C Act in 1938, which included the creation of the process known as pre-market approval, requiring that new drugs be proven safe before going on the market.

Growing Pains and Milestones

Since 1938, FDA’s jurisdiction has expanded as various public health emergencies and other challenges faced by the health care system have caught national attention.  Among the many legislative acts passed over the years, the following are of particular relevance to current developments:

(1) Food Additives Amendment of 1958, addressing safety concerns over new food additives and implementing generally recognized as safe (“GRAS”) requirements;

(2) Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch-Waxman” Act), establishing the modern generic drug approval system;

(3)  Nutrition Labeling and Education Act of 1990, granting FDA authority to require nutrition labels on most foods, and compelling FDA-compliant nutrient and health claims;

(4) Safe Medical Device Amendments of 1990, giving FDA post-market device surveillance authority and device tracking capability at the user level;

(5) Dietary Supplement Health and Education Act of 1994, defining “dietary supplement” and establishing a regulatory framework for such products;

(6) Food and Drug Administration Modernization Act of 1997, making changes to several FDA regulatory schemes, including biologics, devices, pharmacy compounding, food safety and labeling, and standards for medical products;

(7) Food and Drug Administration Amendments Act of 2007, authorizing FDA to require a Risk Evaluation and Mitigation Strategy (“REMS”) to ensure that drug benefits outweigh risks;

(8) Family Smoking Prevention and Tobacco Control Act of 2009, expanding FDA authority over manufacturing, distribution, and marketing of tobacco products;

(9) Drug Quality and Security Act of 2013, expanding FDA’s authority to regulate the manufacturing of compounded drugs as a reaction to a meningitis outbreak caused by contaminated compounded drug products; and

(10) 21st Century Cures Act of 2016, creating the Breakthrough Devices Program, the Regenerative Medicine Advanced Therapy Designation, and exempting certain software products from the definition of “medical device.”

An Old Dog Learning New Tricks

Over the last few years, FDA has felt the impact of and the need to respond to several societal developments.  The country is calling for the government to address drug prices and to gain better control over access to drugs containing controlled substances, such as opioids.  The surge in development of new technology has forced FDA to adapt its historically rigid device regulatory structure to accommodate innovations such as regenerative medicine therapies.  A renewed public focus on the nutritional value of food requires updates to nutritional labeling and food safety regulations, and the new “vaping” trend raises questions surrounding the sale and promotion of new tobacco products.  Across all of these developments, there is a trend toward more focused regulatory pathways that take into account the particular needs and challenges of specific product categories.  Many of these changes are either required or authorized by legislation, such as the 21st Century Cures Act; and statements by the agency, as well as numerous new draft and final guidance documents, give indications as to where FDA is headed in the next few years.

A. Drugs

Increasing Market Competition and Access: FDA is focused on increasing market competition for and patient access to prescription drugs. In furtherance of its Drug Competition Action Plan, the agency published a draft guidance to address the exploitation of REMS and prevent problematic pay-for-delay schemes. In the same vein, FDA implemented a Biosimilar Innovation Plan to facilitate development and approval of biosimilars, hoping to increasing patient access to costly biologics. Last week, FDA also withdrew its draft guidance on biosimilar analytical studies, announcing intent to issue a revised draft guidance in the future.

Drug Development Efficiency: Recent FDA publications also suggest that the agency is prioritizing a more streamlined drug development process. In February 2018, FDA released five guidance documents emphasizing a faster, patient-focused approach for drug development for neurological conditions. In March 2018, FDA updated its benefit-risk framework to further incorporate patient experience into the agency’s regulatory decision-making process. FDA published the first of four of its patient-focused drug development guidances on June 13, 2018.

In response to the opioid crisis, FDA is focusing heavily on changes to the drug compounding and controlled substance space. In March 2018, FDA published a draft guidance on evaluation of bulk drug substances nominated for inclusion in the 503(B) bulks list, requiring a showing of clinical need. FDA also plans to issue notice of proposed regulations for outsourcing facilities later in 2018.  FDA held a Patient-Focused Drug Development Meeting for Opioid Use Disorder in April 2018 and published an associated draft guidance on buprenorphine drug development and clinical trial design issues. We expect to see more FDA movement on drug development as the year progresses, particularly with respect to opioid use disorder treatment therapies.

