Senate introduces bill requiring health plan reporting of drug prices
December 22, 2020
On December 3, 2020, Senator Mike Braun (R-IN) introduced S. 4959, "a bill to increase transparency and access to group health plan and health insurance issuer reporting, and for other purposes."
GAO releases report: DRUG PRICING PROGRAM: HHS Uses Multiple Mechanisms to Help Ensure Compliance with 340B Requirements
December 22, 2020
On December 14, 2020, GAO released a report describing (1) the audit findings that HRSA issued to address covered entity noncompliance with 340B Program requirements; and (2) other efforts HRSA uses to help ensure that covered entities comply with 340B Program requirements.
California AG Becerra leads bipartisan coalition on 340B drug pricing program requirements
December 22, 2020
On December 14, 2020, California Attorney General Xavier Becerra joined Connecticut Attorney General William Tong, Kansas Attorney General Derek Schmidt, and Nebraska Attorney General Doug Peterson in leading a bipartisan coalition of attorneys general urging the U.S. Department of Health and Human Services (HHS) to hold accountable drug manufacturers that are unlawfully refusing to provide discounts to federally qualified health centers, hospitals, and other providers that serve vulnerable patient populations through the 340B Drug Pricing Program.
CMS releases final rule: Establishing Minimum Standards in Medicaid State DUR and Supporting VBP for Drugs Covered in Medicaid, Revising Medicaid Drug Rebate and TPL Requirements
December 22, 2020
On December 21, 2020, CMS released a final rule to support state flexibility to enter into innovative value-based purchasing arrangements (VBPs) with manufacturers, and to provide manufacturers with regulatory support to enter into VBPs with payers, including Medicaid.
OMB Receives Draft Final Medicaid Proposal
December 7, 2020
OMB received CMS’s draft final rule addressing numerous issues under the Medicaid Drug Rebate Program (MDRP), including the impact of pharmacy benefit manager accumulator programs, value-based purchasing arrangements, and authorized generics.
BIO Sues CMS Over MFN Demo
December 4, 2020
The Biotechnology Innovation Organization (BIO), the California Life Sciences Association (CLSA), and BIOCOM California filed suit in federal court in northern California against the Trump administration’s demonstration that ties Medicare doctor reimbursement to foreign drug prices.
PhRMA Sues CMS Over MFN Demo
December 4, 2020
Pharmaceutical Research and Manufacturers of America (PhRMA) and three groups representing doctors and patients filed suit against the Trump administration’s demonstration that ties Medicare doctor reimbursement to foreign drug prices.
OMB Receives OIG’s Draft Final Rebate Rule
November 18, 2020
On November 13, 2020, OMB received OIG’s draft final rule amending the safe harbor regulation concerning discounts to explicitly exclude from the definition of a discount eligible for safe harbor protection certain reductions in price or other remuneration from a manufacturer of prescription pharmaceutical products to plan sponsors under Medicare Part D, Medicaid managed care organizations as defined under section 1903(m) of the Act, or PBMs under contract with them.
All Copays Count Coalition urges House leaders to support the Preserving Patient Savings on Drug Costs Act (H.R. 7647)
November 18, 2020
The All Copays Count Coalition, a group of patient and provider lobby groups, sent a letter to House Speaker Nancy Pelosi (D-CA) and House Minority Leader Kevin McCarthy (R-CA) to include the Preserving Patient Savings on Drug Costs Act (H.R. 7647) in pandemic relief legislation. The bill delays until the first calendar year that is 12 months after the end of the COVID-19 public health emergency the application of the Centers for Medicare & Medicaid Services (CMS) rule dated May 14, 2020, allowing private health insurance plans to decide whether support provided by a prescription drug manufacturer to cover a patient's costs for a drug counts toward the patient's annual out-of-pocket limit.
Sheldon et al v. Forest Laboratories, LLC, et al.
November 11, 2020
On November 5, 2020, the United States District Court for the District of Maryland dismissed a federal False Claims Act (“FCA”) qui tam lawsuit, in which the Department of Justice and numerous state attorneys general had declined to intervene, alleging that Forest Laboratories, LLC (“Forest”) knowingly reported inflated Best Prices (“BPs”) under the Medicaid Drug Rebate Program (“MDRP”), resulting in underpayment of Medicaid rebates to the States. Specifically at issue in this case was whether discounts provided to different customers in the supply chain on a single unit of drug must be aggregated – or “stacked” – when determining Best Price.
California Attempts to Boost Supplemental Rebates by Broadening Medi-Cal “Best Price” Definition
October 29, 2020
On June 29, 2020, California Governor Gavin Newsom approved legislation (A.B. 80) to revise the definition of “best price” used by the California Department of Health Care Services (the Department) for purposes of entering into supplemental rebate agreements (SRAs) with drug manufacturers under the Medi-Cal program.
Existing state law authorizes the Department to enter into SRAs with drug manufacturers based on the manufacturer’s “best price.” Prior to enactment of A.B. 80, California’s “best price” definition included the negotiated price or the lowest price the manufacturer makes available to specified entities within the United States. The revised definition, which becomes effective no sooner than January 1, 2021, includes prices negotiated with specified entities both within and outside the United States. Under the revised statute, “best price” is defined as “the negotiated price, or the manufacturer’s lowest price available to any foreign or domesticclass of trade organization or entity, including, but not limited to, wholesalers, retailers, hospitals, repackagers, providers, or governmental entities, that contracts with a manufacturer for a specified price for drugs, inclusive of cash discounts, free goods, volume discounts, rebates, and on- or off-invoice discounts or credits, shall be based upon the manufacturer’s commonly used retail package sizes for the drug sold by wholesalers to retail pharmacies” (emphasis added). By broadening the “best price” definition, the Department may seek to negotiate greater supplemental rebates on Medi-Cal drug utilization than the state currently receives from drug manufacturers. Notably, the statute further provides that the revised “best price” definition and other provisions “shall be implemented only to the extent that any necessary federal approvals are obtained and federal financial participation is available.
CMS Issues MDRP Release 114 for Manufacturers
September 25, 2020
On September 25, 2020, CMS issued Medicaid Drug Rebate Program (MDRP) Release No. 114 for Participating Drug Manufacturers. The release addresses manufacturer obligations under the MDRP with respect to multi-market approved (MMA) products as defined in the final guidance titled “Importation of Certain FDA-Approved Human Prescription Drugs, Including Biological Products, and Combination Products under Section 801(d)(1)(B) of the Federal Food, Drug, and Cosmetic Act” released by the FDA on September 24, 2020.
