by Brady Bizarro, Esq.
The midterm elections have worn thin the American public’s collective tolerance for political ads and negativity. A torrent of campaign commercials representing thousands of hours and billions of dollars revealed a deep political divide among Americans over major policy areas. Not surprisingly, healthcare topped the list in many polls as one of the top issues for likely voters this fall. What is surprising is, even in these trying times, one piece of the healthcare debate has forced a rare moment of bipartisanship in Washington and on Main Street: the debate over prescription drug prices.
According to QuintilesIMS, spending on prescription drugs in the United States could reach $610 billion by 2021. Specialty drugs, or high-cost, high-complexity drugs, are expected to account for 50 percent of total drug spending by 2020 even though, according to Express Scripts, only 1-2 percent of Americans use them. Much of the burden of these high drug prices is borne by employers and their employees since most Americans (roughly 156 million) receive health insurance coverage through their employers. Willis Towers Watson reports prescription drugs overall account for nearly 25 percent of the total cost of employer-sponsored medical benefits. In short, high drug prices are a ubiquitous problem felt by Americans of every political stripe.
In the last presidential election cycle, the Republican nominee, Donald Trump, defied Republican orthodoxy by openly railing against drug manufacturers, claiming that they were “getting away with murder.” That characterization was echoed by the Democratic nominee as well as the Democratic Party’s progressive wing. Since the 2016 election, the Trump administration has followed through, taking major steps to increase price transparency and lower prescription drug prices. Generally, the administration’s supporters and detractors have applauded its actions. Early on, the administration released its “American Patients First” blueprint for executive action. It outlined certain policy proposals, including restricting the use of patient assistance programs, requiring drug manufacturers to disclose drug prices in television ads, and potentially forcing fiduciary status onto pharmacy benefit managers. Since then, the Trump administration proposed a new rule that would lower costs for Medicare Part B drugs by basing payment parameters on international drug prices and introducing competition. The Department of Health and Human Services (“HHS”) projects this plan would provide $17.2 billion in savings for Americans taxpayers and patients.
Permitting Medicare, the single largest purchaser of drugs in the United States, to negotiate with drug manufacturers is a significant development, but it will not provide much help to the millions of Americans with employer-sponsored healthcare. That is not to say that the Trump administration has not taken actions to help employers and their employees—it has, and more regulatory action is to come. Aside from browbeating a number of large pharmaceutical companies on Twitter into lowering prices or deferring price increases across the board, the president signed two bills on October 10th intended to keep drug prices low and to force transparency. In doing so, he noted that tackling prescription drug prices is a bipartisan issue that Republicans and Democrats care about and want to address.
One of those bills bans so-called “gag” clauses in commercial health insurance, included in coverage offered by employers. These clauses had restricted pharmacists from disclosing drug pricing information with customers. In addition, the administration followed up on its blueprint by proposing a rule that would require drug manufacturers to disclose drug prices in television ads. The rationale for these actions is that increased transparency should help employers and their employees identify alternative, cheaper options better, with respect to prescription drugs.
Despite these executive and legislative actions, a number of employer-sponsored health plans are taking matters into their own hands. Many employers are re-negotiating their pharmacy contracts, hoping to obtain a better deal from drug companies. Others are increasing employee deductibles, co-insurance, and co-payments. Still others are resorting to implementing cost-containment programs, which can be risky for employers and employees. Two of the more popular cost-containment strategies involve the international sourcing of drugs, or medical tourism, and restricting or excluding the use of certain prescription drugs altogether.
With respect to medical tourism, there are many challenges to overcome with providing this kind of international benefit. First, it is illegal to import foreign prescription drugs into the United States. Drugs manufactured for sale abroad, even those manufactured within the United States for sale abroad, are not approved by the Food and Drug Administration (FDA), even if they are chemically identical to the American versions. While the FDA maintains a policy of enforcement discretion, this practice is very precarious for employers to pursue.
Just as international sourcing of drugs is potentially perilous, so too is the restriction or categorical exclusion of certain drugs. This practice can be permissible as long as the employer-sponsored plan includes a caveat about preventive drugs that otherwise need to be covered under the Affordable Care Act (ACA), if applicable. Further, the restriction or exclusion must not be implemented as a means to discriminate against individuals with a particular disease or condition. This hurdle is harder to overcome than most plans expect. It is not easy to implement and administer these kinds of programs. It involves complicated, tedious work. Yet, a growing number of employers are willing to take such risks to control drug spending which, in many cases, can imperil an entire health plan.
Most Americans agree that prescription drug prices are out of control. We have reached a tipping point in the debate. As a result, both major political parties are largely on board with making major changes to how our healthcare system prices and delivers pharmaceuticals. No matter how the political landscape shapes up in the coming months, the government will continue to take actions to alleviate the burden of high drug prices. It is likely that those actions will first affect Medicare and Medicaid, as those programs are run by the government. Further action will be needed to provide relief for employer-sponsored plans that cover the majority of Americans. Until those actions are taken, employers will continue to pursue cost-containment programs, which are designed to combat the drug manufacturers. In the end, the bridge connecting red and blue should prove enough to force actual change.