B. Devices

Streamlining the Device Pathway: FDA continues to implement changes to the regulatory pathway for manufacturers to bring their devices to market.  Per a draft guidance released in April 2018, the agency is expanding the abbreviated 510(k) pathway by creating a voluntary option for manufacturers when there is no acceptable predicate for a new device, but there is another device with the same intended use.  Manufacturers will be able to use the similar device as a “predicate” and demonstrate how their product conforms to newly-developed device-specific objective performance criteria.  While these performance criteria are still under development, they will eventually pave the way for more manufacturers to bring their products to market faster.

Precision Medicine: The national focus on precision medicine has encouraged many manufacturers to develop new products that incorporate genomics-based technology.  FDA is encouraging development of next generation sequencing (“NGS”)-based tests, which analyze larger sequences of the human genome, if not the whole genome, for a variety of different genetic variants.  FDA released two final guidance documents in April 2018, making recommendations on (1) the design and development of a NGS-based test for germline diseases and (2) use of public human genetic variant databases to support clinical validity of NGS-based tests and routes for establishing and justifying algorithms for variant annotation and filtering.

FDA is also evaluating its approach to the regulation of gene therapy products. Commissioner Gottlieb stated that the agency is at “an inflection point” with gene therapy thanks to increased reliability of vectors.  The focus has shifted from the efficacy of gene therapy to its durability, i.e. the long term effects of the treatment.  Recently, Commissioner Gottlieb announced FDA’s intent to start developing gene therapy guidance for products intended to treat hemophilia.

Regenerative Medicine: In efforts to implement its comprehensive policy framework for regenerative medicine and respond to certain provisions of the 21st Century Cures Act, FDA intends to create an expedited regulatory pathway for novel regenerative medicine therapies.  FDA is also actively enforcing against stem cell clinics promoting certain regenerative medicine therapies without approval and in violation of current good manufacturing practices.

Software and Artificial Intelligence (“AI”): In acknowledgment of the current “digital age,” FDA published a Digital Health Innovation Action Plan.  In April 2018, FDA released two policy documents – (1) a working model for the Digital Health Software Pre-Certification (Pre-Cert) Program Pilot and (2) guidance on regulation of digital health products with both FDA-regulated and unregulated functions.  Also in 2018, FDA authorized the marketing of AI-based clinical decision software (“CDS”) that functions to alert specialists when computed tomography (“CT”) indicates a potential stroke, as well as an AI algorithm for detection of wrist fractures.

C. Food

Food Safety: Since the Food Safety Modernization Act (“FSMA”) was passed, sixteen rules and dozens of guidances have been released (many of which have been in the last two years), bringing the law close to full implementation. These rules and guidances address the mandatory preventive controls for food manufacturing facilities; mandatory product safety standards; FDA’s new mandatory food recall authority; and the initial required inspection of over 600 foreign facilities and the subsequent requirement to “double those inspections every year for the next five years.” In light of the recent high profile foodborne illness outbreaks at chain restaurants and attributed to romaine lettuce, the agency is hoping the full implementation of the FSMA rules, in tandem with keeping food safety as a high priority for the agency, will minimize the risk of future outbreaks.

Nutrition: In 2018, the agency launched the FDA Nutrition Innovation Strategy, which, in addition to implementing new Nutrition Facts Label and Menu Labeling requirements, demonstrates that the agency is looking for more ways to modernize food labels and standards of food product identity to help consumers make healthier decisions. FDA also plans to release short-term voluntary sodium targets for food products in 2019.

Food Labeling: FDA issued a guidance in 2016 on the use of the term “healthy” in food labeling, and continues today to seek stakeholder input on how to redefine the term in such a way as will keep up with scientific advancements and help consumers understand what is in their food products.  FDA is also reviewing stakeholder input on how to define “natural,” and indicated in March 2018 that the agency will “have more to say on the issue soon.”

Dietary Supplements: The dietary supplement industry is a growing industry, and consumers are more interested in alternative products to promote wellness lifestyles. The industry is considered by some to still be the “wild wild west” in terms of enforcement, but FDA seems to be putting its foot down on companies making unsubstantiated claims about dietary supplement products or making claims that would otherwise classify the product as a drug.

D. Tobacco Products

Using its authority to regulate all tobacco products, FDA is addressing the rise in the use of vapes, vaporizers, pens and electronic cigarettes by children.  In April 2018, Commissioner Gottlieb announced the intent to issue new enforcement actions against bad actors, as well as to implement a Youth Tobacco Prevention Plan, seeking to reduce the amount of children exposed to e-cigarettes and vapes and those manufactures who target children with enticing flavors.   In May 2018, Commissioner Gottlieb stated “If you target kids, then we’re going to target you.”  FDA is also in the process of developing guidance for the development and regulation of e-cigarettes generally, suggesting that e-cigarettes could fall into the over-the-counter pathway due to their potential role in smoking cessation, and is reviewing the toxicology of the products.