CMS Issues MDRP Release 187 for State Medicaid Programs
September 25, 2020
On September 25, 2020, CMS issued Medicaid Drug Rebate Program (MDRP) Release No. 187 for State Medicaid Programs. The release addresses implications of FDA's final rule implementing section 804(b) through (h) of the Federal Food, Drug, and Cosmetic Act (FFDCA) to allow importation of certain “eligible prescription drugs” shipped from Canada into the United States to MDRP coverage and reimbursement.
Hospital Groups Petition for Rehearing on 340B Payment Reductions
September 22, 2020
On September 14, 2020, the American Hospital Association asked the full D.C. Circuit to reconsider a panel ruling that the U.S. Department of Health and Human Services lawfully made billions of dollars in reimbursement cuts for drugs purchased through a special discount program for hospitals in low-income areas.
President Trump Issues Executive Order On Lowering Drug Prices By Putting America First
September 14, 2020
On September 13, 2020, President Trump released an executive order instructing the Secretary of Health and Human Services to implement rulemaking to test payment models whereby Medicare would pay no more than the “most-favored nation price” for certain high-cost prescription drugs and biologic products covered by Medicare Parts B and D (“the Executive Order”). Under the Executive Order, “most-favored-nation price” is defined as “the lowest price, after adjusting for volume and differences in national gross domestic product, for a pharmaceutical product that the drug manufacturer sells in a member country of the Organisation for Economic Co-operation and Development (OECD) that has a comparable per-capita gross domestic product.”
OIG Releases Report: Medicare Part B Drug Payments: Impact of Price Substitutions Based on 2018 Average Sales Prices
September 2, 2020
On August 12, 2020, OIG released Report OEI-03-20-00130, quantifying the savings to Medicare and its beneficiaries that are a direct result of CMS’s price substitution policy based on 2018 average sales prices and providing support for a previous OIG recommendation for achieving additional savings.
D.C. Circuit Reverses Lower Court Decision in re American Hospital Association v. Azar
August 17, 2020
On July 31, 2020, the D.C. Circuit reversed a lower court decision enjoining the Centers for Medicare and Medicaid Services (“CMS”) from cutting Medicare Part B drug payments to hospitals that purchase drugs under the 340B Drug Discount Program. The decision comes after two years of litigation initiated by hospitals following a CMS final rule issued in November 2017 that reduced most hospitals’ reimbursement for certain 340B-purchased drugs under the Medicare hospital outpatient prospective payment system (“OPPS”) from the drug’s average sales price (“ASP”) plus 6% to ASP minus 22.5% starting January 1, 2018. A federal district court ruled in December 2018 that CMS’s reimbursement reduction was unlawful but did not vacate the rule. Instead, the court enjoined CMS’s prospective implementation of the reduction pending expedited review of the decision.
Just days following the district court’s ruling, CMS finalized another OPPS rule extending the reduction for calendar year 2019, and the district court extended its ruling and the injunction to the 2019 reduction. In November 2019, while the case was pending appeal, CMS issued a final rule extending the payment reduction for calendar year 2020 and also subjected additional provider-based outpatient departments to the reduction. Most recently, in August 2020, CMS issued a proposed rule seeking to extend, and potentially increase, the OPPS payment reduction for calendar year 2021 and subsequent years by reimbursing hospitals for 340B-purchased drugs at ASP minus 34.7%, plus an add-on, for a net payment rate of ASP minus 28.7%. CMS is also considering whether to maintain reimbursement for such drugs at ASP minus 22.5%.
Federal Court Invalidates CMS Rule to Require Disclosure of Drug List Prices in DTC Ads
July 22, 2019
On July 8, 2019, the United States District Court for the District of Columbia invalidated the final rule issued by the Centers for Medicare and Medicaid Services (CMS) that would have required pharmaceutical manufacturers to disclose the list price of certain drug products in direct-to-consumer (DTC) television advertisements beginning on July 9, 2019 (Final Rule). Had the Final Rule gone into effect, pharmaceutical manufacturers would have been required to disclose in their DTC television advertisements the advertised product’s list price, defined as the wholesale acquisition cost, if the product was a prescription drug or biological product priced at $35 or more for a typical 30-day supply or course of treatment and directly or indirectly payable by Medicare or Medicaid.
The district court ruling resulted from a lawsuit filed on June 14, 2019 by three pharmaceutical manufacturers and the National Association of Advertisers challenging the Final Rule on grounds that it exceeded the Secretary of Health and Human Services’ (HHS) rulemaking authority under the Social Security Act (SSA) and was contrary to the First Amendment. Instead of granting plaintiffs’ motion for a stay pending judicial review on these grounds, the court proceeded to the merits and applied the two-step analysis developed under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), to conclude that the Final Rule was not a valid exercise of the Secretary’s rulemaking authority under the SSA.
In considering whether Congress had directly spoken to the precise question at issue under the first prong of Chevron, the court found that the SSA did not expressly grant the Secretary of HHS authority to compel disclosure of prescription drug prices in DTC advertisements. The court then considered whether the Final Rule was a permissible construction of the statute under the second prong of Chevron. The court relied on the text of the SSA and other statutes, including the federal Food, Drug, and Cosmetic Act, as well as the expansive scope of the regulation, to conclude that Congress did not envision its grant of general rulemaking authority to the Secretary under the SSA to “sweep so broadly as to authorize HHS to regulate the marketing of prescription drugs.” Notably, the court did not reach the plaintiffs’ First Amendment arguments.
HHS appeared to leave open the possibility of an appeal; however, it remains unclear whether HHS would pursue and appeal in light of other ongoing priorities. Certain members of Congress have expressed support for legislation that would grant HHS express rulemaking authority to require disclosure of list prices in DTC advertisements. If Congress were to resolve the statutory authority issue through new legislation, one could expect future challenges to focus on the First Amendment questions left unanswered by this ruling.
