2020 Election with Avalere: What Are the Drug Pricing Policies?

  • This page as PDF


Tune into our third episode of the Avalere Health Essential Voice: 2020 Election series. In this segment, our experts discuss candidates’ respective approaches to drug pricing policies and where there is unexpected overlap.
Please note: This is an archived post. Some of the information and data discussed in this article may be out of date. It is preserved here for historical reference but should not be used as the basis for business decisions. Please see our main Insights section for more recent posts.
“Drug pricing is complicated, and many people don't quite understand the layers of it. Trump has run with a very simple message focused on two aspects: closing the pricing gap between the US and other countries and out-of-pocket costs for beneficiaries. Both of those resonate and they're easily understood by most people.” Milena Sullivan


Matt Kazan , Managing Director, Policy

Matt Kazan advises health plans, life sciences clients, and patient organizations as they navigate the policy landscape, focusing on Medicare Part D and Medicare Advantage, and implementation of the Inflation Reduction Act.

Lance Grady , Executive Vice President, Life Sciences Strategy & Growth

Lance Grady is the head of Avalere’s Life Sciences Strategy & Growth.

Milena Sullivan , Managing Director, Policy

Milena Sullivan advises life sciences clients on the impact of the evolving healthcare policy landscape on their commercial, access, and advocacy priorities.

This interview was originally published as a podcast. The audio is no longer available, but you can read the transcript below. For updates on our newly released content, visit our Insight Subscription page.


Matt: Hello and welcome to another episode in the Avalere Health Essential Voice series focused on the 2020 election. In this series, we will be covering the current state of play of the 2020 election and the role of healthcare between now and November.

My name is Matt Kazan and I’m a principal on Avalere’s policy team. Today, I’m joined by Lance Grady, who leads Avalere’s market access team, and Milena Sullivan, who’s a principal in our policy practice and an expert in medical benefits and part B drugs. In today’s episode, we’ll be focusing on drug pricing and the role it’s playing in the 2020 election. Thank you both for joining us today.

On previous episodes, we’ve discussed the impact COVID has been having on the election. There had been some speculation that the pandemic would crowd out a lot of other healthcare issues, but we’re seeing drug pricing play quite a large role.

We’ve seen executive orders related to most favored nations (MFN), regulations related to importation, and the rollout of the insulin demo in the Center for Medicare and Medicaid Innovation (CMMI). As a result, President Trump is benefiting politically. A September Kaiser Family Foundation poll found that President Trump had a four-point lead on the question, “Which presidential candidate would handle the issue of lowering drug prices best?” This was the only healthcare issue in which President Trump led Vice President Biden.

So, Milena and Lance, with all these different issues floating around, help us unpack them. Which of these proposals do you think could be finalized before the election and, irrespective of when they could be finalized, what are the most impactful policies? Milena, let’s start with you.

Milena: Thank you, Matt, and thanks, everyone, for joining us. The Trump administration has certainly given us a lot of excitement, and for those of us in the consulting space, frequent adrenaline rushes when it comes to drug pricing policy announcements. It is not surprising to me that when voters think of drug pricing issues, they cite President Trump’s platform more often than Vice President Biden’s.

Trump has made drug pricing the defining issue of his term so far. Drug pricing is complicated, and many people don’t quite understand the layers of it. Trump has run with a very simple message focused on two aspects: closing the pricing gap between the US and other countries and out-of-pocket costs for beneficiaries. Both of those resonate and they’re easily understood by most people.

Not surprisingly, the four executive orders he rolled out in the last month and a half focus on those two buckets. We have an executive order on importation and an executive order on MFN. Both zero in on this discrepancy between the prices of drugs in the US and other developed nations. We also have this focus on an executive order for insulin out-of-pocket costs as well as rebate elimination, which ultimately would be replaced with point-of-service discounts for patients.

All four of these executive orders signal that he wants to make this a top campaign issue, but there’s still a long road ahead for actual implementation. I don’t see any of these becoming a reality until well into 2021, but we have to separate the question of when they could be implemented from when we could see more finalized announcements, which would still provide a tailwind for the Trump campaign ahead of the election.

My personal expectation is that the easiest administrative action to move forward between now and the election is the importation question where we have a final rule awaiting Office of Management and Budget (OMB) review. That could be easily finalized before the election to provide a pathway for states to set up importation programs. Six states have already passed importation laws, and 3 of them have plans sitting with Health and Human Services (HHS) for approval.

Once again, it’s probably going to be many months before we see the first scripts actually flow through the border, but the finalized announcement from a Trump administration could still come before the election.

The MFN proposal is certainly the most impactful one, and in the latest version of the executive order, we see a focus on Part B and on Part D drugs, so it’s certainly now impacting a much wider potential set of products.