Andrew Do, a Summer Associate (not admitted to the practice of law) in the firm’s Washington, D.C. office, contributed  to the preparation of this post.

Over the past week, the White House administration (the “Administration”) has issued two documents addressing drug pricing. First, on February 9, 2018, the White House’s Council of Economic Advisers released a white paper titled “Reforming Biopharmaceutical Pricing at Home and Abroad” (the “White Paper”).  Second, on February 12, 2018, the Administration issued its 2019 Budget Proposal (“2019 Budget”).

Whereas the recommendations set forth in the White Paper are more conceptual or exploratory, the 2019 Budget purportedly reflects the Administration’s more specific priorities for 2019. The developments are significant because, after outspoken pledges to reduce drug prices over a year ago, the White Paper and the 2019 Budget, taken together, are the Administration’s first attempt to set forth its drug pricing policy framework.

FY 2019 Budget Proposal Outline

The Administration’s 2019 Budget proposes strategies to address drug pricing reform in several areas.

  • Medicaid: The 2019 Budget proposes for new Medicaid demonstration authority to allow five states to test drug coverage and financing reform. Under this demonstration, instead of participating in the Medicaid Drug Rebate Program, these states would determine their own drug formularies and negotiate drug prices directly with manufacturers, with the resulting negotiated prices being exempt from Best Price.
  • Medicare Part B: With respect to the Medicare program, the 2019 Budget provides several proposals. First, the 2019 Budget would require all manufacturers of Part B drugs to report average sales price (“ASP”) data, and to penalize those who do not report ASP data. Additionally, the 2019 Budget proposes to limit the increase in ASP-based drug payment to the annual rate of inflation. For drugs reimbursed based on wholesale acquisition cost (“WAC”) rather than ASP, the 2019 Budget proposes to reduce this payment rate from 106% of WAC down to 103% of WAC. The 2019 Budget also proposes to modify reimbursement to hospitals for drugs acquired at 340B discounts by rewarding hospitals that provide charity care, and reducing payments to hospitals that provide little to no charity care. The 2019 Budget proposes to consolidate certain drugs covered under Part B into Part D coverage.
  • Medicare Part D: For beneficiaries enrolled in Part D plans, the 2019 Budget proposes to establish an out-of-pocket maximum in the catastrophic coverage phase, eliminate cost-sharing for generic drugs for low-income seniors, and permanently authorize a Part D demonstration that provides retroactive and point-of-sale coverage to certain low-income patients.
  • FDA: The 2019 Budget proposes to give the FDA greater ability to bring generics to market more quickly. If a first-to-file generic application is not yet approved due to deficiencies, the 2019 Budget proposes to allow the FDA to tentatively approve a subsequent generic application rather than waiting for the first-to-file application to amend its application deficiencies.

Council of Economic Advisers White Paper

The White Paper discusses options for drug pricing reforms that would impact Medicaid, Medicare, the 340B drug discount program, and FDA. The following provides a summary of the major ideas proposed in the White Paper:

