Developments in Drug Pricing and Anti-Kickback Laws

On Wednesday, President Trump signed the Patient Right to Know Drug Prices Act. The bill tackles a number of issues that stand in the way of lowering high drug prices, particularly the discussion over the ‘gag rule’ in interactions between insurers and pharmacists. Under the current provisions of the gag rule, insurers are forbidden from disclosing whether the cash price for a drug is in fact cheaper than the price offered under the patient’s insurance plan. The new law will rescind that prohibition. However, it will only apply to name-brand prescriptions and not generics, but many are hopeful that it will raise an overall awareness for consumers about the actual prices they are paying for their prescriptions.

The Trump Administration is also working to lower drug prices by examining some of the specifics of federal anti-kickback laws that relate to prescription pricing. Under current law, pharmaceutical and insurance companies are not allowed to offer any benefit to physicians to prescribe one particular drug versus another. There is a significant exception in these regulations, however, known as ‘safe harbor rules.’ Under these exceptions, pharmaceutical companies and prescription benefit managers (PBMs), the companies that administer pharmaceutical plans on behalf of insurers, are allowed to negotiate the prices of a particular drug by discussing the different prices the manager will offer the drug for.

This once again has put the spotlight on drug rebates offered by pharmaceutical companies. With rebates, firms offer monetary incentives to encourage insurers to carry their drug, lessening the overall cost for insurers to carry the drug. These rebates are meant to be administered to the consumer, but in many instances are taken by the PBMs to boost their profits. Pharmaceutical companies have recently attempted to combat these strategies, partially in an attempt to deflect some of the criticism towards them on drug pricing, by offering generics with lower prices, so that the PBMs will receive lower rebates on the negotiated drugs. The FDA is currently examining the administration of rebate plans and is considering ending the exceptions they have under anti-kickback statutes.

Ultimately, any of these steps to reduce drug pricing will not be broadly impactful, as expansive steps to allow Medicare to directly negotiate the price of drugs with producers have failed to gather sufficient bipartisan support. Further, much of the controversy surrounding high drug prices have been focused on some of the more infamous instances, such as Sarepta Therapeutics’ $300,000 per year muscular dystrophy treatment . Until successful generics reach the market, these specialized treatments will be under no pressure to lower their prices.

It is unlikely that there will be any unified support to take more aggressive steps to lower drug prices, but pharmaceutical companies seem to recognize to some degree the public backlash to these prices and have taken steps to cap drug prices, most notably beginning with Allergan’s promise to increase drug prices by no more than 10% year-to-year.

In his statement at the bill signing, President Trump spoke of the bipartisan nature of lowering prescription drug prices. He also spoke generally about upcoming steps the Department of Health and Human Services will begin to take to further bring down prices. It remains to be seen what further steps will be taken, but is likely both Congress and the Trump Administration will continue to evaluate how they can change many of the regulations on drug prices that keep them so high.

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