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HHS Drug Pricing Blueprint

U.S. employers have been clamoring for the government to step in and take some form of action to address the rapidly rising cost of prescription drugs. This comes from the year-over-year increase in drug costs many employer-sponsored plans are experiencing, much of it being driven by the growing presence of specialty drug costs.

In the May 2018 blueprint, “American Patients First” issued by The Secretary of Health and Human Services four major challenges are outlined that are attributed to driving costs up in recent years.

  1. High list prices for drugs
  2. Seniors and government programs overpaying for drugs due to lack of the latest negotiation tools
  3. High and rising out-of-pocket costs for consumers
  4. Foreign governments free-riding off of American investment in innovation

The HHS has proposed the following four key strategies for reform in order to address the challenges outlined above:

  1. Improved competition
  2. Better negotiation
  3. Incentives for lower list prices
  4. Lowering out-of-pocket costs

As much as employers want to see an immediate change to reduce the impact of drugs costs on their health plans, the reality is many of the “Immediate Actions” and “Further Opportunities” outlined in the HHS blueprint are targeting Medicare and Medicaid. This can result in a trickle-down effect for commercial plans but it will take longer to see the impact.

There are some specific Actions and Opportunities outlined in the blueprint that hold promise for employer-sponsored plans.

Immediate Actions

  • Steps to prevent gaming of the regulatory process by drug manufacturers which impact generic drug development and competition.
    • One specific area that brand drug manufacturers will game the system is leverage limited distribution to prevent generic developers from accessing their drug for the purpose of conducting tests that are legally required for a generic drug to be brought to market.
    • This places roadblocks in the process to bring a generic product to market thereby delaying market competition
  • Experimenting with value-based purchasing in federal programs
    • Value-based models are already being tested by some PBMs. One of the most notable drugs for which this approach has been applied is Entresto (Novartis) which is used to treat heart failure.
    • The challenge with some of these early value-based models is that they are applied across a large PBM’s entire patient population, not just a single plan. The question that remains to be answered is; of the savings achieved by the PBM through this value-based model, how much will be shared with the plan? It will be sometime before we fully understand the degree to which plans can benefit from these value-based models.
  • Requiring drug manufacturers to include list prices in advertising.
    • A major issue we have in the U.S. healthcare system is the disconnect between the cost of the care (procedures and drugs) and the consumer. As a whole, the U.S. healthcare consumer has no idea of the total cost of care.
    • Will exposing the consumer to the total cost of a drug such as Harvoni with a price tag pushing $90,000 change the consumer’s behavior? It could but, when you consider the consumer covered by their employer-sponsored plan through which they have a minimal cost responsibility what is their motivation to ask for a lower cost drug?

Further Opportunities

  • Require site neutrality in payment
    • Drugs that are infused or require physician injection may not be passing through your PBM/pharmacy plan. Instead, the physician or hospital is purchasing the drug and then administering it. In these cases, it is common to see a significant markup in drug cost when it is billed by that physician or hospital to your medical plan.
    • To address these cost differentials today it takes a very strong partnership between the health plan’s medical and pharmacy administrators. Unfortunately, this is not common.
    • Leveling the playing field on drug cost between sites of care has the potential to reduce cost variation and minimize overcharging for drugs through the medical plan.
  • Considering fiduciary status for Pharmacy Benefit Managers (PBMs)
    • This requirement of PBMs becomes even more intriguing in light Express Scripts’ comments in their lawsuit defense against the City of Rockford, IL. In their motion to dismiss the case they state they were not “contractually obligated” to contain costs.
    • If PBMs are required to have a fiduciary responsibility to your plan many of the common games played today by many PBMs would be eliminated. The PBM model that has driven the “Big 3” (Express Scripts, CVS/Caremark & OptumRx) into the Fortune Top 25 (OptumRx: part of UnitedHealth Group at #5, CVS/Caremark: part of CVS Health at #7 and Express Scripts Holding at #25) wouldn’t be sustainable.
    • By owning fiduciary responsibility PBM contracts would be required to become far more transparent. For example, contracts would have to make it clearer regarding the percentage of the total drug manufacturer remuneration would be passed to the plan.
    • For employer-sponsored plans, this change could carry with it the greatest overall positive impact. The unfortunate component of this recommendation is that it falls under “Future Opportunities” which carries little weight in the grand scheme.

In all, the blueprint contains some solid steps toward improving the landscape of drug spend in the U.S. In reality though, Big Pharma carries a lot of weight in D.C. through their lobbying power and the degree to which many of the proposed concepts will gain traction will be dictated by the drug industry.

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