CMS to Mandate Disclosure of Drug Prices in Direct-to-Consumer Television Ads
May 9, 2019
On May 8, 2019, the Centers for Medicare and Medicaid Services (CMS) released a final rule to require direct-to-consumer television advertisements for prescription drug and biological products distributed in the United States and covered by Medicare or Medicaid to include the list price of the product if the price is $35 or more based on a one-month supply or the usual course of therapy. The final rule, which is scheduled to become effective on July 9, 2019, was finalized largely as proposed with only minor modifications and technical changes.
The final rule represents the first regulatory action that the Trump Administration has finalized following release of the Department of Health and Human Services (HHS) Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs in May 2018. In a press release accompanying the final rule, HHS noted that it is considering stakeholder comments on a number of recent proposed rules that aim to address “opaque systems” and “perverse incentives.” Accordingly, industry stakeholders should be actively preparing for significant regulatory actions in the near term that could affect the drug supply chain and market access.
President Signs “Right Rebate” Act Penalizing Misclassification of Drugs
April 18, 2019
On April 18, 2019, the President signed into law H.R. 1839. Section 6 of H.R. 1839 is referred to as the “Right Rebate Act” (the “Act”) and imposes new penalties on drug manufacturers that knowingly misclassify a covered outpatient drug under the Medicaid Drug Rebate Program (“MDRP”).
While the MDRP statute and the Federal False Claims Act already impose penalties for providing false information about covered outpatient drugs, the Act imposes additional penalties for misclassifying such drugs. Under the MDRP, a manufacturer pays greater rebates for innovator drugs than non-innovator drugs, and must report to CMS whether the drug is an innovator or non-innovator. Under the Act, any manufacturer with an MDRP agreement that knowingly misclassifies a covered outpatient drug, such as by knowingly submitting incorrect drug product information, is subject to a civil monetary penalty for each covered outpatient drug that is misclassified in an amount not to exceed twice the difference between the total amount of rebates that the manufacturer paid with respect to the drug and the total amount of rebates that the manufacturer would have been required to pay if the drug had been correctly classified. The Act also permits the Secretary to exclude manufacturers that knowingly misclassify products, knowingly fail to correct such misclassifications, or knowingly provide false information related to drug pricing, drug product information, or data related to drug pricing or drug product information from participation in the federal health care programs. In addition, the Act includes requirements manufacturers must comply with if the Secretary determines the manufacturer has misclassified a drug, and penalties for failing to comply with the requirements. These penalties are in addition to the Secretary’s authority to terminate the manufacturer’s MDRP agreement for noncompliance with the agreement’s terms.
The Act also amends the MDRP statute to clarify the definition of single source and innovator multiple source drugs. The MDRP statute’s current definitions of single source and innovator multiple source drugs refers to drugs approved under an “original new drug application.” The Act deletes the term “original,” making any drug approved under “a new drug application” an innovator drug “unless the Secretary determines that a narrow exception applies.”
The Act is effective as of April 18, 2019. The Act is one of several measures to address the complex area of drug classification under the MDRP, and is one of several recent developments around drug pricing in recent months.
CMS Issues Rules Aligning Regulatory Text on Line Extensions with Statute and Existing Guidance
April 1, 2019
On March 28, 2019, the Centers for Medicare and Medicaid Services (“CMS”) released an advance print copy of a final rule and interim final rule with comment period that addresses the definition and identification of line extension drugs and the rebate calculation for line extension drugs under the Medicaid Drug Rebate Program (“MDRP”). The final rule and interim final rule with comment period were published in the Federal Register on April 1, 2019. Comments on the interim final rule are due on May 31, 2019.
The final rule regarding the definition of line extension does not finalize a regulatory definition, but instead reiterates guidance from the Covered Outpatient Drugs final rule (released on February 1, 2016 and available here) that manufacturers are to rely on the statutory definition of line extension drugs at section 1927(c)(2)(C) of the Social Security Act (the Act). CMS also directs manufactures to Manufacturer Release No. 102 (published on November 17, 2016 and available here), and reminds manufacturers that, where appropriate, they are permitted to use reasonable assumptions in determining if their drug qualifies as a line extension drug.
The interim final rule with comment period revises the regulatory text at 42 C.F.R. § 447.509(a)(4) to reflect the applicable statutory language describing the rebate calculation for line extension drugs, so as to reflect changes made by the Bipartisan Budget Act (“BBA”) of 2018. The BBA of 2018 amended section 1927(c)(2)(C) of the Act so that the rebate for a line extension drug is the greater of either: (a) the standard rebate (calculated as a base rebate amount plus the additional rebate for the line extension drug); or (b) the base rebate amount increased by the alternative formula contained in section 1927(c)(2)(C)(i) through (iii) of the Act (the base rebate amount plus the product of the quarterly average manufacturer price (“AMP”) of the line extension drug and the highest additional rebate (calculated as a percentage of AMP) under section 1927 of the Act). The interim final rule with comment period includes an illustration and example of the rebate calculation for line extension drugs.
Both the final rule and interim final are effective April 1, 2019 and are available here.
House Oversight Committee Announces Investigation of Pharmaceutical Company Drug-Pricing Methods
January 16, 2019
On January 14, the House Committee on Oversight and Reform (the “Committee”) announced its investigation into the price-setting methods of twelve major pharmaceutical companies. Considering the scope of the information requested from the companies, discussed below, this development represents an important step in what is expected to be a broad inquiry by the Committee into pharmaceutical drug pricing. A hearing—the first in a series on the issue—is scheduled for January 29. The witness list has not yet been released; however, the Committee noted in its press release that it would seek testimony from experts and patients affected by rising drug prices.
House Democrats appear to be quickly following through on their commitment to address drug-pricing issues. With control of the House of Representatives shifting to Democrats after the mid-term elections, new Democratic committee chairs are in a position to advance their policy priorities and conduct investigations backed up by their subpoena power. As we noted in a Sidley Update, available here, these developments have important implications for pharmaceutical manufacturers.
In selecting manufacturers to investigate, the Committee’s new chairman, Rep. Elijah Cummings (D-MD), is focusing on drugs that are “among the costliest to Medicare Part D, among the costliest per beneficiary, or had the largest price increases over a five-year period.” The Committee’s press release explains that the goals of the investigation are “to determine why drug companies are increasing prices so dramatically, how drug companies are using the proceeds, and what steps can be taken to reduce prescription drug costs.”
