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Government Intervention into Drug Pricing: Part One

The issue of prescription drug costs in the United States has incited legislative and judicial action. Between congressional hearings focused on insulin pricing and a ruling to block drug prices in TV advertisements, there have been significant developments this year alone. Proposals with the potential for near-term implementation are in large part put forth by the United States Department of Health and Human Services (HHS) and Congress.

This is the first in a four-part series where we will explore the issue of government intervention in drug costs. In this first post, we introduce a few commonly mentioned tactics, two of which we will dig deeper into in subsequent posts.

Restricting Price Increases & Increased Transparency

While many politicians talk about blocking price increases, the majority of potential action centers on compelling drug companies to disclose more info for price increases deemed “too high.” An example of this approach may be found in the proposed SPIKE Act (H.R. 2069), where the manufacturer of drugs whose prices are raised by 10%, or $10,000, over 12 months or 25%, or $25,000, over 36 months must submit price change justification within a designated time or suffer a $10,000 per day penalty.

Additionally, other measures seek to increase transparency in other ways. One provision of the Lower Health Care Costs Act (S. 1895) would mandate that pharmacy benefit managers (PBMs) disclose amounts received in rebates, fees, and other exchanges of value to group health plan sponsors i.e. employers covering over 50 individuals.

Importing Pharmaceuticals

Prescription drug importation proposals attempt to exploit the relatively cheap prices of pharmaceuticals sold to ex-US markets. In the case of the HHS Safe Importation Action Plan, two pathways are proposed. One pathway allows for the submission of demonstration project plans by States, wholesalers, or pharmacists outlining how they would import certain Health Canada approved drugs. The other pathway would allow manufacturers to import versions of their products that are sold in foreign countries.

Increasing Competition

Competition mandates seek to prevent branded manufacturers from obstructing the timely availability of generics or biosimilars. The Preserve Access to Affordable Generics and Biosimilars Act (H.R. 2375) would stop all anticompetitive engagements between manufacturers of branded and generic/biosimilar products, including pay-for-delay, or reverse payment, agreements.

Indexing Prices

Price indexes, often built by averaging drug costs across a portfolio of countries, are frequently proposed to set price limits on drugs purchased by the Centers of Medicare & Medicaid Services (CMS). In the International Pricing Index model put forth by HHS, private vendors would procure drugs, distribute to hospitals and physicians, then seek government reimbursement at the index price.

Out of these interventions, increasing competition and indexing prices are the most likely to create sizeable, immediate consequences for the pharmaceutical industry. In our next two posts, we will dig deeper into the likelihood and implications of these two tactics.

(Written by Luke Coburn & Michael Koskulics with help from Victor Cotton)

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Herspiegel is a leading professional services firm helping biotech start-ups and the world’s largest pharmaceutical companies navigate the path from science to brand performance and change patients’ lives. We are committed to using strategic insights from medical to commercial to market access to solve critical problems.