WSGR ALERT

Administration Again Attempts to Lower Drug Prices

August 23, 2019

In 2018, the administration published its Blueprint to Lower Drug Prices for U.S. citizens. The Blueprint included 12 proposed actions by the Department of Health and Human Services (HHS).

Included among the 12 HHS proposed actions were: evaluating the inclusion of prices in drug makers' ads to enhance price competition; and requiring plans to share a minimum portion of drug rebates with patients. To date, these two proposals have not fared well.

Drug Prices in Television Advertising

On May 10, 2019, the Centers for Medicare and Medicaid Services (CMS) and HHS published a final rule in the Federal Register which requires direct-to-consumer (DTC) television advertisements of prescription drugs and biological products, for which payment is available through or under Medicare or Medicaid, to include the Wholesale Acquisition Cost (WAC or list price) of that drug or biological product. To comply with the final rule, drug makers would be required to include the retail price of a 30-day course of drug treatment in all DTC advertising. The final rule contained a limited exemption, which would have been rarely applicable, for a prescription drug or biological product having a list price of less than $35 per month for a 30-day supply or typical course of treatment.

HHS Secretary Alex Azar noted that "Of the $5 billion that the pharmaceutical industry spends per year in advertising, $4 billion is on television ads. It is currently the highest-impact area for their advertising activity." He also stated: "Patients have a right to know, and if you're ashamed of your drug prices, change your drug prices."…"It's that simple." Failure to include the pricing would have opened the door for a competitor to bring a Lanham Act claim for a deceptive ad practice. The rule was slated to go into effect on July 9, 2019.

Three pharmaceutical companies challenged the final rule in the United States District Court for the District of Columbia on two grounds. First, the companies asserted that the final rule exceeded HHS's authority, because Congress neither expressly nor impliedly granted HHS the power—under the Social Security Act—to regulate drug marketing. Second, the companies asserted that the final rule was compelled speech that violates the First Amendment. In a Memorandum Opinion, Judge Amit Mehta held that final rule to be invalid because HHS lacks statutory authority under the Social Security Act to adopt the rule. The district court declined to rule on the First Amendment challenge. The case is on appeal.

Redirecting or Removing PBM Rebates

On February 6, 2019, HHS and the Office of the Inspector General (OIG) published a proposed rule in the Federal Register. The proposed rule would have eliminated the ability of pharmacy benefit managers (PBMs) to pocket rebates from drug manufacturers under a safe harbor to the federal Anti-Kickback Statute (AKS). Some pharmaceutical companies, and the U.S. government, had asserted that the PBMs keeping these rebates for themselves, rather than passing the rebates along to patients or insurers, was a significant component of rising drug prices. We wrote about the proposed rule shortly after it was published.

But in July of this year, the administration announced it was withdrawing the proposed rule. "[B]ased on careful analysis and thorough consideration, the [P]resident has decided to withdraw the rebate rule." While all drivers behind the decision to withdraw the rule are not fully known, a significant consideration may have been the Congressional Budget Office's projection that implementing the proposed rule would have "increased federal spending by about $177 billion over the 2020–2029 period."

Drug Importation

Recently, HHS announced the publication of its Safe Importation Action Plan (the plan). The plan would create two pathways to import pharmaceuticals into the U.S. Before discussing the plan, two recent events are worth noting. First, in an about-face of a longstanding FDA position, Acting Commissioner Ned Sharpless, M.D., has backed the plan.

Second, Senator Chuck Grassley, in a recent letter, has come out in favor of importing pharmaceutical drugs—so long as foreign drug manufacturing plants—particularly in India and China—stop getting advanced warnings of FDA inspections. The letter, for example, references that a now lapsed pilot program in India, which eliminated advanced notice of drug plant inspections, resulted in the FDA having a 60 percent increase in "Official Action Indicated" findings.

The senator's comments come amid a recent spate of well-publicized findings of imported blood pressure medications containing carcinogens; the trade war with China; the Defense Health Agency scrutinizing increased Chinese production of these medications as a health threat to military personnel who use the drugs; and the publication of investigative journalist Katherine Eban's book Bottle of Lies. Any successful importation program will be intimately tied to drug safety, and may be impacted by the ongoing trade war.

The plan suggests two pathways for importing drugs. Under the first pathway and a not-yet-published Notice of Proposed Rulemaking, it states wholesalers or pharmacists could submit demonstration plans to the HHS. The plans would outline how these entities would import drugs approved by Health-Canada. Specifically, importation would need to be carried out to assure that the drug is what it purports to be, and that certain cost requirements are met. Importantly, many classes of drugs, including controlled substances, biological products, infused drugs, IV drugs, drugs inhaled during surgery, and certain parenteral drugs would be excluded from this pathway. The demonstration plans would be time limited and require regular reporting to ensure safety and cost conditions are being met.

The second pathway would create an opportunity under which manufacturers of FDA-approved drug products "would be able to import versions of these FDA-approved drugs that they sell in foreign countries into the U.S." (with potential label changes). As stated in the plan, the administration "has reason to believe that manufacturers might use this pathway as an opportunity to offer Americans lower cost version of their own drugs."…"A manufacturer that met these requirements could sell a foreign version of a drug product in the U.S. under a different NDC number than the U.S. version, which could allow the manufacturer to introduce the product at a lower price."

Some Observations

It is unclear if the administration will be able to successfully enact the plan, or any elements of the plan. The administration, to date, was not successful with implementing drug prices in advertising or redirecting PBM rebates.

The full impact of the proposed plan on all stakeholders have not been fully evaluated. For example, it could be envisioned that a pharmacy chain might attempt to avail itself of pathway #1 to gain competitive market advantage. But the pathway #1's time limitations, drug importation constraints, and reporting requirements may effectively discourage undertaking the work required to import drugs under pathway #1.

Similarly, it is unclear how pathway #2 would impact lifecycle management and brand—generic interplay. For example, how would a brand's determination to import a drug, at a lower price, impact a generic manufacturer's calculus in prioritizing its portfolio?

For PBMs, would the existence of pathways #1 and #2 alter how the PMBs negotiate formulary drugs with pharmaceutical manufacturers? Could the PBMs' push for manufacturers to use pathway #2 at some time in the future point to remaining on formulary drugs?

Would importing drugs create shortages in foreign countries, potentially impacting U.S. diplomacy with them?

At this early date, we simple do not know the answers to these questions.

Conclusion

The administration's latest drug import plan faces significant hurdles. But if the plan or parts of the plan are successfully enacted, and can survive likely legal challenge, it could change the landscape for patients, manufacturers, generics, and PBMs—at least for some drugs. For questions about drug importation, or any FDA related question, please contact Vern Norviel, David Hoffmeister, Georgia Ravitz, James Ravitz, or any member of WSGR's Patents and Innovation Strategies or FDA Regulatory, Healthcare, and Consumer Products Compliance practice groups.

Charles Andres contributed to the preparation of this WSGR Alert.