From a Part B perspective, this is not the first time we see the administration focused on MFN international reference pricing. This comes on the tail of the infamous international pricing index (IPI) proposal. There are a lot of complexities associated with doing something like this in Part B, and I don’t think that we have resolved most of them to truly see a clear path toward implementation. There is a lot of political willingness from the administration to put a model in place in the coming months. However, there are many technical steps that would need to be implemented for this to be operationalized, so there’s very little possibility that this model could go into effect before the election.

Matt: Thanks, Milena, that’s a helpful overview. Lance, what are your thoughts on the most impactful policies that we’re currently seeing coming out of administration?

Lance: I think it depends on the stakeholder, and if you think of the word “impactful” as having a positive or negative connotation. For voters, Americans, patients, beneficiaries—anything that is moving a lower price point either through the supply chain or the benefit design which determines your out-of-pocket costs is critical. From a patient perspective, while it might be easier to get cheaper drugs in through equal importation, or it might introduce a lower reference price in Part B, the true benefit to the patient in terms of cost share at point of care is still very much dependent upon where you receive your care and how your benefit is structured—if you’re a Medicare beneficiary, for example, or you’re enrolled in a Medicare Advantage plan.

What could be most impactful to patients and beneficiaries is how they could receive point-of-sale discounts and/or potential relief at the pharmacy counter in what they would consider to be true out of pocket. Anything that disrupts supply chain with either importation or MFN where you’re moving parallel product through from wholesaler to hospital to hospital outpatient department, or from wholesaler to private practice community rheumatology or oncology creates complexity, creates market dynamics, could create different prices. All of those are impactful or disruptive.

As it pertains to beneficiaries, they want to see help at point of care, and they want to see help at the pharmacy counter. Throughout this podcast, we’ll talk about how we might see it come to fruition, but as Milena said, even if it is the most impactful for patients, we’re unlikely to see any benefit from this well into 2021, maybe even in plan year 2022, when you think about Part D and the part D calendar that governs the process to bring forth these types of disruptive changes.

Matt: Yeah, that’s a great point. The effect on stakeholders varies tremendously in all policies.

Let’s drill down a little bit on the MFN policy. You wouldn’t think that President Trump and Speaker Pelosi have a lot in common on a host of healthcare issues, but interestingly, on drug pricing, they are moving closer to each other. H.R.3, which was sponsored by Speaker Pelosi, leveraged international prices when it allowed Medicare to negotiate directly with manufacturers in Part D. Meanwhile, these executive orders signed by President Trump call for CMMI models that leverage international prices in both Parts B and D.

So, Milena, aside from one being legislation and the other being CMMI models, what are the key policy details here that matter between these two issues?

Milena: As you pointed out, there are a lot of things that are similar, but there are certainly important differences between both proposals. In the case of MFN, or at least what we suspect would come out of the MFN executive order, there’s a focus on a demonstration because that’s how the President can implement something like this using strictly administrative power. The demonstration will only be focused on fee-for-service Medicare, and even within that, a subset of potential providers, at least on the Part B side.

The comprehensive legislative proposal pushed forward by Speaker Pelosi intended to put a ceiling price for commercial market payers in the US. That was a much more draconian proposal that would push manufacturers to face a decision whether they want to be operating in the US market at all. I think the key difference is that Trump could focus on Medicare, while H.R.3 was potentially going above and beyond.

A second critical distinction is that H.R.3 was focused on a reference basket. The proposal identified 6 European countries that would go into the calculation of a preferential price that would serve as a ceiling price in the US, whereas the MFN executive order points to the lowest price among a set of comparable nations. We don’t know what that definition of comparable GDP would be. Avalere did an analysis that identified 24 countries that are above or below US GDP per capita within a certain band, and that’s a much bigger increase in the number of potential target countries from what was in H.R.3.

Of course, the most significant difference is the nature of CMMI itself, with the focus of demonstrations being a short-term test versus a broader legislative change. I believe that with a Part B model like this, or an MFN model, we have a lot of uncertainties about some of the cascading effects of what happens to the test group versus the control group. How do you manage for all these potential disruptions for stakeholders as they try to adjust to operating on multiple tiers and multiple levels at the same time?

H.R.3, as draconian as it would be, at least would provide some uniformity and predictability, although I know that it’s not a desirable path forward for many countries because of patient access.

Matt: That’s very helpful. And so, Lance, given the surprising bipartisan overlap here there’s a real possibility that in the near future, international prices will be used in Medicare in some respect. Given the different aspects of domestic and foreign pricing, how does a manufacturer begin to think about a three- to five-year strategy, given this possibility?

Lance: It’s a head-scratcher. I think the first place to look is at your organizational infrastructure and whether you need global pricing capability or if you will continue to remain US and ex-US but have some sort of pricing governance. Legal is looking at this, value-based pricing is looking at this, and many of our clients and colleagues in market access are looking at their infrastructure.

