Pharmaceuticals Public Policy

Trump executive orders on drug prices: Much ado about nothing?

President Trump signed 4 executive orders on drug pricing on July 24, 2020. How are they likely to affect drugs prices?

Passing along rebates to patients

The one of the executive orders mandates that rebates go to reduce patient cost sharing:

These middlemen — health plan sponsors and pharmacy benefit managers (PBMs) — negotiate significant discounts off of the list prices, sometimes up to 50 percent of the cost of the drug.  Medicare patients, whose cost sharing is typically based on list prices, pay more than they should for drugs while the middlemen collect large “rebate” checks.  These rebates are the functional equivalent of kickbacks, and erode savings that could otherwise go to the Medicare patients taking those drugs.  

Directing these rebates sounds like a great deal for patients. However, CMS’s Office of the Actuary found that if rebates are going to patients rather than Part D plans, these plans will need to increase premiums to make up for the lost rebate revenue. Thus, federal government spending will increase since the government pays for a large share of premiums. Specifically, as reports:

“Federal spending would increase by $196 billion over the 10-year period, while average beneficiary costs and manufacturer concessions would decrease,” the CMS actuary report said. “Though average beneficiary costs would decrease, the majority of beneficiaries would see an increase in their total [out-of-pocket] and premium costs. The minority of beneficiaries who utilized drugs with significant manufacturer rebates would experience a substantial decrease in costs, causing average beneficiary cost across the program to decline.”

The executive order calls for premiums not to increase:

Prior to taking action under section 3 of this order, the Secretary of Health and Human Services shall confirm — and make public such confirmation — that the action is not projected to increase Federal spending, Medicare beneficiary premiums, or patients’ total out-of-pocket costs

Permitting Drug importation

Trump is also allowing for drug importation by

…facilitating grants to individuals of waivers of the prohibition of importation of prescription drugs, provided such importation poses no additional risk to public safety and results in lower costs to American patients…[and]…authorizing the re-importation of insulin products upon a finding by the Secretary that it is required for emergency medical care 

This may be a workable solution for emergency situation but importing drugs from Canada is unlikely to sustainable. As I wrote last year, one study found that if 40% of U.S. prescriptions were filled from Canada, the Canadian drug supply would run out in 118 days. Allowing drug importation would require FDA acceptance of regulatory approval from other countries, or limiting the importation to drugs already FDA approved. Further, most other countries don’t want to send their drugs to the US.

Mandates for FQHCs to pass along discounts on insulin and epinephrine to low-income Americans.

Trump also is planning insure that payers reimburse Federally Qualified Health Centers (FQHCs) based on drug acquisition cost (plus a minimal administration fee). Currently, FQHCs can pocket any 340(b) discounts they receive and get reimbursement from payers at inflated prices.

….[FQHCs] receive discounted prices through the 340B Prescription Drug Program on prescription drugs.  Due to the sharp increases in list prices for many insulins and some types of injectable epinephrine in recent years, many of these products may be subject to the “penny pricing” policy when distributed to FQHCs, meaning FQHCs may purchase the drug at a price of one penny per unit of measure.  These steep discounts, however, are not always passed through to low-income Americans at the point of sale…
 It is the policy of the United States to enable Americans without access to affordable insulin and injectable epinephrine through commercial insurance or Federal programs, such as Medicare and Medicaid, to purchase these pharmaceuticals from an FQHC at a price that aligns with the cost at which the FQHC acquired the medication

This policy is sensible. It may squeeze FQHC’s bottom lines and additional funding may need to be made available to FQHC. However, FQHC’s should not be in the business of making huge profits off prescription drugs simply due to discounts from other federal programs.

International reference pricing

The fourth executive order calls for international reference pricing for Part B drugs. My comments on how reference pricing works can be found here. Note that reference pricing can slow time to market for lower priced countries (as shown in these four research studies). The International Pricing Index (IPI) pilot program was already planned to be implemented in November 2020. Under the program, Part B drug prices would in tied in part to an IPI based on the prices of physician-administered drugs in 15 other developed nations. Thus, the last executive order isn’t new news.

Policy & Medicine write:

Interestingly, this fourth Order does not become effective for one month, on August 24th, and is written such that it will become effective “absent successful negotiations with drug company executives.” President Trump wants to have input from the pharmaceutical industry on how they think we can reduce the 80% “markup” the United States pays for Part B drugs than other countries.


Of the four executive orders, the biggest change would be the implementation of the Part B IPI. However since a pilot program for that was already on the books and this executive order will not be signed until late August, the impact is modest. The other three executive orders are either beneficial but small in scale (FQHC pricing proposal), largely infeasible (drug importation at large scale), or are not practical to be implemented (it is impossible fund lower patients out of pocket cost without increase premiums). In short, keep your eye on IPI to see if/how that evolves.

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