As noted above, the Committee sent requests for information on brand name and generic drugs to twelve drug manufacturers. Eight companies received requests on one drug; three companies received requests on two drugs; and two companies received requests on three drugs. The Committee did not make the contents of the requests public, but Chairman Cummings said the Committee sought information about research investments, price increases, and “corporate strategies to preserve market share and pricing power.” Chairman Cummings, in particular, has focused on the prices of insulin products.
Grassley, Wyden Introduce Bill to Address “Misclassified” Drugs in the Medicaid Drug Rebate Program
December 7, 2018
On December 4, the incoming Senate Finance Committee Chair, Senator Chuck Grassley (R-Iowa), and the Committee’s Ranking Member, Senator Ron Wyden (D-Or.), introduced a bipartisan bill, titled the “Right Rebate Act of 2018,” which focuses on the lawmakers’ concerns about “misclassified” drugs under the Medicaid drug rebate program (MDRP).
The bill would give the Department of Health and Human Services (HHS) new authority to address situations where a manufacturer “misclassifies” a drug in the MDRP, “such as by knowingly submitting incorrect drug category information” when completing MDRP reporting. Specifically, the bill would allow HHS to “correct” the classification of a drug, to impose civil money penalties on pharmaceutical manufacturers that are determined to have knowingly misclassified a drug, and to recoup lost Medicaid rebates as a result of the “misclassification” of a drug by a manufacturer. The bill would also add a new provision that specifically lists knowingly misclassifying a covered outpatient drug as conduct that is subject to the HHS Office of Inspector General’s (OIG’s) permissive exclusion authority. This new authority, if enacted, would be an addition to HHS’s existing ability to terminate a manufacturer’s rebate agreement for noncompliance.
In addition to these penalty-related provisions, the bill broadly states that manufacturers with a Medicaid drug rebate agreement would be required to report “such drug product information as the Secretary shall require for each of the manufacturer’s covered outpatient drugs,” in addition to the existing requirements to report AMP, Best Price, and other specified information and metrics. The bill also requires HHS to submit an annual report to Congress, detailing drugs that have been “misclassified” and the actions taken to correct any reported misclassifications and to recoup the unpaid rebate amounts. The annual report would be made available to the public.
HRSA Finalizes Jan. 1, 2019 Effective Date 340B Ceiling Price and CMP Rule
November 29, 2018
On November 29, 2018, the Health Resources and Services Administration (HRSA) released an advance print copy of a final rule that changes the effective date of the 340B Ceiling Price and Civil Monetary Penalties Final Rule (“Final Rule”) to January 1, 2019. Previously, the Final Rule was scheduled to take effect July 1, 2019, after being released in January 2017 and being delayed 5 times.
The advance print copy of today’s effective date change final rule is available here.
HRSA Proposed Rule Would Make 340B Ceiling Price and CMP Rule Effective Jan. 1, 2019 Not July 1, 2019
November 9, 2018
On October 31, the Health Resources and Services Administration (HRSA) released an advance print copy of a proposed rule that would move up (to an earlier date) the effective date of the 340B Ceiling Price and Civil Monetary Penalties Final Rule (“Final Rule”). Specifically, the proposed rule, if finalized, would move the effective date to January 1, 2019, instead of the currently scheduled effective date of July 1, 2019. The Final Rule was released in January 2016, but the effective date has been delayed 5 times to date. The proposed rule was published in the Federal Register on November 2 and has a short, 21-day comment period. The proposal seeks comments specifically regarding the impact of ceasing any further delay of the final rule, as well as any potential disruptions to implementation.
The proposal appears to be related to an ongoing lawsuit regarding the delay in effective date of the Final Rule. Namely, the lawsuit filed last month by the American Hospital Association (AHA), 340B Health, and other hospital plaintiffs argues that the agency has unreasonably delayed the implementation of the Final Rule. In light of the new pending proposed rule, HHS asked the court to stay the lawsuit. However, the AHA and other defendants expressed skepticism that the agency could move through the rulemaking process quickly enough to change the effective date and proceed with implementation by January 1, 2019. The court declined to stay the case pending the outcome of the proposed rule and instructed the parties to develop a joint briefing schedule. It is not clear whether this decision will affect the outcome of the proposed rule.
A copy of the proposed rule is available here: https://www.regulations.gov/document?D=HRSA_FRDOC_0001-0328.
Trump and HHS Announce New Drug Pricing Reforms
October 29, 2018
On October 25, 2018, President Trump announced new efforts to reduce prescription drug prices under Medicare. In particular, President Trump discussed two primary reforms:
- Permitting the Department of Health and Human Services (HHS) to allow Medicare to set the reimbursement amount for prescription drugs based on prices paid in other countries. President Trump referred to these as “favored nations clauses”.
- Reimbursing providers a flat rate for certain prescription drugs, regardless of the cost of the prescription drug, to encourage the use of lower cost prescription drugs.
HHS also released the Advance Notice of Proposed Rulemaking on the International Pricing Index Model (ANPRM) to solicit public comments on options HHS may consider for testing changes to payment for certain separately payable Medicare Part B drugs through the Center for Medicare and Medicaid Innovation. The ANPRM aligns with the proposals discussed in President Trump’s speech, notably focusing on the following:
“CMS intends to test whether phasing down the Medicare payment amount for selected Part B drugs to more closely align with international prices; allowing private-sector vendors to negotiate prices for drugs, take title to drugs, and compete for physician and hospital business; and changing the 4.3 percent (post-sequester) drug add-on payment in the model to reflect 6 percent of historical drug costs translated into a set payment amount, would lead to higher quality of care for beneficiaries and reduced expenditures to the Medicare program.”
Comments to the ANPRM are due by December 24, 2018.
