Biden executive order seeks to tackle drug prices through new payment models

Photo: Alex Wong/Getty Images

President Biden has issued an executive order detailing new payment and delivery models intended to lower the prices of prescription drugs, focusing on models that can be tested under the Center for Medicare and Medicaid Innovation.

The order follows August's passage of the Inflation Reduction Act of 2022, which was intended to protect beneficiaries from high drug costs by phasing in a cap for out-of-pocket costs at the pharmacy, and establishing a $35 monthly cap per prescription for insulin covered by a Medicare prescription drug plan, as well as insulin delivered through traditional pumps.

Beginning in January, Medicare beneficiaries with prescription drug coverage will pay $0 out of pocket for recommended adult vaccines, including the shingles vaccine. The IRA will also require certain companies to pay Medicare rebates if they increase the prices of drugs used by Medicare beneficiaries faster than the rate of inflation.

On top of that, the secretary for the Department of Health and Human Services will be able to negotiate prices for selected high-cost prescription drugs for Medicare beneficiaries. 

The new executive order is meant to complement the IRA and further drive down prescription drug costs. The administration touted CMMI's recent announcement of a new model to improve cancer care and lower healthcare costs for cancer patients, including prescription drug costs. CMMI, Biden said, "provides my Administration and the American people with a useful set of tools to help lower healthcare costs and improve quality of care, and its work can advance the continued policy of my Administration to lower the cost of prescription drugs."

WHAT'S THE IMPACT?

According to the executive order, CMMI will be tasked with testing new payment and delivery models that would both cut costs and promote access to new drug therapies for those in Medicare and Medicaid, including models that may lead to lower cost-sharing for commonly used drugs and support value-based payment.

Within 90 days, HHS Secretary Xavier Becerra will be required to submit a report to the Assistant to the President for Domestic Policy enumerating and describing any models he has selected. The report will also include a plan and timeline for testing any such models.

"Too many Americans face challenges paying for prescription drugs," Biden said. "On average, Americans pay two to three times as much as people in other countries for prescription drugs, and one in four Americans who take prescription drugs struggle to afford their medications. Nearly three in 10 American adults who take prescription drugs say that they have skipped doses, cut pills in half, or not filled prescriptions due to cost."

THE LARGER TREND

HHS' analyses of prescription drug prices from 2016-2022 show that if the Inflation Reduction Act had been in place from July 2021 to July 2022, more than 1,200 prescription drugs potentially would have been subject to the new provision requiring drug manufacturers to pay rebates to Medicare if they enact price increases greater than inflation for drugs. Price increases on those drugs in the month the price change took effect averaged more than 30%.

Linking the cost of prescription drugs in the U.S. to the prices paid in other high-income nations could have reduced American spending for the drugs by at least half in 2020, a RAND study found last September.

While prescription medication prices are no longer the fastest-growing commodity or service, prescription drug costs have still increased 2.5% since the beginning of the COVID-19 pandemic, according to data published in February by GoodRx.

In 2021, the cost of car rentals, tobacco, beef and moving expenses all outpaced the cost of prescription drugs. Yet drug prices have also historically grown faster than the rate of inflation. Since 2014, drug prices have increased 35%, while the cost of all items and services has increased 19%.

In July, Senate Democrats carved out a deal on legislation that would attempt to lower prescription drug costs for Americans by allowing Medicare to negotiate for lower drug prices. According to details released by the Senate, HHS will select 10 drugs eligible for negotiation starting in 2026, with the number of drugs increasing incrementally in subsequent years – 15 in 2027 and 20 by 2029.

An October 2021 poll from the Kaiser Family Foundation found that large majorities of American voters across all political stripes favor letting Medicare negotiate drug prices and that most don't buy into the argument that high drug prices are needed for drug companies to invest in new research.

Twitter: @JELagasse
Email the writer: jeff.lagasse@himssmedia.com