Secondly, parallel importation and reference pricing does exist in certain European markets. That becomes your most immediate proxy to thinking about how your pricing behavior or your supply chain decisions could be conflated upon a neighboring country or in some sort of a reference price. Learning from the EU with parallel importation or learning from markets where a reference pricing exists is critical.

If this ends up being an MFN CMMI demonstration, a subset of drugs could be identified as its own market. To Milena’s point, you then have to look at your size and the influence of the Medicare Part D CMMI market relative to the non-Medicare Part D CMMI market, relative to the US commercial market, relative to other international markets. So the decisions on what I might do in terms of volume, price, discount that set a transparent price or a known price in other markets, and how that might influence a larger market, such as Medicare Part B for many manufacturers, is a very real dynamic. Does it mean you immediately pull back or immediately withhold launching in ex-US markets? I think that that’s knee jerk and you would likely also need to look at the unmet medical needs, the burden of illness, the ability to commercialize in these markets with innovative products.

We’re talking about innovators here. We’re talking about some of the high-priced drugs that were referenced in the original international price index and would likely be a part of the Part B demonstration.

In the Part D demonstration, at least by the Trump administration, they’re thinking about those that may or may not have appropriate or sufficient competition. So then you might think about, what are additional price strategies that I could deploy that would minimize a potential solution there? That might be a net price strategy, or that might be willingness to cooperate with existing plan negotiations and/or it could potentially be a political strategy to enter into a therapeutic market when you think of decision drivers inside of biopharmaceutical manufacturers. There is a lot to continue to unpack here.

We’re actively modeling sensitivity of reference prices with our clients as well as thinking about policy strategy as we start to anticipate what an interim final role might be for the Part B side of MFN, and as we anticipate what some other vehicles might be for the Part D side.

In summary, learning from parallel importation and reference-based markets and then treating the Medicare market depending upon what finalizes are the next steps with modeling directional forecasts as best you can until we see something crystallize from the administration.

Matt: Head scratcher, I’ll say. There’s a host of issues to think about there. So, let’s bring in the other presidential candidate, former Vice President Biden.

Obviously, he has a Medicare negotiation policy in his platform, but he also has a proposal to establish an HHS health technology assessment (HTA) body that would evaluate the value of certain products. At this point, it’s unclear how that information will be used and how the Medicare payment would be impacted based on that information.

Milena, you’ve done work in the value assessment space, and I’m wondering, how does this approach differ from an approach that relies on international prices? There are pros and cons for stakeholders with one avenue versus the other.

Milena: Yes. Unfortunately, both of those proposals would have implications for access and the breadth of available therapeutic options. In the case of international reference pricing, as Lance pointed out, we could see a lot of challenges around the way manufacturers decide which therapeutic areas to go into for future innovation and research and development, as well as important decisions about how they manage their market available products. The HTA process adds a layer on top of that, because it ultimately decides the value of a certain product on a large scale.

These one-size-fits-all approaches oftentimes neglect patient perspectives. There are complicated issues with rare disease with certain patients more than others.

What is potentially better about an HTA body in the US is that international reference pricing inherently imports the price as determined by HTA bodies in these developed markets and those assessments are based on their populations and their budget needs and their disease prevalence. So when Germany or UK or France makes a decision about the value of a certain product, that’s focused on their population, and we’re importing that price through international reference pricing with less of a focus on how that plays out for our population and our disease burden and our patient needs.

Presumably, an HTA body would take those issues into consideration, but we haven’t seen all the attempts to do value assessment through some of the existing frameworks or through even comparative effectiveness research that some more academic entities do. We still haven’t solved all the challenges around how you account for less tangible measures of value when it’s not specifically related to cost, but about preference and quality of life and impact on caregivers, etc.

There are a lot of questions on how this could work for a large and complex system like the US healthcare system.

Matt: Great, thanks. Lance, thinking back to your head scratcher. Are there additional issues that arise that replace some of the issues that you were talking about earlier with respect to an international reference pricing approach, or are many of those issues similar under an HTA-type approach?

Lance: I think Milena’s point on importing HTA-influenced prices is a great one. If you wanted to say, well, there has been a governing body already and that is the appropriate reflection in the value, then you could just say, okay, these are similar. But it’s not just the Biden administration that has proposed ideas around comparative effectiveness or establishment of an appropriate price. We just saw Secretary Azar and head of CMS Seema Verma propose the value-based purchasing or value-based pricing arrangement in Medicaid, which would establish best prices based upon some third party arbitrary body determining what is the definition of a value-based arrangement.

