Compliance News | August 13, 2020

Executive Orders Aimed at Lowering Prescription Drug Prices

On July 24, 2020, President Trump released three executive orders on drug pricing that direct the secretary of Health and Human Services to take action. A fourth executive order was issued August 6, 2020.

Sponsors of group health plans are not required to take any action at this time. However, the situation bears monitoring, as drug pricing has been an important driver of healthcare costs and various options for lowering prices have been proposed by both the administration and Congress.

This post summarizes each executive order.

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Importation of prescription drugs

The first executive order directs the secretary of HHS to take action to expand safe access to lower-cost imported prescription drugs by:

  • Permitting waivers allowing individual importation
  • Authorizing the re-importation of insulin
  • Permitting importation of certain prescription drugs from Canada

All three proposals require that public safety of the imported medications be considered by HHS.

Elimination of PBM rebates and other non-point-of-sale price reductions in Medicare Part D program

The second executive order directs HHS to complete its rulemaking to amend the safe harbor regulations concerning discounts under the federal anti-kickback statute. The order also directs the secretary of HHS to publicly confirm that the rule will not increase Federal spending, Medicare beneficiary premiums or patients’ total out-of-pocket costs.

Further action is required by HHS before any changes in rebates could occur.

Mandated pass-through of federal discount on prices

The third executive order affects Federally Qualified Health Centers (FQHCs) that receive discounted prices through the 340B Prescription Drug Program on prescription drugs. The order directs HHS to take action to ensure future grants available under the Public Health Service Act are conditioned upon an FQHC making insulin and injectable epinephrine available to individuals at the discounted price.

Production of prescription drugs in the U.S.

The most recent executive order directs federal agencies to take actions to increase the production of essential medicines, medical equipment and protective gear in the U.S. Once implemented, the order will require that that certain “essential” drugs and medical equipment purchased by the federal government be manufactured domestically.

The order directs the FDA to develop a list of which drugs and supplies are “essential.” The order also requires various agencies to address vulnerabilities in the drug supply chain and to take action to streamline certain regulations.

These executive orders cover familiar ground

Many of the issues addressed in the executive orders are not new. The administration raised them before, either in previous executive orders, proposed regulations or the administration’s Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs.

In 2019, HHS and the Food and Drug Administration (FDA) released information about their efforts to allow importation of prescription drugs, including creating two pathways toward importation and a proposed rule permitting importation from Canada. However, those proposals were not finalized.

An HHS rule proposed in February 2019 would have eliminated prescription drug rebates and permitted discounts to participants at the point-of-sale. The Congressional Budget Office estimated in 2019 that the HHS proposed rule would cost the federal government $177 billion over a 10-year period.

Considerations and concerns

Several states have asked for permission to import prescription drugs. However, significant concerns about importation have centered on how to assure the safety of prescription drugs imported or re-imported into the U.S. Another issue is whether Canada would permit importation due to fears of supply shortages for Canadians.

It is unclear how HHS can accomplish the goals of the February 2019 proposed rule on prescription drug rebates while at the same time eliminating any increases in federal spending or in Medicare Part D premiums.

Expect another executive order on prescription drugs

The administration has stated it will issue an executive order directing that the federal agencies adopt a “most favored nation” approach to drug pricing. We expect this executive order will be released this month.

The text of this order is not yet available, but it would likely tie the price of certain Medicare Part B drugs to an International Pricing Index, which would reflect prices paid by other Organization for Economic Co-operation and Development countries.

For plan sponsors, no action required yet

Plan sponsors do not need to take action in response to these executive orders. They should monitor regulatory activity as it develops. Final rules could have an impact on plan costs for prescription drugs or the cost of Medicare Part D prescription drug programs. Once issued, these final rules may require a careful review of contracts with PBMs to ensure those contracts accurately reflect current developments.

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This page is for informational purposes only and does not constitute legal, tax or investment advice. You are encouraged to discuss the issues raised here with your legal, tax and other advisors before determining how the issues apply to your specific situations.

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