What does the Trump Administration Drug Cost Initiative Mean for States?

On Friday, May 11, the Trump Administration announced a series of potential policy options that, if implemented, aim to reduce the cost of prescription drugs. The initiative, called American Patients First, is described in the nearly 40-page document that lacks many specifics for the policy options. HHS Secretary Azar provided more detail on some of the ideas in a speech on Monday, May 14.

Among its ideas, the Administration highlights the drug cost proposals included in the President’s budget – many of which may not actually require new legislation if the Administration wanted to ‘lean in’ and provide relief for patients.

States have been in the vanguard in proposing means to protect consumers and state budgets from rising pharmaceutical costs. To date, the President’s initiative appears to provide little new strategy to support states specifically. Perhaps what might have been significant for states is the Secretary’s mention that he will seek to clarify that patent law cannot be used to protect unfair monopolies. In further detail, the Secretary indicated that this means he will work to stop how companies use FDA rules and supply chains to limit generic competition. This is a bit different than company express use of patent law to block state initiatives – states are consistently and persistently sued by the drug industry based on patent law for even the most benign efforts to hold manufacturers accountable for their pricing decisions. So the Secretary’s approach will not assist states.

Based on the budget proposals and the new policy ideas in the American Patients First document, it is clear that the Administration concludes that, generally, US drug prices and consumer costs are high because of non-pharma market players – pharmacy benefit managers, insurers, the federal 340B program, the Medicaid program that serves low income people, providers, the Affordable Care Act, and other countries that regulate the price of prescription drugs.

In short, many of the ideas in the initiative would limit or reduce the amount of rebates and price concessions in the market today. A number of the policy ideas would directly impact states if implemented:

  • The Administration is considering a proposal to remove the limit on Medicaid total manufacturer rebate amounts. There is a basic rebate and a ‘penalty’ rebate that captures price increases. The total rebate is currently capped at 100 percent of the cost of the drug – regardless of the size of price increases.
  • Medicare Part D rebates would be passed through to consumers at the point of sale, which is expected to raise Part D premiums for states that buy into Medicare for their retirees. There are a number of other Part D proposals but what, if any, impact these provisions may have on the states’ Part D clawback payments is not clear at this point.
  • The 340B program would be trimmed in some manner, which could affect public hospitals.
  • Other countries would be pressured to pay more for their drugs although it is unclear how this would happen and whether it would result in lower prices in this country.
  • The document restates the idea in the budget of new Medicaid demonstration authority for up to five states that can opt out of the entirety of the Medicaid drug rebate program to have more formulary management tools than current law affords. The federal savings from this proposal in the budget was very small. As described to date, states would give up all federal rebates on all drugs in exchange for greater management flexibility.
  • There is also a federal policy idea to facilitate long term state financing of utilization for important new drugs. The state impact cannot be ascertained because of lack of detail.
  • Finally, the Administration seems poised to revamp their prescription drug dashboard to include price increases. While there are no details at this point, a federal system that tracks price increases could reduce the implementation costs to states that want greater price transparency and industry justification of price hikes

There are several additional policy ideas for Medicare B and D, the Medicaid drug rebate program, and policy ideas for commercial pharmacy benefit manager business operations, using federal policy to facilitate commercial value-based pricing, and eliminate ACA industry taxes.

The document also asks for input on a number of questions related to policy ideas, such as determining whether the CMS national drug spending data is useful, whether pricing information should be included in industry advertising, and how the 340B program should be reformed. What the initiative does not consider is policies that would allow states to act in the absence of real federal action. The Trump initiative could take years to move forward. States are acting in the interim but there appears to be little among the array of potential federal policy initiatives to assist states in moving forward.

Instead, state governments need a variety of federal supports to help consumers and constrain drug costs. States need the ability to pool state Medicaid programs with other state payer programs for more effective negotiations with manufacturers without conflicting with Medicaid drug rebate rules. State Medicaid programs want the ability to share supplemental rebate information in order to better understand how effective the supplemental rebate programs are in any one state. States believe it is important for consumers and payers to know which drugs are approved under any fast track process; payers may want to delay coverage and consumers may want to delay use of a drug until more evidence of effectiveness and safety are established. Even with this knowledge, Medicaid would need federal authority to delay coverage of a fast tracked drug.

States also need the assistance of the federal government in responding to industry legal challenges stemming from antiquated interpretations of federal patent and commerce law. Finally, a number of states are contemplating the use of existing federal law to administer a program of safe, wholesale importation of less costly prescription drugs from Canada – which would improve on the safety of the personal importation that the federal government allows today.

States will continue to advance solutions to the drug price crisis and will watch closely as the Trump Administration rolls out more details in hopes of finding common ground to lower the price of needed medications