Manufacturers Face Increased Congressional Scrutiny in the Government’s Ongoing Focus on Drug Pricing
October 26, 2018
Pressure from the Trump Administration and Congress on drug pricing issues continues to mount. Through requests for information, guidance statements, rulemaking activities, and legislative bills and enactments, among other activities, policy officials and lawmakers have expressed a clear focus on efforts to reduce prices for drugs and biologicals, to lower out-of-pocket costs for consumers, and to decrease spending on drugs by government programs. On both the regulatory and legislative fronts, a number of initiatives and proposals have highlighted transparency in various forms as a key mechanism to facilitate reform. (Please see our recent Sidley Update: HHS Secretary Azar Announces DTC Drug Price Transparency Proposal, Foreshadows Additional Regulatory Action to Address Drug Prices)
Taking another step on these issues, on October 15, 2018, Congresswoman Jan Schakowsky (D-IL) and 15 additional congressional Democrats sent letters to the CEOs of five drug manufacturers requesting information about the companies’ drug pricing practices following enactment of the Tax Cuts and Jobs Act in December 2017. The letters, available here, ask the manufacturers to respond in writing with information on any pharmaceutical products for which the manufacturer changed the list price since November 28, 2017. The letters also request that the manufacturers quantify their investments in research and clinical development; acquisition startup firms, patent licenses, or other drug development assets; and direct-to-consumer and direct-to-prescriber marketing and advertising. In addition, the letters ask the manufacturers to include any drug development portfolio discontinuations, executive compensation information, and country-by-country financial reports. These letters underscore the reality that Members of Congress, whether in the majority or the minority, can—and do—inquire and seek responses from companies about topics of interest to lawmakers and the public.
The risk of congressional inquiries and investigations is an important consideration for biopharmaceutical manufacturers, particularly given the focus of both Republicans and Democrats on issues of drug pricing. Moreover, in light of recent polling suggesting that Democrats may be in position to retake the majority in the House of Representatives following the November mid-term elections, manufacturers should anticipate the potential for additional, rigorous scrutiny from Congressional investigators if that were to occur. Notably, Congresswoman Schakowsky is in line to become the top Democrat on the Health Subcommittee of the House Energy and Commerce Committee (a key congressional committee with healthcare jurisdiction) if control of the House shifts to Democrats.
Other House Democrats in leadership positions likewise have indicated a focus on issues of drug pricing and healthcare reform more broadly. For example, Congressman Elijah Cummings (D-MD), currently the ranking member of the House Oversight and Government Reform Committee, has made 64 subpoena requests during the last two years, a number of which have focused on drug pricing issues, although all such requests were denied. (Under House rules, only the majority Chair can authorize subpoenas.) If he were to become Committee Chair following the mid-term elections, Congressman Cummings has said that his agenda would likely include probing the Trump Administration’s prescription drug policies. As another example, Congressman Frank Pallone (D-NJ), currently the ranking member of the House Energy and Commerce Committee, has expressed a desire to focus on healthcare reform, with drug pricing identified as a component of those issues.
Congressional inquiries and investigations often thrive in periods of divided government. Even under the current circumstances of a Republican-controlled White House, Senate, and House of Representatives, inquiries and other efforts focused on drug pricing are active and ongoing. Under a potential scenario of divided government following the mid-term elections, enacting legislation would become increasingly difficult. In such an environment (e.g., the potential for a Democratic-controlled House and a Republican-controlled Senate and White House), the House likely would turn to investigations as a way to influence private sector business practices. And House Democratic committee chairs would have virtually unbridled power in launching and pursuing these investigations, including the authority to hold informal, private briefings with companies; demand company documents; conduct hearings on priority matters; and compel senior company executives to testify in public. In the House, one of the most significant powers that comes with a majority is the ability of a committee chair to issue subpoenas unilaterally. (In the Senate, in contrast, the rules require a committee’s chair and ranking member to authorize subpoenas together.) Compounding the complexity of dealing with these inquiries is the fact that Congressional investigations take place on a unique landscape where there are few rules, no neutral decision makers, no appeals and no evidentiary standards.
If Democrats were to take control of the House, the shift would not take effect until January 1, 2019. In the meantime, particularly in light of ongoing activities and inquiries focused on drug pricing, drug and biologics manufacturers should consider preparing for inquiries and investigations now by evaluating the risk of an inquiry or investigation, weighing strategic options, understanding company policies and procedures, assessing potential vulnerabilities, and documenting the rationale for company decisions. Managing legal, policy, political, and public relations risks before a formal investigation advances will increase the chances for positive outcomes.
HHS Secretary Azar Announces DTC Drug Price Transparency Proposal, Foreshadows Additional Regulatory Action to Address Drug Prices
October 16, 2018
On October 15, 2018, Secretary of Health and Human Services (HHS) Alex Azar delivered remarks at a National Academy of Medicine event in which he provided an update on the Trump Administration’s implementation of the American Patients First Blueprint to reduce drug prices and out-of-pocket costs. Secretary Azar summarized a number of recent Administration policy changes, including proposed expanded reductions in Medicare reimbursement under the 340B drug discount program, allowing Medicare Advantage plans to incorporate step therapy for Part B drugs, and allowing Part D plans to begin implementing indication-based formulary designs, among others.
Secretary Azar’s remarks were timed with the Administration’s release of a proposal to require manufacturers of prescription drugs and biological products to disclose, in direct-to-consumer (DTC) television advertisements, the Wholesale Acquisition Cost (WAC or list price) of such drugs and products for which payment is made directly or indirectly under Medicare or Medicaid. Specifically, HHS proposes that manufacturers provide the WAC for a typical 30-day regimen or for a typical course of treatment, whichever is more appropriate, as determined on the first day of the quarter during which the advertisement is being aired or otherwise broadcast, using the following specific language: “The list price for a [30-day supply of] [typical course of treatment with] [name of prescription drug or biological product] is [insert list price]. If you have health insurance that covers drugs, your cost may be different.” The proposed rule is scheduled for publication in the Federal Register on October 18, 2018, after which stakeholders will have 60 days to submit comments.
According to the proposed rule, HHS determined that the policy is necessary to the efficient administration of the Medicare and Medicaid programs and issued the proposed rule to promote the responsible use of federal funds. The proposed rule is issued under sections 1102 and 1871 of the Social Security Act (Act). Section 1102(a) of the Act authorizes the Secretary to issue “such rules and regulations, not inconsistent with this Act, as may be necessary to the efficient administration of the functions . . . under this Act.” Citing Thorpe v. Housing Authority of City of Durham, 393 U.S. 268, 277 n.28 (1969), HHS argues that section 1102 grants the Secretary “broad rule-making authority” for both Medicare and Medicaid. Section 1871(a) instructs “[t]he Secretary [to] prescribe such regulations as may be necessary to carry out the administration of the insurance programs under this title [XVIII].” Similarly, HHS cited Cottage Health System v. Sebelius, 631 F. Supp. 2d 80, 92 (D.D.C. 2009) in support of its contention that the Secretary retains broad rulemaking authority with respect to the Medicare program under section 1871(a) of the Act.