By definition of a value-based arrangement, there’s likely to be some sort of healthcare resource utilization, some sort of health tech assessment to arrive at these risk-shifting arrangements between a manufacturer and a contracting entity like a state Medicaid association or commercial payer and perhaps maybe even a third party arrangement with a provider or a hospital. I think if we were to do this on a large scale like the Biden administration has considered, I don’t think you could do arbitration or negotiation without it in a free market society.

I would think pharmaceutical manufacturers would expect that an arbitrary body would be established before a price cut is introduced. So you might expect the manufacturer to be more in favor of a potential value-based arrangement if that arrangement was determined by an independent third party and wasn’t just associated on drug pricing, but was looking at medical cost offsets, how you account for drug or device integration in healthcare, perhaps in a total cost-of-care model.

President Obama was innovative in creating CMMI, and we know CMMI is testing several things including value-based payment where there are target prices that involve some sort of methodology, maybe not as formal as an HTA.

I think we’ve got good momentum toward this, maybe even more so than we have toward an arbitrary reference price. I also think that this puts the dependency upon care coordination and data and data interchange. The ability to have better coordinated care in a very complex market is the new problem that enters the equation here. You can see Stark Law or anti-kickback modifications to create an ecosystem of care to further advance HTA-based pricing in the U.S.

As we’ve talked about, there are several complexities in introducing the importation or the MFN reference price.

Milena: Just to add, because I think Lance made an excellent point, there are a lot of organic market developments that are pushing us toward an increased focused on value. That’s the mecca of where everyone wants to get. The problem is, value means different things to everyone and different decisionmakers need different information to assess that value.

There are already organic developments that are getting us to a path where we have more flexibility to determine what that value is based on specific situations, so that’s why any push to centralize that process into a comprehensive, one-size-fits-all approach like an HTA in Medicare across Medicare or even beyond would, in my mind, be a step back.

Matt: Great, thank you both. Let’s close on the intersection of some of these policies. When the President announced that he had signed the MFN executive order, he also hinted at the notion that the administration would move forward with changes to the rebate system in Part D. The Part D MFN policy focuses on products in Part D that have insufficient competition, whereas the rebate policies affect products with rebates associated with those drugs.

Lance, what’s the intersection between the MFN policy and the rebate restructure policy in Part D? Can these policies work together? Does the administration have to choose one over the other? What’s the intersection here?

Lance: I do think they need to work together and complement each other if this administration wants to accomplish its goal of lowering drug pricing that results in point-of-care savings for beneficiaries. We have a good understanding of what might be an MFN Part B model as compared to a Part D model because of the IPI. MFN is trying to get at insufficient competition in Part D drugs which could very well be orphan drugs, ultra-orphan drugs, protected class drugs, drugs that might be on a specialty tier, or drugs that don’t offer a lot of rebates to begin with.

Rebate passthrough could potentially take already hyper-vigilant, hyper-competitive markets and move that discount through many different stakeholders in the Part D benefit, including the federal government. It is important to understand the value of the rebate in Part D today pertaining to the government being on the hook for 80% of costs in the catastrophic phase in a low-income subsidy (LIS) benefit.

To get really wonky, you might even add a third solution, which would be benefit redesign with rebate passthrough to potentially address a true benefit to beneficiaries and potentially benefit to the government as one of the primary payers in the Part D benefit if you were to tap the out-of-pocket cap, like we saw in the in some of the proposals coming out of the Senate Finance Committee.

So, the administration can arrive at multiple solutions through multiple paths. The most upfront pathway would be the rate notice where we could see MFN tucked into a preliminary rule, maybe even as early as next month. That would be a nice pre-November 3 signal which would speed up the process for Part D 2022 benefit. So, a lot of noise can happen next month. If we saw MFN Part D tucked into a proposal, recognizing the implementation of that might not be until 2022, that gives the current administration a long runway. It also gives the Biden administration some time to respond, either with Medicare negotiation or maybe even embracing rebate passthrough themselves as we’ve seen that this has had bipartisan favor, to your earlier point, Matt. The two camps are as close as ever on drug pricing.

So, the summary here is, multiple parallel paths with rebate passthrough with perhaps MFN and maybe even Part D benefit redesign just to add to the to the heap of jargon of our drug policy.

Matt: Well, you had me at, “This could get really wonky.” I think that’s a good preview and layout of what we can see in the next couple of months. This was super interesting. Thank you so much, Lance. Thank you, Milena. Your insights are really valuable to our listeners. Thank you everyone for tuning into Avalere Health Essential Voice. Please stay tuned for more episodes as we get closer to the 2020 election. If you’d like to learn more, please visit us at Avalere.com/ 2020-election. Thanks a lot. Have a good one.

From beginning to end, our team synergy
produces measurable results. Let's work together.

Sign up to receive more insights about Drug Pricing and Affordability
Please enter your email address to be notified when new Drug Pricing and Affordability insights are published.

Back To Top