What Your CEO is Reading: Will the Executive Orders on Drug Pricing Reduce Costs for Employers?

On Friday, July 24, 2020, President Trump issued four Executive Orders to lower Prescription Drug Prices. The below offers insight on why CEOs may be interested, what large employers can do, and provides additional member resources.

July 29, 2020

On Friday, July 24, the President announced four executive orders with the stated intention of restructuring the prescription drug market and making prescription medications more affordable and accessible. The orders are targeted at reducing patient costs in the 340B program, allowing the importation of prescription drugs, eliminating manufacturer rebates in Medicare, and establishing a “favored nations” reference pricing mechanism for drugs in Medicare Part B.

The 340B Drug Pricing Program allows certain hospitals and other health care providers (“covered entities”) to obtain discounted prices on “covered outpatient drugs” (prescription drugs and biologics other than vaccines) from drug manufacturers.

Depending on how quickly these orders can be implemented, it’s hard to determine their immediate impact, as all of the orders will require additional rulemaking by various agencies and could be subject to legal challenges. That said, while it is commendable that the Administration is keeping its foot on the accelerator with regard to reforming drug prices, an important issue for plan sponsors, drug pricing policies would be most effective if aimed at reducing inflationary practices across both public and private markets. In their current form, there would not be meaningful drug price relief to large employer plan sponsors.

Below, we describe why your CEO may be following this development, what employers and can do, and provide a summary link to the executive orders.

Why Your CEO May Care

Given the urgency of employer plan sponsors to address drug pricing, employer dissatisfaction with the rebate model, and because the orders have been covered by major media outlets across the country, your CEO may want to know how they would impact your plan’s spend on prescription drugs, if implemented. Here are the stats according to our 2019 and 2020 annual Large Employers’ Health Care Strategy and Plan Design Surveys:

  • High-cost therapies are large employers’ number one concern in managing pharmacy benefit plans.
  • Employers have placed emphasis on specialty medications delivered and paid for under the medical benefit. In fact, the percent of employers instituting a prior authorization for these drugs jumped 23 points from 2019 to 2020.
  • Employers continue to pursue tactics to address manufacturer rebates. Sixty percent of employers either have a point-of-sale (POS) program in place or are considering putting one in before 2022. Additionally, 67% would welcome a “net price approach” as an alternative to the rebate-driven model.
  • Nearly all employers believe the pharmaceutical supply chain model needs to change:
    • 14% believe it needs to be more transparent
    • 35% believe rebates need to be reduced
    • 49% believe the model needs to be overhauled and simplified
  • Regarding the use of rebates as a mechanism to control drug costs:
    • 75% do not believe drug manufacturer rebates are an effective tool for helping to drive down pharmaceutical costs
    • 91% would welcome an alternative to the rebate-driven approach to managing drug costs

However, the Executive Orders are focused on a small subset of drugs; do not address the underlying drivers of drug price or offer holistic solutions; focus on out-of-pocket costs; and may create a “squeeze the balloon” effect, thereby potentially increasing drug prices for large employers.

What Large Employers Can Do

Medicare policy often influences plan design administration in the commercial market. With that, representing the interests of more than 440 large employers and industry partners, including 74 of the Fortune 100, who voluntarily provide group health and other employee benefits to over 55 million American employees, retirees, and their families, we have been quite active on these issues. Some considerations large employers may pursue:

  • 1 | Demand increased transparency. While the 340B program delivers health care safety net value, manufacturer liability to the 340B program has increased substantially over the last decade, resulting in substantial cost-shifting to the private market. Employers should demand increased transparency from their health plans, PBMs and consultants related to reporting and disclosure requirements for covered entities to prevent this cost-shifting (read more).

Beyond 340B, employers should focus on broader transparency efforts.

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  1. Why Your CEO May Care
  2. What Large Employers Can Do
  3. Additional Business Group Resources