President Biden Releases Plan to Address Pharmacy Costs

The White House unveiled a proposal to lower prescription drug costs, outlining a series of executive actions the Biden administration intends to pursue as well as legislation it supports. This was in response to a recent executive order promoting competition in health care and other areas. We know this issue is significant for clients and constituents so we are monitoring it closely.

The 31-page plan and two-page executive summary released by the U.S. Department of Health and Human Services (HHS) incorporate giving the federal government the direct authority to “negotiate” drug prices in Medicare Parts B and D. The plan proposes to impose an excise tax up to 95% on drug manufacturers that do not agree with the prices set forth by the Medicare program. This may be considered by many to be more akin to government-imposed prices, rather than a true negotiation. Most significantly for employers, HHS expresses support for legislation that would make those Medicare prices available to commercial plans (including public exchanges) and employers who want to participate. At this point it appears likely the budget reconciliation measure to be considered by the U.S. House of Representatives will include extending the opportunity for employers and other private payers to pay the same rates as the Medicare program. However, for reasons related to the rules governing budget reconciliation bills, the language extending the rates to the commercial market could ultimately be stripped from the legislation.

Within the debate there is concern among some policymakers and others that the proposed rules would inhibit pharmaceutical innovation. One thing seems certain: if Congress approves legislation establishing lower prices for Medicare but does not extend those rates to the commercial market, employers and other private payers will experience higher drug costs, just as occurs with respect to other health care services where private purchasers pay more because the Medicare program pays less. Other legislative measures endorsed by the White House proposal include slowing price increases over time on existing drugs, speeding the entry of biosimilar and generic drugs and prohibitions on anti-competitive practices.

The executive actions contemplated by the White House proposal include enhanced data collection from insurers and pharmacy benefit managers to improve transparency about prices, rebates and out-of-pocket spending on prescription medications. This includes implementation of the Consolidated Appropriations Act, 2021 (CAA) provision requiring increased reporting by group health plans to the federal government regarding prescription drug and other health care costs. Other suggested actions include testing new approaches within Medicare, such as the use of value-based payments incorporating the clinical value of certain drugs, additional support for biosimilar drugs and generics, and “total cost-of-care” models that assess ultimate improvements in patient outcomes.

We’ll be tracking this step by step and will keep you posted of further developments.


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