The global pharmaceutical industry is bracing itself for the “granddaddy” of all pharma pricing proposals following a series of executive orders issued by US President Trump on Friday (24 July 2020) – and to better understand the specific potential ramifications, we are offering a free trial our pharmaceutical pricing services. The US administration had first announced plans to introduce international reference pricing (IRP) on Medicare Part B medicines back in October 2018 (see our previous blog). The reform was meant to come into effect by 2020, but after months and months of proposals, counterproposals and arguments in Congress, including significant opposition from the president’s own party, it is nowhere near being approved. With just months until the November presidential election, President Trump has now resurrected the IRP proposal in a new guise.
IRP also known as external reference pricing (ERP), under an alternative name of ‘favored nation status’, is the object of one of four executive orders signed by President Trump on Friday. The fourth executive order aims to ensure that the Medicare programme and US seniors pay no more for the most-costly Medicare Part B drugs than any economically comparable OECD country. This order takes effect in 30 days unless Congress acts, according the HHS press release. Scant details are available about the content of the order, as it was not published, but certain things can be said about it based on the comments in President Trump’s speech in relation to the signing of the executive orders.
The objective of the fourth executive order – the ‘granddaddy of them all’, in Trump’s remarks – is to “end global freeloading’ whereby US tax-payers ‘are effectively subsidising the socialist healthcare systems of foreign welfare states and many other countries’. The administration’s plans, according to Trump’s speech are to ‘determine what other medically advanced nations pay for the most expensive drugs, and instead of paying the highest price, Medicare will pay the lowest price and so will lots of other U.S. buyers.’
It is not known at this stage, how the US will decide which drugs are ‘most expensive’ and thus fall under the scope of this reform, but it is know that the plans are limited to Medicare Part B medicines, i.e., those administered in doctors’ office. Medicare reimburses physicians for these drugs at the average selling price (ASP) plus 6%, which means doctors are incentivised to use the most expensive drugs in order to increase their commission. The basket of countries that the US would reference prices in will consist of some of the 27 OECD members. Unlike president Trump who described them as ‘medically advanced’, the HHS states that the countries will be selected based on whether they are ‘economically comparable’ to the US. It remains to be seen what the final country selection will be, but the initial plans announced in 2018 included Greece, Slovakia, Portugal and the Czech Republic – countries with vastly different economic conditions and healthcare systems, as well much lower pharmaceutical prices and significant launch delays for new medicines, compared to the US. It is also not known at this stage what the specific IRP formula used to set US drug prices will be, but Trump’s comments about a ‘most favoured nation’ status suggest a cost-minimisation approach, whereby the US will be seeking to price itself at the level of the lowest price within its basket of countries.
Considering the order was not published, it is entirely feasible that important questions such as the formula, the basket of reference countries, the currency exchange rates applied and other important details are not yet set in stone. President Trump reiterated in his remarks that the pharmaceutical industry had asked for a meeting and that he was due to meet pharma company executives on Tuesday (28 July) and he does not know yet if the industry “can possibly do something to substitute for what’s called ‘favored nations’ [order]”.
The executive orders, despite the fanfare surrounding their signing, do not carry legal power. They can direct Congress to consider legislation, but it is pretty certain – given the track record of Congress so far – that action of these executive orders would require significantly longer that to the end of 2020 to achieve something. Executive orders can also be challenged in court and, we expect both the Pharmaceutical Research and Manufacturers of America (PhRMA) and the biotechnology trade group BIO to challenge the IRP rules in court. The president’s approach with this particular executive order, therefore, seems to be to encourage the industry to agree to major price concessions in order to avoid a worst-case scenario that entails the introduction of IRP in the US. The president has set a deadline of 12:00 on 24 August before the fourth executive order comes into effect to allow time for negotiations with pharma.
Whatever happens over the next few weeks, it is certain that monitoring of pharmaceutical prices in other countries will become a major part of US government policy and its negotiating strategy going forward.
Following Trump’s executive order, domestic-focused firms and international companies alike will need to reassess the prospects for the US pharmaceutical prices in a broader international context. Until 24 August, IHS Markit is offering a free trial of its leading pharmaceutical pricing data and analysis – PharmOnline International (POLI) – to enable rapid assessments of the potential impact of the price control regulations.
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