Secretary Azar foreshadowed additional regulatory action to address the difference between negotiated and list prices, which Secretary Azar has previously attributed, at least in part, to the industry’s reliance on rebates. Since July, the White House has been reviewing a proposed rule that purports to modify the federal Anti-Kickback Statute’s safe harbor protections for rebates as a means to shift the industry toward a system of fixed, up-front discounts. Secretary Azar encouraged the industry to undertake this transition voluntarily but noted that, as with the DTC advertising proposal, HHS is prepared to take regulatory action to spur industry reform.
Please see our recent Sidley Update: “EU General Court Confirms European Commission's Discretion to Dismiss Dual-Pricing Complaint.”
340B Drug Discount Updates: Contract Pharmacies and Congressional Activity
July 20, 2018
The past few weeks have seen significant activity regarding the 340B Drug Discount Program (the “340B Program”), suggesting that the government may be contemplating certain reforms. First, on June 28, the Government Accountability Office (GAO) released a report on the 340B Program titled “Federal Oversight of Compliance at 340B Contract Pharmacies Needs Improvement.” The report (available here) found that Health Resources and Services Administration’s (HRSA’s) oversight of the 340B Program is insufficient, specifically noting deficiencies in HRSA’s ability to ensure compliance with the prohibition on duplicate discounts, to require that covered entities assess the full extent of noncompliance during an audit, and to require that covered entities provide evidence regarding corrective actions before closing an audit. The report states that “[g]iven these weaknesses, HRSA does not have a reasonable assurance that covered entities have adequately identified and addressed noncompliance with 340B Program requirements.”
Congress requested that GAO review the use of contract pharmacies and how their growth affects the integrity of the program. GAO found that, as of July 1, 2017, about one-third of covered entities in the 340B Program had contract pharmacies. GAO also found that 30 of the 55 covered entities that responded to a survey stated that they provide discounts to low-income and uninsured patients for drugs dispensed at a contract pharmacy. GAO made a number of findings regarding HRSA’s oversight in relation to contract pharmacies, identifying a number of concerns and weaknesses in this area. For example, the report stated that HRSA lacks complete data on contract pharmacy arrangements, that HRSA has weaknesses in its audit process, and that HRSA’s lack of guidance impedes oversight of contract pharmacies. GAO stated that the lack of data means that HRSA cannot effectively target its audits on covered entities with a high number of contract pharmacy arrangements. Further, GAO identified two additional concerns with HRSA’s audit process: “1) the process does not include an assessment of all potential duplicate discounts, and 2) the process for closing audits does not ensure all covered entities have fully addressed any noncompliance identified.” Finally, the lack of guidance, according to the GAO, means that covered entities have significant discretion on how they choose to conduct oversight on their contract entities, which results in a wide range of oversight activities.
GAO made seven recommendations as part of the report, including a recommendation that HRSA require covered entities to register contract pharmacies for each site of the entity for which a contract exists. GAO also recommended that HRSA issue guidance in a number of areas, including regarding contract pharmacy oversight, the lookback period for conducting audits, and the prevention of duplicate discounts under Medicaid managed care. With respect to HRSA-conducted covered entity audits, GAO recommended that audits include an assessment of duplicate discount compliance, that covered entities specify methodology for identifying noncompliance, and that covered entities provide evidence that their corrective action plans have been successfully implemented prior to closing audits. HRSA did not concur with three of GAO’s seven recommendations, which related to registering contract pharmacies and certain audit-related recommendations, citing concerns about the recommendations being too burdensome.
Separately, the Energy and Commerce Committee Subcommittee on Health conducted a hearing on July 11, 2018 to address 340B issues. The hearing, titled “Opportunities to Improve the 340B Drug Pricing Program,” was expected to address a number of proposed bills specific to 340B that the Committee released in advance of the hearing. The full text of the proposed bills for discussion can be found at the hearing website; bills for discussion would require HRSA to implement the GAO recommendations from the recently issued report discussed above, would statutorily codify a 340B “patient” definition (including two different bills that would codify different definitions), would raise the minimum disproportionate share adjustment percentage required in certain hospital covered entities from 11.75% to 18% in 2020, would require reporting on the number of low-income patients served and how savings are used, and would create a 340B Administrator within HRSA. Other bills would limit the orphan drug exclusion to only be effective when the drug is used for that orphan indication, would establish a moratorium on the registration of certain new 340B hospitals and associated sites and would impose reporting requirements on certain covered entities, would reverse the rule cutting 340B drug payments to hospitals under Medicare Part B, and would create a covered entity user fee.
We will continue to monitor for additional developments, but please contact us if you have any questions.
CMS Approves Amendment to Oklahoma Medicaid State Plan to Authorize Value-Based Supplemental Rebate Agreements
July 2, 2018
On June 27, 2018, the Centers for Medicare and Medicaid Services (CMS) approved Oklahoma State Plan Amendment 18-0008 (OK SPA 18-0008), an amendment to Oklahoma’s Medicaid state plan that authorizes Oklahoma to negotiate value-based supplemental rebate agreements with drug manufacturers for the purchase of pharmaceuticals. Specifically, OK SPA 18-0008 permits Oklahoma to “enter into value-based contracts with manufacturers on a voluntary basis” when negotiating supplemental drug rebate agreements.
A key area of legal uncertainty for value-based rebate arrangements has been the impact of such arrangements on Medicaid Best Price (Best Price). Rebates to state Medicaid agencies through a supplemental rebate agreement are generally exempt from Best Price. In this regard, OK SPA 18-0008 may allow for more innovative value-based arrangements within the Medicaid Drug Rebate Program because it minimizes the Best Price concerns. Time will tell whether this in turn encourages CMS to provide greater legal certainty for commercial arrangements and Best Price impact.
CMS’s approval of OK SPA 18-0008 also signals a change in CMS’ attitude toward outcomes-based arrangements, consistent with one of the initiatives outlined in the Trump Administration’s American Patients First Blueprint. In a press release issued by CMS, the U.S. Secretary of Health and Human Services (HHS), Alex Azar, stated, “Oklahoma’s plan for value-based drug contracts is an important example of how states can innovate to bring down drug costs.” Furthermore, Seema Verma, the CMS Administrator noted, “We applaud Oklahoma’s proposal for a state-plan amendment, which is an innovative approach to reform how we pay for prescription drugs and will lead to better deals for our beneficiaries and our program.”