  • Medicaid: The White Paper contends that the determination of Best Price on a single unit of drug under the Medicaid Drug Rebate Program operates as an inducement to manufacturers to inflate commercial prices. The White Paper posits that CMS could revise the applicable rules for Best Price without conflicting with the statutory language, such that Best Price could be determined post-sale based on “the patient’s recovery”, i.e., the health outcome or effectiveness of the drug. The White Paper suggests that more clarity from CMS on value-based contracting would encourage drug purchasers to negotiate for lower prices.
  • Medicare Part B: With respect to drugs reimbursable under Medicare Part B, the White Paper focuses on expensive specialty drugs and biologics administered by physicians. The White Paper contends that due to the cost-plus reimbursement methodology under Medicare Part B (ASP plus 6 per cent), physicians do not have incentives to prescribe cheaper medications to control costs. The White Paper cites solutions proposed by MedPAC and other government agencies to realign incentives including: (i) introducing physician reimbursement that is not tied to drug prices, (ii) moving Medicare Part B drug coverage into Medicare Part D, where price-competition over drug prices is better structured, and (iii) changing how pricing data is reported to increase transparency.
  • Medicare Part D: The White Paper scrutinizes the Part D program as being structured in a manner that prevents pricing competition and causes “perverse incentives.” Specifically, the White Paper suggests that Part D’s requirement to cover at least two non-therapeutically equivalent products within each class and category prevents Part D sponsors from competitively negotiating lower prices and that the prohibition of formulary tier-based cost-sharing for low income beneficiaries creates a disincentive to use “high value” rather than high cost drugs. In addition, the White Paper states that since the 50% discount drug manufacturers are required to provide during the coverage gap is applied to the patient’s true out-of-pocket costs, enrollees have an incentive to use high cost drugs while in the coverage gap.In addition to making the specific observations above, the White Paper cites more general options proposed by MedPAC, OIG and other government agencies to address “misaligned incentives”: (i) requiring plans to share drug manufacturer discounts with patients, (ii) allowing plans to manage formularies to negotiate better prices for patients, (iii) lowering co-pays for generic drugs for patients; and (iv) discouraging plan formulary design that speeds patients to the catastrophic coverage phase of benefit and increases overall spending.
  • 340B Drug Discount Program: The White Paper posits that there are two significant issues with the 340B Program. The first is “imprecise eligibility criteria has allowed for significant program growth beyond the intended purpose of the program.” The second is the use of program revenue for purposes other than providing care for low-income patients, which is what the Administration believes was originally intended. While not providing specifics, the White Paper suggests establishing “more precise” eligibility criteria as an alternative to the DSH percentage currently used to establish hospital eligibility, and requiring that the 340B discount more directly benefit poor patient populations.
  • FDA: The White Paper suggests modifying the existing FDA criteria for expedited review to include new molecular entities that are second or third in a class, or second or third for a given indication for which there are no generic competitors. The White Paper states that this would reduce the time period a particular drug would be able to benefit from a higher price before facing generic competition. The White Paper also suggests policies aimed at reducing the cost of innovation, including having the FDA continue to facilitate the validation and qualification of new drug development tools that allow manufacturers to demonstrate safety and efficacy more efficiently and earlier, and speeding up the issuance of FDA final guidelines to add certainty and attract additional biosimilar applicants to the marketplace.
  • Pharmacy Benefit Managers: The White Paper scrutinizes the PBM industry as having “outsized profits” due to the high concentration of the PBM market (3 PBMs account for 85% of the market) and criticizes the lack of transparency with respect to the rebates that PBMs receive. The White Paper states that the “undue market power” causes manufacturers to set artificially high list prices, which are reduced via rebates to PBMs without reducing the costs to consumers. The White Paper suggests that policies to decrease concentration in the PBM market could reduce the price of drugs paid by consumers.
  • Drug Pricing in Foreign Countries: The White Paper discusses in detail how the United States bears a disproportionate share of the burden of the cost of innovation, since foreign governments, in exercising price control, are able to set drug prices lower than that in the United States. The White Paper suggests drug pricing reform abroad with the United States changing the incentives of foreign governments to price drugs at levels that reward innovation. The White Paper broadly suggests achieving this goal through enhanced trade policy or policies tying reimbursement levels in the United States to prices paid by foreign governments that set lower prices or other methods.

EBG Considerations

The combined result of the 2019 Budget and the White Paper is a hodgepodge of policy ideas that could impact a wide range of government programs and industry stakeholders throughout the drug distribution and reimbursement channel. While the proposals set forth in the 2019 Budget are more specific, the ideas in the White Paper are more conceptual and less developed.  For example, policies to address the high concentration of the PBM market and foreign government drug price control appear more aspirational and lack detail on what such policies would entail or how they would be accomplished.  This suggests that, while the 2019 Budget and White Paper are indicative of the Administration’s direction with respect to drug pricing policy, the policy is likely still a “work in progress” and subject to further development.

We will continue to report on how these ideas take shape in this Administration.

As the transition in Washington moves into high gear this month, it’s not just the new Administration and Congress that are putting in place plans for policy and legislation; stakeholders are busy creating agendas, too.

Many stakeholder agendas will seek to affect how government addresses such prominent health care issues as the Affordable Care Act, Medicare entitlements, fraud-and-abuse policies, FDA user fees, and drug pricing. There will be a myriad of stakeholder ideas, cutting a variety of directions, all framed with an eye to the new political terrain.

But whatever policies a stakeholder advocates, ideas must be translated into a form that that the political system can digest. For this to occur, an important technical conversion must take place; words must be conjured and organized so that desired policy can become legal reality.  This is no easy task, and stakeholders should proceed thoughtfully.

