HHS releases drug pricing announcements, fails to address harmful DIR fees
The U.S. Department of Health and Human Services (HHS) released three new drug pricing policies late last week. Two of the policies are based on executive orders President Trump signed in July; the last, a surprise revocation of guidances related to FDA’s Unapproved Drugs Initiative (UDI), was out of the blue. The policies’ release was announced on Friday, November 20, 2020, at a White House briefing.
July’s Executive Order on Lowering Prices for Patients by Eliminating Kickbacks to Middlemen called on CMS to carry out rulemaking and publicly confirm that “[i]t is the policy of the United States that discounts offered on prescription drugs should be passed on to patients,” so Friday’s final rule was expected.
The final rule issued by the HHS Office of Inspector General would replace existing “safe harbor” legal protections for drug manufacturer rebates provided to PBMs and health plans. The new “safe harbor” protections only apply to up-front “discounts”—those applied at the pharmacy counter. The rule also creates new safe harbor protection for fixed-fee service arrangements between manufacturers and PBMs.
CMS states that “reductions in price negotiated between manufacturers and plan sponsors under Part D (or through PBMs under contract with the plan sponsors) in the form of up-front discounts, rather than after-sale rebates, are eligible for protection under the new safe harbor for point-of-sale reductions in price for prescription pharmaceutical products.” The final rule also states that PBMs can continue to receive traditional rebates from manufacturers for Medicaid managed care organizations.
Despite advocacy by APhA and other pharmacy groups, CMS’s definition of “discounts” does not include or eliminate PBMs’ use of harmful retroactive pharmacy direct and indirect remuneration (DIR) fees. “The rule is a missed opportunity because it does not address DIR fees. It does nothing to increase the transparency or accountability of PBMs. It will raise premiums and won’t lead to cost savings for patients at the pharmacy counter,” said Ilisa Bernstein, PharmD, JD, FAPhA, APhA senior vice president of pharmacy practice and government affairs. “PBMs will find ways to exploit the loopholes.”
This rule will not go into effect until January 1, 2022, which makes its future unclear. The Biden administration will review it and could take measures to revoke or withdraw the rule. The rule will also have to overcome lawsuits likely to be filed by drug manufacturers.
Read a statement issued jointly by APhA and pharmacy colleagues on the rebate rule.
'Most favored nation'
HHS also issued a “Most-Favored-Nation” (MFN) interim final rule (IFC) with a comment period and a corresponding MFN model to establish a nationwide demonstration project to run over a 7-year period. This follows an executive order Trump announced in July but did not sign until September. “When the federal government purchases a drug covered by Medicare Part B—the cost of which is shared by American seniors who take the drug and American taxpayers—it should insist on, at a minimum, the lowest price at which the manufacturer sells that drug to any other developed nation,” the order reads.
The IFC and demonstration program prohibit Medicare from purchasing 50 Part B drugs and biologics—more could be added later—for a price higher than the “lowest adjusted price” that manufacturers offer in countries that are members of the Organisation for Economic Co-operation and Development (OECD), an international organization with 37 members, and have a per-capita gross domestic product comparable to the United States. The list mostly includes cancer, physician-administered, and infusion drugs.
Physicians, hospitals, providers, and suppliers will be paid on the basis of a formula taking the MFN price into account, but the formula doesn’t consider whether the product will be available at that price. Drugs may be limited, and manufacturers are expected to take imminent legal action against this IFC.
Unapproved Drugs Initiative
In 2006, FDA launched a systematic effort to remove unapproved drugs from the market. Most of the drugs had been on the market for decades, but their manufacturers had not submitted applications to FDA demonstrating their safety and effectiveness, Bernstein said. FDA undertook a risk-based approach to remove these products from the market, starting with the highest-risk products.
Some products are widely used by clinicians, and FDA has used its enforcement discretion to take no action to remove those with low risk from the market—for example, phenobarbital. “For the past 14 years, FDA’s approach has been methodical and successful in removing dangerous unapproved drugs from the market,” Bernstein said. In 2011, FDA issued a guidance stating that any new unapproved product introduced into the market for the first time would be subject to enforcement and removed immediately, “since they are clearly illegal,” she said. “The purpose of the initiative was to warn manufacturers that FDA would begin taking action, giving them time to prepare an application to seek approval.”
Although UDI has been successful in removing unsafe and ineffective products from the market once FDA approves an application for a previously unapproved drug, FDA acts to remove all similar unapproved drugs off the market, “since now there is an approved version.” As a result, recently some opportunistic manufacturers significantly raised the price of newly approved versions. Cost increases of Daraprim, neostigmine, and vasopressin—for example—have made headlines.
Criticisms of the policy ending UDI say it could make it more difficult for FDA to take action against unsafe and ineffective unapproved drugs, putting patient safety at risk. “Many of these products are comingled in the drug supply, and many pharmacists don’t even know if a drug is approved or unapproved,” Bernstein said. “Pharmacists assume that if a drug can be ordered by the wholesaler and has a National Drug Code number, that it must have been approved. UDI was a way to weed out these unapproved drugs.”
HHS is soliciting comments on unapproved drugs in an effort to characterize such drugs as “grandfathered” and allowed to be marketed without approval. Currently, FDA argues that a tiny number of products are grandfathered, and those have already been identified.
Experts say the UDI announcement was a complete surprise. The release of the other two policies may have posed a last-minute opportunity to piggyback and publish the UDI changes before President Trump leaves office. “It is unclear how removing this policy will lower drug prices or address drug shortages,” Bernstein said.
APhA expects to submit comments on all three policies.