It remains to be seen if other states similarly seek to implement outcomes-based rebate arrangements by requesting CMS approve a modification to their Medicaid state plan.
HHS Secretary Azar Details Drug Pricing Actions, Encourages Industry Feedback in New RFI
May 15, 2018
This week, Health and Human Services (HHS) Secretary Alex Azar provided a more detailed assessment of HHS’s approach to advancing the “American Patients First” blueprint (Blueprint) released on Friday, May 11. Secretary Azar’s speech preceded the release of a request for information (RFI) to be published in the Federal Register on May 16. The Blueprint and RFI (together, the Proposals) summarize the Administration’s actions to address drug pricing to date, outline near-term policy changes, and solicit stakeholder feedback on a range of proposals HHS is actively considering. The RFI comment period will remain open for 60 days.
The Proposals include a number of policy changes that HHS is expected to pursue in the near term. These policy changes fall into four broad areas that HHS identified as part of its comprehensive strategy to address drug pricing.
- Better negotiation. The Proposals reference a number of changes to drug pricing in the Medicare Part B and Part D programs that fall within the Centers for Medicare and Medicaid Services’ (CMS) existing regulatory authority. CMS will consider using its authority under the Competitive Acquisition Program (CAP) to expand competitive bidding for Part B physician-administered drugs currently paid under the average sales price methodology. Secretary Azar noted on May 14 that CMS would soon release a separate RFI addressing changes to the CAP. The Proposals also call for a number of potential changes to the Part D prescription drug program, including increased flexibility for Part D plan sponsors to negotiate lower prices for high-cost drugs in protected classes that lack competition and evaluating options to cover high-cost drugs differently based on their indication.
- Lower list prices. The Proposals call on the Food and Drug Administration (FDA) to evaluate the inclusion of list prices in direct-to-consumer advertising and for CMS to improve the transparency of drug prices through an updated Medicare and Medicaid drug pricing dashboard. In addition, Secretary Azar indicated that CMS will develop proposals, potentially through new legislation, to modify the Patient Protection and Affordable Care Act’s maximum rebate amount provision, which limits manufacturer rebates on brand and generic drugs.
- Reducing out-of-pocket spending. The Proposals direct CMS to prohibit Part D plan contracts from preventing pharmacists from informing patients of lower-cost alternatives, including when they pay for drugs out of pocket—sometimes referred to as “gag” clauses. Secretary Azar announced that CMS will be notifying Part D plan sponsors during the week of May 14 that use of such clauses should end.
- Improved competition. The Proposals indicate that FDA will continue prioritizing approvals for generic drugs by curbing what Secretary Azar called “abusive” practices of branded drug companies seeking to block new generic entrants.
In addition to near-term policy changes, the Proposals include a number of actions that HHS is actively considering and on which it has requested stakeholder feedback in the RFI. Policies under consideration include statutory and regulatory changes to:
- promote value-based drug pricing, indication-based payments, and long-term financing models;
- limit manufacturer rebates from drug manufacturers to pharmacy benefit managers (PBM), Part D plan sponsors, and other health plans, including through potential changes to the federal Anti-Kickback Statute’s discount safe harbor and applicable Part D regulations;
- exclude certain remuneration from the average manufacturer price (AMP) and best price (BP) calculations;
- address the role of manufacturer copay discount cards in AMP and BP calculations and their use in federal healthcare programs;
- address growth in the 340B Drug Discount Program through a new “patient” definition and restrictions on duplicate discounts; and
- expand price transparency in Part D through a revised end-of-year statement on drug price changes and rebates and technology to inform Medicare beneficiaries with Part B and Part D about cost-sharing and lower-cost alternatives.
The RFI also seeks suggestions on other approaches to improve the affordability and accessibility of prescription drugs, as well as changes to other regulations or government policies that impact drug prices and out-of-pocket spending. Consistent with the HHS’s ongoing efforts to address regulatory burdens, the RFI solicits feedback on revisions to current regulations and policies that impose a burden on providers, payors, and others.
As he concluded his speech, Secretary Azar encouraged industry to work with HHS on approaches to increase access to drugs while lowering costs, warning that not doing so would risk moving toward policies seen in countries that set prices for pharmaceuticals. Secretary Azar noted that, if industry is unwilling to work with the Administration to lower drug prices, the Administration will “turn up the pressure” until patients start to see the benefits.
Connecticut Poised to Pass Drug Price Transparency Law
May 11, 2018
On May 8, 2018, the Connecticut Senate passed House Bill 5384 (HB 5384), concerning prescription drug price transparency. HB 5384 awaits the Governor’s signature, which is expected to be duly provided. Thus, Connecticut appears poised to join the growing number of states with a prescription drug price transparency law.
Much like other state drug price transparency laws, HB 5384 would impose reporting requirements on various parties in the prescription drug insurance system, including pharmacy benefit managers, health insurers, and pharmaceutical manufacturers, among others.
However, HB 5384 is different than other state laws that have preceded it in that it creates a process that allows health insurance carriers to file a complaint against prescription drug manufacturers. In particular, carriers can file a complaint with the Connecticut Insurance Commissioner about certain prescription drugs covered by their health plans whose WAC increases cause the premium of the health benefit plan to increase by at least one dollar per member per month. Manufacturers must provide a written response to the Commissioner, including information regarding rebates paid to the carrier and product utilization. The Commissioner must issue a determination as to whether the increase in the cost of the prescription drug caused the health plan’s premiums to increase by at least one dollar per member, per month.
A copy of the bill is available here.
Trump Administration Releases Blueprint to Lower Drug Prices
May 11, 2018
On May 11, the Trump Administration released the “American Patients First” proposal, a “Blueprint” containing a number of regulatory and legislative changes aimed at reducing prescription drug prices. President Trump and Health and Human Services (HHS) Secretary Alex Azar emphasized that all stakeholders would experience changes as a result of the Administration’s proposed immediate actions. Furthermore, the Blueprint solicits stakeholder feedback on a number of issues that could result in additional policy changes moving forward. Secretary Azar is expected to provide more detailed implementation guidance in the coming days through meetings with Members of Congress and a formal announcement at HHS headquarters next week.
