Trump Unveils Disputed, Long-Shot Drug Rules Upending System

(Bloomberg Law) -- The Trump administration Friday released two contentious drug policies: one that could cut profit margins for pharmaceutical companies and another that would allow them to make smaller payments to their partners.

Both moves culminate four years of presidential threats to companies in the drug supply chain to reduce prices or bow to regulations. It’s not clear how the incoming Biden administration will handle Trump’s legacy. Regardless the move could leave Biden with massive policies to either enact, change, or somehow dismantle. Lowering drug prices was a priority for both Republicans and Democrats before the pandemic hit, and one they vow to return to after the public health emergency ends.

One policy changes drugmakers’ rebates to pharmacy middlemen such that they can’t fluctuate based on the price of the drug. With fixed payment arrangements, these pharmacy liaisons can expect less money. The rule also allows for discounts to go directly to customers at the pharmacy counter. Middlemen, also known as pharmacy benefit managers, help insurers organize their drug coverage lists and determine which products get preferential treatment.

The other rule ties federal reimbursement for drugs administered in doctors’ offices to lower prices paid in other countries. Drugs administered by doctors, often for serious illnesses like cancer, are usually expensive. That rule initially was approved by the White House as a proposal that would need comment from the public, but by mid-afternoon Friday it had morphed into an “interim final rule,” meaning the public can still comment but it will be considered effective upon publication in the Federal Register.

President Donald Trump, in a briefing Friday, said the foreign pricing rule is intended to address the “unfairness” of higher U.S. costs for expensive drugs and “lower prices for Americans.”

He also said pharmaceutical companies are unsupportive of him. “Big pharma ran millions of dollars of negative advertisements against me,” he said. The industry is particularly agitated about the foreign price rule, which would slash its profit margins. “Nobody’s ever done this,” Trump said. “The drug companies don’t like me too much, but we had to do it.”

Lawsuits are almost guaranteed for both rules, leaving their paths to implementation unclear. Judges stopped other Trump drug policies in their tracks, including one rule mandating drug companies include price information in advertisements. Trump acknowledged that possibility but then dismissed it. “I presume they’ll sue but it’s a suit that they’ll never ever be able to win,” he said.

The S&P 500 pharmaceuticals index barely budged on the announcement, up just 0.08% at 3:11 p.m. in New York trading on a day when Pfizer Inc. announced its vaccine is the first to be filed with the Food and Drug Administration for emergency authorization.

The final rebate rule favors pharmaceutical companies whose leaders say ditching current rebates will let them lower drug prices. There’s no guarantee that would happen, however.

The rebate rule applies to drugs sold in Medicare Part D, the outpatient drug program for seniors, but the head of the Department of Health and Human Services said last year the change could ricochet into private plans.

The foreign drug price rule would be implemented over several years through a demonstration model and initially apply to 50 single-source medications that make up a “high percentage of Medicare Part B drug spending.”

The demonstration starts in January, and the the Centers for Medicare & Medicaid Services estimates the policy will save more than $85 billion over seven years.

Rocky Road Ahead

The foreign pricing rule could slash profit margins for drugmakers and physicians. Both rules severely alter business arrangements for pharmacy middlemen.

The pharmaceutical industry is “very opposed” to foreign price matching, Theresa Carnegie, a health policy lawyer at Mintz Levin Cohn Ferris Glovsky and Popeo, said.

“They are highly willing to use lawsuits,” she said, noting the foreign drug price rule might be more reviled by influential groups than the rebate rule. Physician groups are also likely to sue over the foreign drug price policy because it affects their practices too, she said.

Groups representing pharmacy middlemen have already promised to sue over the rule ditching traditional drug rebates.

“The Administration cannot demonstrate that brand drug manufacturers will voluntarily lower their prices,” the Pharmaceutical Care Management Association, which represents drug intermediaries, known as pharmacy benefit managers, said in a statement.

Pharmaceutical companies say those rebates force them to keep prices high because middlemen demand large payments. Middlemen argue the rule will increase premiums. They also contend the rule will increase taxpayer costs—a rebuttal supported by a Congressional Budget Office review that found the policy would cost taxpayers $177 billion over a decade.

Alex Azar, head of the HHS, said Friday he doesn’t expect premiums to go up because of the rebate rule.

“The most surefire way for a Part D drug sponsor executive to lose their job is to miss the premium benchmark and overbid their competitors,” he told reporters.

—With assistance from Jordan Fabian, Mario Parker, John Tozzi

To contact the reporter on this story: Jacquie Lee in Washington at jlee1@bloomberglaw.com

To contact the editors responsible for this story: Fawn Johnson at fjohnson@bloombergindustry.com; Alexis Kramer at akramer@bloomberglaw.com

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