The Trump administration moved swiftly in the past 24 hours to implement pieces of its plan to bring down drug prices, preparing several significant steps as one of the biggest U.S. drugmakers said it would bring down the cost of some medicines.
The Health and Human Services Department on Wednesday night submitted a proposal to the White House that would curb kickback exemptions that allow drugmakers to offer insurers and pharmacy-benefit managers rebates widely blamed for keeping drug prices high. Earlier that day, the Food and Drug Administration released a plan to boost the market for so-called biosimilars, which are generic copies of expensive drugs that contain living organisms.
Both moves were part of President Donald Trump’s blueprint for lowering drug prices released in May.
Trump has put drug companies in his crosshairs, hammering Pfizer Inc. on Twitter for raising prices and pledging to make medication more affordable. On Thursday, Merck & Co. Inc. followed Pfizer and Novartis AG in responding to the president’s remarks, pledging to cut back some prices and keep other increases in line with inflation.
FDA Commissioner Scott Gottlieb also said Thursday that the agency would consider allowing importation of drugs from other countries under certain conditions, including when a generic-drug company that is the sole provider of a medication significantly raises the price of that drug. Astronomical price increases on sole-source generic drugs are what thrust “Pharma Bro” Martin Shkreli into the spotlight a couple years ago.
HHS Deputy Secretary Eric Hargan punctuated the moves on Thursday when he delivered some tough words to drug-company executives who make up the board of the Pharmaceutical Research and Manufacturers of America.
“The blueprint is very real, it’s definitely the president’s blueprint and the sweeping reforms contemplated in it are on the way,” Hargan told the lobby group in a closed-door meeting. “When this president talks about fundamental change to drug markets, he follows through.”
Hargan told the group that maintaining the free-market principles that govern the drug supply chain, “requires all of you being open to the expansion of market forces within the drug industry. In part, that’s going to happen through more freedom for negotiation within our government programs like Medicare part B and D.”
Medicare part B and D cover different types of drugs, and the administration has talked about increasing the ability of pharmacy-benefit managers to negotiate drug discounts in both programs.
After the meeting, Holly Campbell, a spokeswoman for PhRMA, said in an email that the group will work with the administration on “market-based solutions.”
Trump thanked Novartis and Pfizer on Thursday via Twitter for halting drug price increases they had planned to make this month. A few hours later, Merck said that it wouldn’t increase the average net price of its drugs by more than inflation annually.
Merck also said it was cutting the price on hepatitis C treatment Zepatier by 60 percent, though that drug has struggled to take market share from expensive rival medications.
Pfizer delayed its increase this year after Trump called them out on Twitter July 9 and said the company “should be ashamed that they have raised drug prices for no reason.” Novartis followed suit this week.
The proposed regulation on rebates sent to the White House Office of Management and Budget would make changes to federal safe-harbor protections that have allowed the discounts. The federal anti-kickback statute allows “safe harbor” to protect normal business practices, an exemption that currently includes PBMs.
The budget agency must review all regulations before they’re released publicly.
Details of the proposal weren’t available, but its title provides a clue to the changes being considered: “Removal Of Safe Harbor Protection for Rebates to Plans or PBMs Involving Prescription Pharmaceuticals and Creation of New Safe Harbor Protection.” It could represent a sweeping shift in how drug prices are set in the U.S. and potentially eliminate some of the opacity that surrounds the system.
Shares of pharmacy-benefit manager CVS Health Corp. fell 2.6 percent to $66.12 at 3:31 p.m. in New York. Express Scripts Holding Co., another PBM, was down 1.4 percent to $76.79.
Part of the biosimilar plan involves FDA working with the Federal Trade Commission to stop “gaming tactics” like piling up patents to extend the commercial dominance of brand-name medicines.
The rebates proposal came “faster than we had expected,” said Evercore ISI analysts Ross Muken and Michael Newshel in a note Thursday, given that the public comment period on the blueprint ended only Monday.
“The scope and details are unknown at this point, but the heightened risk and uncertainty should renew pressure on shares of PBMs, distributors and pharmacies, whose economics are driven off of gross price,” the analysts wrote.
They predicted 2020 would be the earliest any changes to the rebate system would take effect.
“While we cannot comment on pending regulations, the president’s ‘American Patients First’ blueprint to lower drug prices and reduce out-of pocket costs clearly states that we are looking at removing safe harbor protections for drug company rebates,” Caitlin Oakley, spokeswoman for HHS, said in an email Wednesday. “It should not come as a surprise that this would require rule-making.”
The proposal Thursday to look into importing drugs from other countries under certain circumstances is noteworthy because the FDA has for years — under Republican and Democratic administrations — resisted lawmaker calls to allow drug imports to lower prices for American patients.
Sudden price increases and other supply disruptions “can leave patients without access to drugs they need,” Gottlieb said in announcing a working group to examine the proposal.