Here are five takeaways for making proposals concrete and workable:

1. Butterfly Effect

A “simple” contract (to buy a house, say) can end up getting pretty complicated, even when the stated rights and obligations apply to no more than two parties. In contrast, a policy proposal typically seeks to set arrangements for a broad array of parties (perhaps a whole economic sector) and thus will usually involve substantial complexity.

The large number of parties potentially affected means that even the most minor-seeming policy adjustment can have large, unintended, and unpredictable results – not dissimilar from how the proverbial flap of a butterfly’s wings can start the chain reaction that leads to a distant hurricane.

2. Pre-Drafting Steps

Taming the butterfly effect should begin before putting pen to paper. It starts with a clear view of the problem to be solved and the ways to solve it.  Notably, the legislative drafters available to Congress place some considerable emphasis on the steps that precede actual drafting.

For example, the House Legislative Counsel’s Office recommends use of a pre-drafting checklist that includes questions like these:  What is the planned policy’s scope (expressed as populations or subjects)?   Who will administer the policy?  Who will enforce it?  When should the policy take effect (and are transition rules needed)?  Each of these questions contains multiple sub-questions.

Similarly, the Senate Legislative Counsel’s Office points out that most legislated policies build on prior statutes. As such, it is important to know how new provisions will harmonize with — or will override — previously adopted language.  Making these judgments requires a solid grasp of existing legal authorities and ways these authorities have been interpreted.

3. Words on the Page

Translating concepts into words is a specialized task, for ultimately the words must be “right” – they must be technically sufficient to effectuate the policy intended.

It is not news that Congresses, Presidents, and courts sometimes have different views on the meaning of statutes, regulations, and other types of policy issuances. In theory, the drafting curative is to make the words so clear that only a single meaning is possible.  But realistically, legal contention often comes with the territory of a controversial policy, and so stakeholders should at a minimum avoid such unforced errors as these:

  • Obvious mistakes – e.g., purporting to amend a U.S. code title that has not been enacted into positive law;
  • Wrong law – e.g., confusing the statute that enacts new language with the statute that the new language amends;
  • Wrong time – e.g., getting the words right but putting them into effect for an unintended time period;
  • Imprecise labels – e.g., referring to concepts or parties via shorthand phrases similar to, but not identical to, defined terms; and
  • Vague references — e.g., omitting enough key details to confer unintended discretion on an agency or administrative official.

4. Document Silos

Today’s integrated world doesn’t look kindly on silos, but, in the specialized context of Washington policy development, they can be a helpful check on the temptation to combine technical drafting with political messaging.

The desire to combine these two forms of communication is understandable, for it is an appealing notion that policy proposals be “user friendly” so they can be quickly scanned for substantive gist. In fact, however, the practice is dilutive and dangerous; it can put the wrong words on the page and undermine policy intent.

A better course is for stakeholders to manage separately siloed sets of documents that, while consistent, operate at different levels of specificity. One silo should be reserved for the technically rigorous proposals that effect legal authority and a separate silo for “plain English” issue briefs, fact sheets, and other materials that summarize the authority.

5. Plug & Play

Washington policy debates are less often set battles, more often fast-moving skirmishes. Such places a premium on ability to adapt as new ideas emerge, political signals morph, and coalitions shift.  For the task of converting ideas into policies, there are at least two implications.

First, stakeholders should be prepared to think and draft in modules – in discrete chunks of policy that can be embedded in one or more larger proposals. In Congress, stakeholder-originated ideas are more likely to emerge as legislative amendments than as free-standing bills.

Second, stakeholders should be ready to iterate quickly as debate advances. Feedback from reviewers will often focus on proposal summaries because they are easier to read and understand.  But changes in response to comments must also be reflected in the technical proposals themselves.  Tight deadlines are the norm, so separately siloing the two types of documents (see above) will help speed an effective response when political opportunity strikes.

In 2016, the populist trend in American politics was an undeniable factor behind Trump’s election victory as well as the ascendancy of Bernie Sanders and Elizabeth Warren within the Democratic Party.  During upcoming months, industry observers will be looking for signs as to whether drug pricing is an area in which both parties can agree on instituting significant legislative action at the state and federal levels.  The nature and shape of any such reforms will be highly consequential for the U.S. pharmaceutical industry, which has served as a prime source of innovation in medicine.  The question going forward is whether cool-headed reform that facilitates patient access to drugs without stymying pharmaceutical R&D investment can be achieved in an era of fervent populism and discontent over rising healthcare costs.

For more, see Politics, Populism, and the Future of Prescription Drug Pricing Reform in PharmaExec.com.