Two particularly noteworthy provisions of the Blueprint relate to the Federal Anti-Kickback Statute (AKS). As part of the Blueprint’s proposals to incentivize lower list prices, HHS will consider as a “further opportunity” the possibility of revisiting the AKS discount safe harbor for drug rebates. The Blueprint also requests information and feedback from stakeholders regarding potential revisions to the AKS to facilitate broader adoption of value-based arrangements.
Please check back for additional updates on the Blueprint and its implications for industry stakeholders.
Nevada Legislative Commission Announces Early Review of Drug Price Transparency Regulation, Likely Speeding Adoption
May 10, 2018
The Nevada Legislative Commission (Commission) recently announced that it will hold an “early review” meeting to consider regulations the Department of Health & Human Services (DHHS) has proposed to implement SB 539, the state’s price transparency law governing prescription drugs considered “essential” to the treatment of diabetes.
The Commission will meet on Wednesday, May 16 at 8:30 am PST to review a number of pending regulations, including the SB 539 regulations (R042-18). Additional information, including a meeting agenda and link to streaming video will be available on the Legislature’s Calendar of Meetings here.
The Commission’s decision to conduct an early review of the regulation suggests the DHHS will adopt the regulation in its current form during the May 31 meeting (see our post from May 1) and positions the regulation to become effective prior to the July 1 deadline for adoption of permanent regulations.
Under the Nevada Administrative Procedure Act, if the regulation adopted after the DHHS’ May 31 hearing is identical to the regulation the Commission reviews on May 16, the legislative counsel must promptly file the final draft of the regulation with the Secretary of State. The regulation then becomes effective when the final draft of the regulation is filed.
HRSA Again Proposes To Delay 340B Rule Effective Date
May 7, 2018
On Friday, May 4, 2018, the Health Resources and Services Administration (HRSA) once more proposed to delay the effective date of an Obama-era 340B final rule that set forth regulations for the calculation of 340B ceiling prices and the implementation of civil monetary penalties (CMPs) for manufacturers that knowingly and intentionally charge more than the 340B ceiling price for covered outpatient drugs purchased by 340B participating entities. The final rule, which was published in the Federal Register in January 2017, has already been delayed multiple times. Currently, the final rule is scheduled to take effect July 1, 2018. In the new proposed rule, HRSA proposes to delay the effective date until July 1, 2019, “to allow a more deliberate process of considering alternative and supplemental regulatory provisions and to allow for sufficient time for additional rulemaking.” HRSA further notes that HHS is “in the process of developing new comprehensive policies to address the rising costs of prescription drugs,” including policies affecting Medicare, Medicaid, and the 340B program. HRSA does not provide a time frame for these additional regulations and policies. The proposed rule provides a short, 15-day comment period for stakeholders to provide feedback on the proposal to delay the January 2017 final rule’s effective date for an additional year, to July 1, 2019. The proposed rule is available here.
Nevada Announces Public Hearing on Proposed SB 539 Diabetes Drug Pricing Regulations
May 1, 2018
Nevada’s Department of Health & Human Services (NV DHHS) recently announced a public hearing on regulations it is proposing for the implementation of SB 539, a drug price transparency law that requires manufacturers to report detailed information about drugs NV DHHS determines are essential to the treatment of diabetes.
The public hearing will take place on Thursday, May 31, 2018 at 11:00 am PST. The hearing will be broadcast through Nevada’s legislative website and NV DHHS is taking written public comments on or before May 31, 2008 at 5:00 pm PST. More information about Nevada’s Public Hearing can be found on NV DHHS’ SB 539 website, available here.
NV DHHS also recently released a new version of its proposed regulations containing an expanded preamble. The current draft of the proposed regulations, dated April 23, 2018, is primarily concerned with establishing specific procedures NV DHHS will follow when it receives a public records request for information manufacturers report pursuant to SB 539 that may constitute a trade secret under the federal Defend Trade Secrets Act, 18 U.S.C. § 1836 et seq. (DTSA). The preamble provides a summary of the proposed regulations as well as the State’s summary of the Nevada Public Records Act and certain federal laws governing the protection of trade secrets.
Importantly, the revised proposed regulations require NV DHHS to undertake an initial review to determine whether NV DHHS reasonably believes public disclosure of information manufacturers request to keep confidential would constitute misappropriation of a trade secret under the DTSA. The proposed regulations also require NV DHHS to treat as persuasive authority the interpretation and application of the term “trade secrets” in the trade secret statutory exemption of the federal Freedom of Information Act, 5 U.S.C. §552(b)(4).
Given that the protection of trade secrets is an issue under multiple state drug price transparency statutes, this development may inform how manufacturers approach other public records request-like issues in other state drug price transparency statutes.
HHS Secretary Announces New “Drug Czar”
March 29, 2018
On Thursday, March 29, 2018, U.S. Department of Health and Human Services Secretary Alex Azar announced that Daniel Best would be the new “drug czar.” His specific title is Senior Advisor to the Secretary for Drug Pricing Reform and he is tasked with leading the initiative to lower the high price of prescription drugs. Best previously worked at CVS Caremark as corporate vice president of industry relations for the company’s Medicare Part D business. Prior to his work at CVS Caremark and affiliated companies, he worked at Pfizer for twelve years as Director of Business Development. Secretary Azar touted Best’s experience in the industry, stating “[h]e has the deep experience necessary to design and enact reforms to lower the price of medicines that help Americans live healthier and longer lives.” For more information on the U.S. Department of Health and Human Services website, please click here.
U.S. Senator Releases Report on Prescription Drug Prices Increases
March 26, 2018
On March 26, 2018, at the request of ranking member U.S. Senator Claire McCaskill, the minority staff of the Committee on Homeland Security and Governmental Affairs released a report examining the history of drug prices for the brand-name drugs most commonly prescribed for seniors. The report found that the prices for each of the top 20 most-prescribed brand-name drugs in the Medicare Part D program increased over the last five years. Specifically, the report found that, on average, the prices for these drugs increased 12% every year for the last five years; twelve of these drugs had increased their prices over 50% in the five-year period; and six of these drugs had prices increase over 100%. The report does not examine the benefits and value these drugs offer seniors or the research and development cost needed to find the next generation of breakthrough drugs.