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By: Alexandra Schulz
July 28, 2020

Executive Orders to Lower Prescription Drug Prices

President Donald Trump recently signed a series of Executive Orders aimed to address concerns of rising prescription drug prices on July 24, 2020. The four Executive Orders largely seek to empower the Department of Health and Human Services (HHS) to implement rules previously considered by or to provide powers already enumerated to HHS. The signed Executive Orders are widely viewed as a last attempt to cut drug costs before the upcoming election, though it remains unclear whether the Trump Administration is capable of finalizing such actions or whether it even intends to do so.

Three of the signed Executive Orders were released on July 24, 2020. In addition, a fourth Executive Order was signed but not yet released. The fourth Order would require health officials to release a plan linking Medicare payment for certain medicines to lower costs paid abroad. President Trump announced a one-month ultimatum for drug manufacturers to propose alternative plans to reduce drug prices in lieu of the wide-sweeping policy articulated in the fourth Executive Order. If such changes are not implemented, the fourth Executive Order may be implemented in late August 2020. President Trump was expected to meet with pharmaceutical manufacturer leaders on July 28, 2020 to discuss the particulars of the fourth Executive Order, though the meeting has since been canceled, and it remains unclear when it will be rescheduled, if at all.

First Executive Order: Increasing Drug Importation to Lower Prices for American Patients

The first Executive Order directs HHS to complete the rule-making process regarding a proposed rule to allow the importation for specified prescription drugs from Canada. The HHS previously proposed this rule in December 2019 and was set to finalize the rule in December 2020. Additionally, part of the Executive Order directs HHS to authorize the re-importation of insulin products upon a finding that it is required for emergency medical care pursuant to section 801(d) of the Food, Drug, and Cosmetic Act (FDCA) by the HHS. This authorization, however, has already been granted to the HHS under the FDCA in the same section. In sum, the two directives authorize HHS powers already proscribed by the FDCA and mandate specific action despite the fact that HHS’ rule-making process is currently underway.

The Executive Order also directs HHS to grant waivers of the prohibition on the importation of drugs for personal use by individuals if there are no additional risks to public safety, and it would result in lower costs to patients. HHS traditionally declined to authorize waivers of the prohibition, which was provided under the FDCA in section 804 (j)(2), due to problems from on-line Canadian pharmacies. Should the HHS change its perspective on the issue of waivers, it will have to use a proposed regulation to implement 804(J) and draft procedures for obtaining the waivers.

Second Executive Order: Lowering Prices for Patients by Eliminating Kickbacks to Middlemen

The second Executive Order directs the HHS to finalize the rule-making process, excluding rebates drug manufacturers provide to health plan sponsors, pharmacies or pharmacy benefit managers (PBMs) in operating the Medicare Part D Program from the current federal anti-kickback statute (AKS) safe harbor protections. Additionally, the Executive Order would establish new safe harbors that would permit health plan sponsors, pharmacies, and PBMs to apply manufacturer discounts at the patient’s point-of-sale, thus lowering the patient out-of-pocket costs. This Executive Order provides that HHS should only finalize the rule when it confirms that the action will not increase federal spending, Medicare beneficiary premiums, or patients’ total out-of-pocket expenses.

Third Executive Order: Dispensing of Insulin and Injectable Epinephrine by FQHCs

The third Executive Order is aimed at reducing the price of life-saving medications, namely insulin and injectable epinephrine, both of which have seen an increase in price in recent years. Under the new Executive Order, Federally Qualified Health Centers (FQHCs) must provide these medications at discounted prices to low-income Americans. President Trump stated that the order “will require [FQHCs] to pass the giant [340B] discounts they receive from drug companies on insulin and EpiPens directly to their patients.” Accordingly, the Order directs HHS to require the FQHCs to offer their products purchased under the 340B program to low-income patients at the price the FQHC acquired the drug. Future grants to FQHCs will be conditioned upon whether an FQHC has offered these discounts.

Fourth Executive Order: International Reference Pricing

While the text of the international pricing rule as provided in the fourth Executive Order was not released, the White House clarified in a statement that the rule applies to Medicare Part B drugs or those administered in doctors’ offices or hospitals. The Trump Administration went on to state that international pricing rule would “take action to ensure that the Medicare program and seniors” would not pay more than any “economically comparable” country in the Organization for Economic Co-Operation and Development (OECD), an international intergovernmental economic organization, for the costliest Medicare Part B drugs. The Trump Administration did not clarify which of the thirty-seven (37) OECD member countries would be utilized as bench markers for the international pricing rule. In essence, the fourth Executive Order grants the Federal health care programs “most favored nation” status.

The yet to be released fourth Executive Order recalls an earlier proposal that the Trump Administration released through a Center for Medicare and Medicaid Services (CMS) Advance Notice of Proposed Rule-making (ANPRM) in October 2018 in which the price paid by Medicare for certain drugs would be tied to prices negotiated by foreign governments.

