Report: Prescription Drug Costs Can Be Lowered Without Legislation

As the costs of prescription and health care continue to rise during the coronavirus disease 2019 (COVID-19) pandemic, a report by the Center for American Progress (CAP) disclosed ways in which the president can lower costs without the need for new legislation.

CAP is a liberal public policy research and advocacy organization.

Prescription drug net prices increased by an average of 4.5% per year from 2007 to 2018, “a rate far greater than average annual inflation,” said authors of the report. In 2020, drug companies have raised the prices of more than 800 drugs—40 in July.

The report suggests means by which the current sitting president or the one elected in November 2020 can take immediate actions to alleviate these problems and make drugs more accessible to a broader swath of the population.

The Bayh-Dole Act

The Bayh-Dole Act allows private entities, including businesses, nonprofits, and universities, to retain intellectual property rights to new products that are developed through federally funded research.

The law was passed in 1980, and prior to that the United States retained rights to federally funded intellectual discovery. This was thought to stifle grant-funded innovation because entities worried competitors also would have access to their discoveries, according to the report.

Detailed in the act, the federal government has the right to “march in” when a drug company has not made use of the research, meaning that the product must be available to the public on reasonable terms in order to avoid government intervention.

“Thus, if a drug company is not charging a reasonable price for a drug, or if its pricing harms public health by substantially restricting access to the drug, the federal government is well within its rights to ensure the availability of cheaper generic versions,” said the authors of the report.

Government Patent Use

US Code Title 28, Section 1498 allows the federal government to issue licenses for patented technologies without the government having to get permission from the patent holder, so long as the government is willing to compensate the patent holder for their development efforts.

These licenses are distributed to additional drug manufacturers to produce a drug in order to increase capacity and lower the price of the drug.

There is already a growing concern that emerging COVID-19 therapies will be priced beyond the reach of many Americans and will be in high demand, according to the report.

Compulsory licensing authorities have not been used in reference to prescription drugs in recent years, as the mere threat of using Section 1498 against companies can help curb high prices. For example, when the United States was under threat from anthrax attacks in 2001, Bayer lowered its price for its anthrax treatment, ciprofloxacin, in 2001 in response to the federal government threatening to use its licensing privilege to obtain cheaper supplies of the drug.

Administrative Action for Medicare

Regardless of who wins the 2020 election, the next administration could revive the Part B plan that President Obama’s administration proposed in 2016. This would, first, change the average sales price ad-on for Part B drugs from 6% to 2.5% plus a flat fee, and second, introduce value-based purchasing tools into the Medicare program and incentivize providing lower-cost drugs, such as biosimilars and generics.

“Switching to a flat fee would help incentivize providers to choose the appropriate drug rather than the one that will result in a higher payout. Additionally, this policy would encourage drug manufacturers to lower their prices as providers no longer prescribe their more expensive drugs,” wrote the authors of the report.

In addition to Part B reforms, the next president can also reduce the cost of Medicare Part D drugs, which constitute the majority of Medicare drug spending, by encouraging the Center for Medicare and Medicaid Innovation to waive the noninterference clause that prohibits Medicare from being involved in direct price negotiations.

In addition, the president could establish reference pricing, which involves setting a single price for similar drugs..

Recently, President Trump signed 4 executive orders with the aim of lowering drug costs, some of which deferred decisions on future rule making to the HHS. However, the orders lacked specifics on when future rule making would occur and left key terms undefined, according to the report.

“Instead of issuing unnecessary, nonbinding executive actions, the next administration should immediately undertake notice-and-comment rule making that targets the most expensive drugs and ensures patients benefit from lower drug prices,” wrote the authors.

HHS Actions

The next administration could implement the Affordable Care Act’s medical loss ratio (MLR) provision, which would require HHS to issue regulations to establish which expenditures by payers are considered medical claims.

“In making these determinations, HHS can significantly affect spending; if an expense is changed to be considered an administrative—rather than medical—expenditure, health insurers would have an additional incentive to minimize spending, in order to leave as much additional revenue for profit and salaries,” said the report’s authors.

In addition, HHS could issue a rule establishing that spread pricing, the practice of pharmacy benefit managers (PBMs) charging a payer more than the cost of the drug so they can retain the difference, is not considered a medical expenditure for the purposes of MLR calculations. Spread pricing can drive up costs for prescription drugs and premiums without any accompanying benefit beyond providing extra money for PBM companies.

Reference

Calsyn M, Waldrop T. How the next administration can lower drug prices. September 17 2020. Center for American Progress website. https://www.americanprogress.org/issues/healthcare/reports/2020/09/17/490140/next-administration-can-lower-drug-prices/. Accessed September 23, 2020.