September 15, 2020 Read Advisory Board's take: Is the new executive order a big deal? The 3 questions we're asking.

President Trump on Sunday signed an executive order that aims to lower the cost of prescription drugs in the United States by tying Medicare payments for outpatient and pharmacy drugs to the lowest price offered in other developed nations.

According to the New York Times, the process of implementing the order "could take months, if not longer, and it would almost certainly be challenged in court."

What's inside the new executive order

Specifically, the order states that Medicare "should not pay more for costly Part B or Part D prescription drugs or biological products than the most-favored-nation price," or the lowest price offered in comparably economically advantaged countries.

As part of the new order, Trump has asked HHS to "immediately" develop and test a payment model under which "Medicare would pay, for certain high-cost prescription drugs and biological products covered by Medicare Part B, no more than the most-favored-nation price." According to the order, the payment model would assess whether paying the most-favored-nation price for eligible drugs would "mitigate poor clinical outcomes and increased expenditures associated with high drug costs" among patients.

According to Modern Healthcare, HHS is also directed under the order to create a payment model under which Medicare would pay the most-favored-nation price for Part D drugs that have "'insufficient'" competition and whose prices are higher in the United States than in comparably economically advantaged nations.

The order also revokes a previous executive order Trump signed—but did not publicly publish—in July. That original order would have applied similar requirements only to Part B drugs, which are administered in doctor's offices, and not to Part D drugs, which are sold by pharmacies.

What the White House is saying about the order

According to Judd Deere, a spokesperson for the White House, Trump signed and released the new order because negotiations with drug companies on potential alternatives to the original version of the order "did not produce an acceptable alternative."

In a tweet, Trump said, "The days of global freeriding at America's expense are over and prices are coming down FAST!" adding that the order ends "all rebates to middlemen."

It's unclear when—or if—the order's proposals will be implemented, observers say

Although the order instructs HHS to develop new payment models, it does not immediately change how Medicare pays for prescription drugs, so industry experts say it's unclear when or if the order's proposals will take effect.

For instance, Ian Spatz, a health policy consultant and former drug company executive, said Trump "may be frustrated that he didn't reach a deal with drugmakers as his announced action is merely a demonstration, and it is very hard to see how it could have any impact in the near future."

But, according to STAT, lobbyists for the drug industry said Trump could potentially skip many of the formal regulatory steps associated with implementing the order by issuing an interim final rule—a regulatory maneuver that allows the president to skip over certain regulatory requirements during certain types of emergencies.

For its part, an HHS official said the agency "doesn't comment on the rulemaking process" when asked about when the order might take effect and what the payment models could look like.

Drugmakers denounce order

Executives from the pharmaceutical industry denounced the rule, with some threatening potential legal action if necessary to stop its implementation, Modern Healthcare reports.

In a statement, Stephen Ubl, president and CEO of the Pharmaceutical Research and Manufacturers of America (PhRMA), said the order is "irresponsible and unworkable."

"The focus of any reforms must be on lowering costs for patients, ensuring patients' access to medicines, addressing the misaligned incentives in the pharmaceutical supply chain and protecting the critical work being done to end Covid-19," Ubl said. "Unfortunately, instead of pursuing these reforms the White House has doubled down on a reckless attack on the very companies working around the clock to beat Covid-19."

Michelle McMurry-Heath, CEO of the Biotechnology Innovation Organization, said it is "dumbfounding that the Trump administration would move forward with its threat to import foreign price controls and the inevitable delays to innovation that will follow."

McMurry-Heath said the pharmaceutical industry will "use every tool available—including legal action if necessary—to fight this risky foreign price control scheme" (Coleman/Sullivan, The Hill, 9/13; Keith, NPR, 9/13; Cohrs, Modern Healthcare, 9/13; Florko, STAT News, 9/13; Stolberg, New York Times, 9/13).

Advisory Board's take

Is the new executive order a big deal? The 3 questions we're asking.

Manasi Kapoor, Senior Director and Pam Divack, Consultant

So how big of a deal is the new executive order?

The early news coverage was deeply divided on that question. STAT News called the order a "shocking move" that could "drastically cut" prices paid by Medicare. NPR, by contrast, said "the move is unlikely to have any immediate impact."

Here's our take: While the executive order signifies what could be a major move towards drug pricing reform, it's unlikely the proposal gets implemented in the short-term.

The executive order does not contain a plan or set of steps that HHS must take to develop and implement a reference pricing index, such as plans for monitoring drug prices and setting reimbursement rates. It also does not clearly explain how this program will work for Medicare Part D drugs (drugs that are covered under the pharmacy benefit), since CMS does not regulate reimbursement for Part D drugs today.

It also does not specify which Part D drugs the rule will, or could, apply to. Additionally, many are wondering how this new policy will coexist with an Executive Order Trump issued last month that would eliminate the manufacturer rebates to insurers and PBMs.

With all this uncertainty, here are three questions we're watching to assess how likely the rule is to lead to major changes:

  1. Does HHS actively proceed with rulemaking—or even seek to issue an interim final rule? To date, nearly all of the Trump administration's drug pricing reforms have failed or stalled. Until we see a detailed plan that outlines how Medicare plans to enforce most-favored-nation pricing, we shouldn't expect the order to translate into meaningful policy change.

  2. Do drugmakers take legal action to block the order? The Biotechnology Innovation Organization is already threatening legal action, and PhRMA has issued scathing remarks on the proposal. If drugmakers sue to block the order, that could significantly slow down implementation. (On the other hand, if they don't sue, that might suggest they're skeptical the order will be implemented in the first place.)

  3. Do other Republicans—and potentially Democrats—get on board with Trump's plan? If GOP leaders who have historically been skeptical of drug price-setting support the president's proposal, the executive order could represent a meaningful shift in the political landscape. And given Democratic leaders' history of supporting Medicare price-setting, it will be intriguing to see whether they offer any support for Trump's ideas, especially during a hotly contested presidential election.

We'll see how the answers to these questions play out in the days and weeks to come. For now, however, absent any specific details about implementation, this order looks like it could represent a political campaign message rather than a significant drug pricing reform.

Your cheat sheets for understanding health care's legal landscape

To help you keep up with the ever-changing regulatory environment, we recently updated our cheat sheets on some of the most important—and complicated—legal landmarks to include a brand new one-pager on the new tax law.

Check out the cheat sheets now for everything you need to know about MACRA, the Affordable Care Act, antitrust laws, fraud and abuse prevention measures, HIPAA, and the two-midnight rule.

Get the Cheat Sheets
Download Now

Topics