Advocacy Summary: HHS Releases Drug Pricing Announcements, Fails to Address Harmful DIR Fees

The U.S. Department of Health & Human Services (HHS) announced three new regulations and policies, two of which were drug pricing rules based on recent presidential executive orders, on November 20, 2020. The change in presidential administrations, however, could impact the long-term viability of these late-term actions. 

APhA’s Government Affairs team is still reviewing these documents. APhA plans to comment on these regulations and policies. 

Rebate Rule  

The HHS Office of Inspector General issued a final rule that would replace the previous “safe harbor” legal protections for drug manufacturer “discounts” provided to PBMs and health plans with a new “safe harbor” that only applies to up-front “discounts” at the point-of-sale. This means that drug manufacturer “discounts” must be applied directly to patients’ cost at the point-of-sale. It also creates new safe harbor protection for fixed-fee services arrangements between manufacturers and PBMs. PBMs can still receive traditional rebates from manufacturers for Medicaid managed care organizations (MCOs). 

Despite widespread advocacy by pharmacy groups, CMS’s definition of “discounts” does not include or eliminate PBMs’ use of harmful retroactive pharmacy DIR fees. 

“While we support patients paying less for their prescription drugs, we are disappointed that the new drug rebate rule does not address retroactive DIR fees that are hurting pharmacies. This rule does nothing to provide PBM transparency and accountability,” said Ilisa Bernstein, PharmD, JD, FAPhA, APhA Senior Vice President of Pharmacy Practice and Government Affairs. “The final rule will likely increase patients’ insurance premiums and out-of-pocket costs and may limit their access to care by forcing more pharmacies to close.”

The effective date of the rebate rule is January 1, 2022. The Biden administration likely will review this rule and could take measures to revoke, modify, or withdraw the rule. 

Most Favored Nation Rule

The most-favored-nation (MFN) Interim Final Rule (IFC) and a new corresponding MFN model—a demonstration project—establishes a nationwide demonstration program that tags the highest price paid for 50 identified drugs and biologics purchased under Medicare Part B (e.g., mainly cancer, physician-administered, and expensive infusion drugs) to the lowest adjusted price that the drug manufacturer sells in certain foreign countries.   

Mandatory participation in the demonstration project is required for Medicare-participating physicians, nonphysician practitioners, supplier groups (such as group practices), hospital outpatient departments including 340-covered entities, ambulatory surgical centers and other providers and suppliers that receive separate Medicare Part B fee-for-service payment for the included drugs, with certain exceptions. Certain types of hospitals and clinics are excluded, including cancer hospitals, children’s hospitals, critical access hospitals, rural health centers, federally qualified health centers, and Indian Health Service facilities.

The set of 50 Medicare Part B drugs that are included encompass a high percentage of Medicare Part B drug spending. CMS identified the list of MFN model drugs for the first year based on annual Medicare Part B spending in 2019, after excluding certain types of drugs—including certain vaccines, oral drugs, multiple source drugs, and intravenous immune globulin products—and spending on drugs used at home. Drugs that treat patients with suspected or confirmed COVID-19 also will be excluded. Drugs already included in the model will remain in the project, with limited exceptions, and CMS will add drugs to the project annually.

“It is unclear how this interim final rule will affect drug availability, patient access, and pharmacy reimbursement. Affected pharmacies and providers should not be required to dispense or administer a medication below acquisition cost or the cost necessary to dispense and safely provide medication-related patient-care services,” Bernstein said. 

The demonstration project will begin nationally from January 1, 2021, to December 31, 2027. Comments on the interim final rule are due in 60 days. It has been widely reported that drug manufacturers intend to file lawsuits to halt implementation of the rule.

Unapproved Drug Initiative

In an unexpected move, HHS also announced that it is withdrawing FDA’s 2006 and 2011 guidances related to the Unapproved Drugs Initiative (UDI).

In 2006, FDA launched a systematic approach to remove unapproved drugs from the market. Most of the drugs had been on the market for decades, but applications demonstrating their safety and effectiveness had not been submitted to FDA to support their approval. FDA announced a risk-based approach to remove these products from the market, starting with those with highest safety risks. Some products were widely used by clinicians and FDA has used enforcement discretion to not take action to remove those from the market. 

The UDI program methodically and successfully removed thousands of unapproved drugs from the market. In 2011, FDA issued a guidance stating that any unapproved product introduced into the market after that date for the first time would be subject to enforcement and removed immediately, since they were marketed unlawfully. A goal  of the initiative is to give notice to manufacturers that FDA would take action so manufacturers could prepare an application to seek FDA approval. 

Although the UDI has been successful in removing unsafe and ineffective products from the market, when an application is approved for a previously unapproved drug, FDA takes action to remove all similar unapproved drugs of the market, as now there is an approved version. As a result, more recently, some opportunistic manufacturers significantly raised the price of newly approved versions, some of which have made headlines because of substantial increases in price.

“It is unclear how removing these guidances will lower drug prices. Halting the program could make it more difficult for FDA to take action against unsafe and ineffective unapproved drugs, putting patient safety at risk,” Bernstein said. “Unapproved drugs are marketed unlawfully. Many of these products are commingled in the drug supply. The UDI was a way to weed out these unapproved drugs.”

HHS is asking for comments related to unapproved drugs in an effort to characterize many as “grandfathered” and allowed to be marketed without approval. Currently, FDA argues that a tiny number of products are grandfathered and that those have already been identified.