Tax reform’s impact on life insurance reporting

Drug price debate shifts from state houses to D.C.

Authored by Mark Scallon and Grant Ostlund

In a divided D.C., does growing bipartisan support for drug pricing signal that federal action is inevitable?

As public and political scrutiny of the high cost of prescription drugs continues to increase, states across the country have quietly been adopting laws requiring pharmaceutical companies to disclose certain information when introducing new drugs to the market or raising the price of drugs already in the market. Although each has its own unique requirements and are diverse geographically, demographically and politically, these states were spurred to action by the common objectives of addressing rising drug costs and bringing transparency to the complex world of pharmaceutical drug pricing.

Many of the state laws share similar features, such as how disclosure is “triggered,” but the largely diverse requirements, coupled with the robust disclosure calendar, increase costs on companies in a resource-constrained environment and require companies to divulge business practices to potential competitors. A quick scan of drug price transparency activity at the federal level provides some indication of the different approaches and narratives emerging in Washington, but may not be capable of answering the fundamental question in this discussion – is federal action to control drug pricing on the horizon?

At the federal level, the debate over drug pricing was once largely confined to backbenchers at the political extremes, but today has found new life across the aisle and the elected branches of the federal government. History is replete with examples of movements and policy priorities that first took root among the states and then found a foothold in Washington because of broad public support, the economic need for a uniform national standard and/or political opportunity. 

As the fog of this election cycle begins to dissipate, drug pricing and the federal government’s relationship with the pharmaceutical industry may emerge as a major issue for debate and could be one of those evermore rare causes that find bipartisan consistencies. Should Congress and the executive branch take up consideration of national drug pricing legislation, they will need to decide whether to embrace those elements that worked for all stakeholders at the state level – including patients, industry, payers and communities – or to be distracted by what is politically popular in the short term to the long-term detriment of those same stakeholders. Let’s take a look at the status of potential pricing regulation actions in the executive and legislative branches of government. 

Executive action

Over the summer, President Trump signed four executive orders with the stated purpose of “improving the affordability and accessibility of life saving drugs.” Each of the first three orders did the following:

  1. Directs federally qualified health centers to offer low-cost insulin and other drugs to low-income patients.
  2. Allows the importation of certain medications from Canada.
  3. Requires that pharmaceutical benefit managers pass savings negotiated between manufacturers and pharmacies directly onto patients.

The Trump administration initially withheld releasing the full text of the fourth – and most controversial – order as leverage to drive the pharmaceutical industry to the negotiating table. After those negotiations broke down in September 2020, the president signed the fourth – now more robust – executive order that creates a “most-favored-nation” clause allowing the Department of Health and Human Services (HSS) to cap Medicare expenditures on certain drugs at the lowest price paid in other rich countries.

The regulatory and operational hurdles to implement these orders will likely significantly limit their scope; however, it may have successfully laid the groundwork for more comprehensive action, regardless of the outcome of the election.

In November 2020, the Trump administration released a final rule allowing states, tribes, pharmacists and wholesale distributors to submit plans to the Federal Drug Administration (FDA) for the importation of certain drugs from Canada.  

U.S. House of Representatives

In the past few years, many different pieces of legislation have been introduced in the U.S. House of Representatives aimed at lowering drug prices. Some proposals are similar to the state-level actions and require information on and justification for price increases, while others focus on capping payments made by HHS and/or giving HHS more authority to negotiate prices.

Notably, in December 2019, the Democratic-controlled House passed the Elijah E. Cummings Lower Drug Costs Now Act (H.R. 3) that, among other things, allows Medicare to negotiate the price of certain Part D drugs directly with manufacturers. Additionally, H.R. 3 caps out-of-pocket expenditures for Medicare patients and contains price transparency reporting provisions similar to those found at the state level. H.R. 3 passed along party lines in the House, but covers some of the same topics as the president’s executive orders. H.R. 3 advanced to the Republican-controlled Senate, but has not been brought to a vote. 

This fall, the House Committee on Oversight and Reform held hearings as part of an investigation into high drug prices. Notably the CEOs of Teva Pharmaceuticals and Bristol Myers Squibb (BMS) and the former CEO of Celgene (purchased by BMS in 2019) testified about price increases of specific drugs. The committee focused, in large part, on BMS/Celgene’s product Revlimid, which was subject to repeated price increases, even more than 15 years after first being approved. In their questioning, some committee members allege that the companies raised the price of the product to meet aggressive revenue targets, rather than industry middlemen driving up the cost, as the companies maintain. Regardless of what comes out of this hearing, the fact that was held is evidence of an interest to do something in Congress and may warrant federal action. 

U.S. Senate

Last year, the Senate Committee on Finance passed a bill with bipartisan support. Among other things, this bill requires manufacturers of Medicare Part B and Part D products to pay additional rebates to Medicare if their prices increase faster than inflation. The bill would also cap out-of-pocket expenses for Part D patients and shift more of the burden onto Part D plan payers, which is designed to encourage insurance companies to negotiate lower prices with manufacturers. This bill was not brought to the floor for a vote, but was reintroduced in 2020 months before the November elections; however, this time no Democratic senators joined their Republican colleagues in backing it in committee. 

Possible road ahead

There is growing support on both sides of the aisle for some type of federal action to lower drug prices. Although there is substantive policy and ideological differences among proposals from the House, Senate and President Trump, the engagement of the three on this issue suggest that some type of federal action may be likely. Time will tell whether the incoming Biden administration charts a completely new path or builds upon parts of the groundwork laid by President Trump’s executive actions.

Whatever the way forward, Congress and the president should look to the states and industry to guide their efforts to ensure that any proposed solution achieves value for patients, without burdening manufacturers and stifling lifesaving innovation. Any proposed solution must have the buy-in of all stakeholders, because failure to appreciate the reason behind complicated and seemingly outdated practices can disrupt drug delivery and development, and put the lives of patients in danger. 

For more information on this topic, or to learn how Baker Tilly’s Value Architects™ can help, contact our team.

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