With the recent publication of American Patients First, the Trump administration has provided what it describes as a “blueprint to lower drug prices and reduce patient out-of-pocket costs.” Less a blueprint than a general position document, American Patients First is light on details and heavy on questions about the current state of the pharmaceutical industry in the US. and abroad. Generally, the proposal represents an incremental adjustment to the status quo of US pharmaceutical reimbursement and regulatory policy. Although the lack of detail precludes a robust analysis and many of the proposals would likely require legislative reform, the key strategies for reform outlined in the blueprint warrant further consideration.
Among the proposed “immediate” actions to increase competition, the revision to the 180-day exclusivity awarded to the first-to-file generic entrant may have the greatest potential market impact. The revision intends to prevent generic companies from “parking” or indefinitely delaying their Abbreviated New Drug Application and thereby preventing other generics from entering the market. However, reducing certainty around the 180-day exclusivity combined with the already shrinking margins for generics manufacturers may diminish a key incentive to challenge originator patents, potentially reducing generic competition.
Further opportunities intended to encourage sharing of samples for generic drug development and efforts to encourage the use of biosimilars remain vague and, given the current details provided, are unlikely to markedly impact the US pharmaceutical market.
As a group, the proposals pertaining to better negotiation are most likely to influence access and reimbursement in the US pharmaceutical market. Currently, Medicaid manages drug spend through preferred drugs lists but is unable to block drugs from the formulary. Experiments directed at replacing the Medicaid preferred drug list with formulary management in line with industry best practices may provide additional leverage for Medicaid to negotiate lower drug prices in some competitive therapeutic areas.
The Trump blueprint also puts forth several policy proposals intended to provide managed Medicare additional tools to negotiate with manufacturers. Decreasing the required number of drugs per class from two to one may provide managed Medicare payers greater leverage in contract negotiations with manufacturers. Similarly, shifting some Part B drugs to Part D would allow plans to negotiate with manufacturers, potentially reducing the price for those drugs. Furthermore, establishing an inflation limit for reimbursement of Medicare Part B drugs would limit the ability of manufacturers to take price increases and may impact pricing strategy.
Incentives for lower list prices
Although the Trump Administration’s stated goal is to “reduce the price of prescription drugs,” American Patients First clearly targets a reduction in list prices, not necessarily net prices. This nuanced but critical distinction preserves revenues for manufacturers and has likely played a large part in financial markets positive reaction to the blueprint.
Proposals include a requirement for advertising to include list prices, the restriction of rebates through anti-kickback legislation and establishing fiduciary responsibility for pharmacy benefit managers. Each of these are fraught with technical and legal challenges that make them unlikely to be implemented.
Reducing patient out-of-pocket costs
The proposal to revise Medicare payment systems by eliminating contracted “gag” clauses which prevent pharmacists from informing patients of lower cost prescription options may indeed reduce costs for some patients. Similarly, measures to reduce patient out-of-pocket costs on 340B drugs and for patients receiving low-income subsidies may reduce costs for low income patients, but proposals toward this end are unlikely to have a significant impact on the market as a whole.
Despite “global freeloading” being a focus of President Trump’s speeches and tweets, American Patients First offers very little detail on how the administration would address the subject. Apart from posing a few questions on how the US government might implement policies to protect intellectual property rights, the proposal predominantly focuses on policies directly targeting the American pharmaceutical market. However, one proposal clearly intended to influence global pricing strategy is to use Organisation for Economic Co-operation and Development prices to determine which Medicare Part B drugs could be subject to negotiation through Part D. The likelihood of implementation and the impact of such a proposal remain unclear at this early stage, although it is difficult to imagine manufacturers raising prices in global markets or lowering American prices to create global price uniformity.
With the immediate proposals in the Trump administration’s blueprint reflecting only an incremental revision to American pharmaceutical pricing and the longer-term opportunities offering more questions than answers, we are unlikely to see significant changes in the business model of US healthcare in the near future. However, with the focus on reducing list prices and removing barriers to innovative contracting in the US market, American Patients First does provide potential opportunities worth considering as companies plan for the next three to five years.
Ted Sweeney is managing partner at Jupiter Life Science