Broader Implications to the Pharmaceutical Industry

The Executive orders demonstrate the Trump Administration’s concerns about the rising prices of prescription drugs and the disparity pricing between Federal health care programs and foreign countries’ health programs. With less than four months until the presidential election, President Trump appears to be using these Orders to fulfill his 2016 campaign promise to cut drug prices dramatically. The Secretary of the HHS, Mr. Alex Azar II, outlined the Administration’s goals of “ending foreign freeriding, improving how our federal programs pay for drugs, lowering out-of-pockets for our citizens, and getting list prices downs” during the signing of these Orders. Moreover, Secretary Azar said that the Executive Orders signaled that arguments in the administration about how to proceed were now over – “These will happen. [President Trump] has ordered them to happen. Debate is over.” Whether any of these goals will be furthered by these Orders is not clear as quite a lot of deference is given to the HHS and the pharmaceutical industry.

The first two Executive Orders seem largely symbolic, as they call for actions HHS already made or positions HHS abandoned before. The most significant modification is found in the second Executive Order as the proposed rebate plan would completely remove the existing safe harbor, forcing PBMs to forgo the rebate entirely or apply the rebates to Medicare beneficiaries. PBMs would receive a fixed fee per prescription handled instead of the rebates for moving market share towards products with a preferential position on the formulary. The rebate plan was originally proposed in January 2019 and then withdrawn that summer. Notably, the second Executive Order maintains the requirement from the original proposal that HHS confirm that the change would not incur additional costs to Medicare beneficiaries – the same threshold that HHS and Congressional Budget Office (CBO) concluded in 2019 would lead to increased costs. Specifically, the CBO estimated that the previously proposed rule would cost the federal government $177 billion over ten (10) years and would also raise drug-plan premiums. Thus, it is very likely that the rebate plan as contained in the second Executive Order will fail for the same reason. And considering how much deference to HHS the second Executive Order provides, this Order may simply be a political tactic to demonstrate concern about the increased costs of pharmaceuticals, as either HHS or the CBO can block the regulation based upon their determination(s) that the regulation would increase such costs.

The third Executive Order is limited in that it only applies to about a thousand FQHCs and does not include hospitals that are arguably the abusers of the 340B discount program. Additionally, it is only limited to those with lower income defined as those having either “a high-cost sharing requirement for either insulin or injectable epinephrine; a high unmet deductible; or no health care insurance.” Thus, the effect of this Order will be small relative to the total amount of insulin and epinephrine dispensing.

With President Trump indicating his hopes that “the pharmaceutical companies will come up with something that will substantially reduce drug prices” making the Executive Order unnecessary, the threatened fourth Executive Order appears to be a call for action to the pharmaceutical industry. Notably, however, the date that the President provides as a deadline for the ultimatum is August 24, 2020, which coincides with the beginning of the Republican National Convention. As such, the fourth Executive Order seems, at least in appearance, to be a political move calculated at maximizing the Trump Administration’s drug pricing efforts leading up to the election. This suggests that the fourth Executive Order may be more political puffery than substantive as any movement within the Federal health care programs drug pricing system the industry is willing to provide in response to the Order may, in turn, enable President Trump to fulfill his campaign promise of 2016. It’s unclear whether the Trump Administration would, in fact, implement this fourth Executive Order should the heads of major manufactures prove unable to provide the government with any significant price decreases. If this fourth Executive Order is indeed implemented, it could have tremendous effect(s) on the industry as Medicare is the largest payor of pharmaceuticals in the world and manufacturers would be obligated to provide Medicare with drugs at the same prices that manufacturers sell to certain, unspecified foreign OECD member nations. Notably, the fourth Executive Order has been met with tremendous resistance across the healthcare sector, pharmaceutical industry, and conservative lawmakers. Critics describe the plan as a form of price-fixing and the pharmaceutical industry claim that the plan would keep new medicines from U.S. patients.

Additionally, the four Executive Orders alone cannot change policy. All four executive Orders are not immediately enforceable and require the Administration to go through formal rule-making processes, including drafting and finalizing regulations on these issues. Further, any expansive program to control Medicare drug prices, such as those proposed in the Executive Orders would most likely require legislation since the federal government cannot directly negotiate the prices of retail pharmacy drugs. Additionally, even if the Trump Administration is successful in implementing any of the measures outlined in the Executive Orders, the legality of the same is likely to be immediately challenged in court. The pharmaceutical industry has warned that they believe both the original importation plan and new international pricing plan are unconstitutional. Litigation on these issues could significantly extend the timeline for enforcement of the new proposed rules, if ever. With the November election looming, manufacturers should keep a close eye on the Trump Administration’s progress (or lack thereof) related to the four Executive Orders and underlying policies as it remains unclear whether the Administration intends to bring into effect genuine change(s) to the industry or merely engage in political showboating.

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