Executive Orders on Drug Pricing: Overview and Impact for Employers

On Friday, July 24, 2020, President Trump issued four Executive Orders to lower Prescription Drug Prices. The below summaries the orders and provides a brief impact statement for large employers.

1 | Executive Order on Access to Affordable Life-saving Medications (full text)

Would make grants to federally qualified health centers (FQHC) contingent upon established practices of entities to make all insulin and injectable epinephrine (Epipen) available at the discounted price to individuals with low incomes. FQHCs are eligible to purchase prescription drugs at 340B pricing discounts. Individuals with low incomes are defined as those with 1) a high cost-sharing requirement; 2) a high unmet deductible; or 3) those with no health insurance. Notably, the executive order doesn’t mention hospitals, which rely heavily on the 340B program.

Impact to Employers

  • 28 million patients visit FQHCs every year – while six million of those are uninsured, many patients are covered by private plans.
  • A GAO report found that federal oversight of compliance at 340B contract pharmacies needs improvement. The report noted that 33% of federal grantees and 57% of hospitals do not provide discounts to low-income or uninsured patients.
  • Moreover, from 2004 to 2013, Medicare spending in nominal dollars for Part B drugs at hospitals that participate in 340B grew from $0.5 billion to $3.5 billion, or 543 percent and hospitals in the 340B program accounted for 22 percent of Medicare spending for Part B drugs.
  • Given that the scope of the order does not cover 340B hospitals, the impact would be small relative to the total dispensing of insulin and epinephrine.
  • We encourage the Administration to include 340B eligible hospitals alongside FQHCs as part of the grant contingency language for maximum impact.

2 | Executive Order on Increasing Drug Importation to Lower Prices for American Patients (full text)

Would provide waivers for states, wholesalers, and pharmacies to import prescription drugs from Canada and other countries, authorize the re-importation of insulin products when required for emergency use, and create a pathway for widespread use of personal importation waivers at authorized pharmacies throughout the United States.

Impact to Employers

  • Last December, the FDA and HHS issued a notice of proposed rulemaking (NPRM) that would permit importation of prescriptions from Canada. The NPRM would allow states and certain other non-federal government entities to submit importation program proposals to the FDA for review and authorization.
  • Friday’s executive order essentially asks the government to finish this rulemaking process.
  • The FDA released an economic analysis of cost savings from this plan. It concluded: "We are unable to estimate the cost savings from this proposed rule.”
  • We encourage the Administration to focus on holistic reforms to US-based price inflation for prescription drugs; allowing for import from outside countries seeks to minimize complex regulatory frameworks for which there are no direct comparisons and does not address underlying inflationary drivers of drug price.

3 | Executive Order on Lowering Prices for Patients by Eliminating Kickbacks to Middlemen (full text)

Would require all discounts and rebates in the Medicare program to be passed on to patients at the pharmacy counter.

Impact to Employers

  • The order is limited to the Medicare program: while discounts and rebates lower drug spend for health plans and PBMs, Medicare beneficiary cost-sharing is based on a drug’s list price and, thus, beneficiaries do not receive any negotiated savings at the pharmacy counter.
  • However, the order includes a caveat to direct the Secretary of HHS to confirm that this action would not increase federal spending, Medicare beneficiary premiums, or patients’ total out-of-pocket costs. Depending on the HHS analysis, this order may or may not be implemented.
  • We have previously noted that this type of proposal focuses on out-of-pocket costs only and have urged policy makers to avoid “quick fixes” that focus only on out-of-pocket costs, as opposed to total cost to the system. Further, any changes in supply-chain contracting should not result in a net increase in drug costs to any payor, nor windfall to any supply chain stakeholder.
  • This proposal does not address list prices and we encourage the Administration to recommit to a holistic reform to drug pricing that encompasses both out-of-pocket costs to patients, as well as total cost of prescription drugs to the health care system and payers.

4 | Fourth Executive Order

The President indicated that the fourth executive order would be withheld from public release until August 24th at 12:00 p.m. ET., pending the outcome of an anticipated meeting with the heads of major drug manufacturers, allowing them an interim opportunity to enact market-based approaches to lowering drug prices. That meeting, set to be held on Tuesday, July 28, 2020 was subsequently cancelled.

The fourth (not yet released) order would be targeted to “end global freeloading on the backs of American patients and American seniors.” In his remarks, the President referred to the order as being reliant on a “favored nations” methodology and said the fourth order would require Medicare to “purchase drugs at the same price as other countries pay.” To achieve this, the President described that “we will determine what other medically advanced nations pay for the most expensive drugs, and instead of paying the highest price, Medicare will pay the lowest price and so will lots of other U.S. buyers.” The policy, which administration officials began teasing last year, appears even bolder than a proposed "International Pricing Index" (IPI) introduced in 2018 and would focus on drugs in Part B.

Impact to Employers

  • The full text of the proposal has not been released however, there are concerns that any policy such as the previous IPI proposal would negatively impact the private market and the 170 plus million people covered by employers and insurers.
  • If we as a nation are to succeed in controlling health care costs, we must ensure that public policy decisions do not merely “squeeze the cost balloon” in one area only for it to expand and exacerbate the problem in another area. Apart from the fact that these nations determine prices differently, have different patent and exclusivity models, and often vastly different incentives for biosimilar utilization, we are concerned that the impact on prices for the same pharmaceuticals in the US may rise in the private sector and the market for biosimilars may be adversely impacted if Medicare adopts this approach.
    • We encourage the Administration to consider how the criteria for evaluating a “favored nations” approach may impact the private market and the 170 plus million people covered by employers and insurers to ensure that public policy decisions do not merely “squeeze the cost balloon” in one area only for it to expand and exacerbate the problem in another area.

Link to our WYCIR for information on “Why Your CEO May Care” and “What Large Employers Can Do” as related to the executive orders by clicking here  and for additional information and/or questions about this or other prescription drug related policy issues, please contact Tiffany McCaslin.

Related Business Group Resources

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TABLE OF CONTENTS

  1. Executive Order on Access to Affordable Life-saving Medications
  2. Executive Order on Increasing Drug Importation to Lower Prices for American Patients
  3. Executive Order on Lowering Prices for Patients by Eliminating Kickbacks to Middlemen
  4. Fourth Executive Order
  5. Related Business Group Resources