President Trump Signs Executive Orders on Lowering Drug Prices – Potential Impact for 340B Safety-Net Providers

29 Jul 2020

On Friday, July 24, President Donald Trump signed four Executive Orders designed to lower the cost of prescription drugs.  This alert will focus on three Orders that could impact 340B safety-net providers and their patients.  The first Executive Order would require federally qualified health centers (FQHCs) that purchase insulins and injectable epinephrine (Epi-Pens) at 340B prices to pass on the 340B savings directly to patients.  The second Executive Order would require pharmacies, PBMs, and health plan sponsors to pass on any drug manufacturer rebates or discounts directly to the patient at the point of sale.  The third Executive Order, which has not been released to the public yet, would implement an international pricing index that would tie Medicare Part B payments for costly drugs to the same price other economically advanced countries pay.

RWC-340B President Shannon Stephenson’s press statement addressing the Executive Orders.

Executive Order on Access to Affordable Life-saving Medications 

The first Executive Order directs FQHCs that participate in the 340B program to make insulin and Epi-Pens available to its low income patients at the discounted price at which the FQHC acquired the medication.  The Order broadly defines low income individuals as those who (1) have a high cost sharing requirement for either insulin or Epi-pens; (2) have a high unmet deductible; or (3) have no health care insurance.  It is unclear whether this policy would apply to FQHC look-alikes, or to insulin and Epi-Pens dispensed through the FQHC’s contract pharmacy.  To enforce this policy, the Order relies on HHS’s authority to issue Section 330 grants to FQHCs by conditioning receipt of future grant awards on compliance with these requirements, providing yet another example of HRSA’s limited regulatory authority over the 340B program.

When the Executive Orders were signed, the President stated that “providers should not be receiving discounts themselves while charging their poorest patients massive, full prices.”  However, this does not provide an accurate picture of how FQHCs operate or the benefits that are already being passed on to their patients.  In general, FQHCs are required to operate in a manner that assures no patient is denied health care services due to the patient’s inability to pay.  FQHCs are required to prepare a “schedule of fees or payments” for the provision of health care services designed to cover its reasonable costs of operations, as well as a schedule of discounts to be applied to such payments.  These discounts are then adjusted on the basis of the patient’s ability to pay.

Furthermore, the order would contravene current law that legally prohibits FQHCs from providing discounts to entities that can pay the full fee schedule price.  Under the Public Health Services Act, FQHCs are required to make every reasonable effort (1) to secure from patients payments for services in accordance with applicable fee schedules and discounts; and (2) to collect reimbursement for health services rendered to persons covered by Medicare, Medicaid, or any other public assistance program or private health insurance program on the basis of the full amount of fees and payments for such services without application of any discount.  Stated differently, FQHCs are legally prohibited from providing discounts to insured patients who are able to pay the full fee schedule price or from failing to collect reimbursement from payers.  By requiring FQHCs to charge the 340B discounted price to payers that are able to pay the full fee schedule price, the Executive Order imposes a statutorily prohibited discount on an FQHC’s fee schedules and the FQHC would not be collecting the “full amount of fees,” as required by the statute.

340B provider groups and advocates have long argued against the faulty logic that the 340B program should be turned into a direct discount program to patients.  RWC-340B has also drafted talking points on why making 340B a direct patient benefit would harm Ryan White HIV patients, which can be found on the RWC-340B website.  340B allows safety-net providers to generate both savings and revenue to underwrite the cost of care for the uninsured, underinsured, and other vulnerable populations.  Although this Executive Order applies only to FQHCs (and potentially FQHC look-alikes), it sets a dangerous precedent and opens the door for the federal government to make similar changes for other 340B covered entities.

Executive Order on Lowering Prices for Patients by Eliminating Kickbacks to Middlemen

The third Executive Order would require the Secretary of HHS to revive and finalize the rulemaking process that was started over a year ago, which would have removed safe harbor protection under the federal anti-kickback statute for rebates that drug manufacturers pay to plan sponsors and PBMs.  The Order also directs the Secretary to establish a new safe harbor that would allow pharmacies, PBMs, or health plan sponsors to apply discounts to the patient at the point-of-sale “in order to lower the patient’s out-of-pocket costs”.

HHS initially issued the proposed rule in January 2019 under the theory that eliminating rebates to PBMs and plan sponsors would permit manufacturers to lower list prices, which would in turn reduce consumer cost-sharing through co-pays.  However, the proposed rule was rescinded a few months later after the Congressional Budget Office estimated that the new regulation would cost $177 billion from 2020-2029 and would raise premiums for Medicare beneficiaries.  Now, under the Executive Order, the Secretary is first required to “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” before the rulemaking process may advance.

If the proposed rule is revived and finalized, it would presumably require PBMs and pharmacies, including 340B pharmacies, to pass discounts directly on to patients at the point of sale.  Congress structured the 340B program so that drug discounts could be provided to safety-net providers to allow them to “stretch scarce Federal resources as far as possible, reaching more eligible patients and providing more comprehensible services.”  Similar to the Executive Order described above, this rule runs the risk of turning the 340B program into a patient entitlement program, which could impact a covered entity’s ability to provide certain health care services and could be detrimental for all patients of 340B safety-net providers.

Executive Order to Implement International Pricing Index Model

Another Executive Order, which has not been publicly released, would reportedly establish an international pricing index that would tie Medicare Part B payments for costly drugs to the lowest price in other economically advanced countries.  This Executive Order seems to be an attempt to resurrect the international pricing model that the Trump Administration described in an Advance Notice of Proposed Rulemaking (ANPR) in October 2018. The ANPR raised concerns for 340B covered entities because it did not make any provisions for how 340B covered entities would take advantage of the 340B discounts to which they are entitled.   President Trump said that he would hold this Executive Order until August 24 to give time for pharmaceutical executives to propose an alternative plan.  Earlier this week, pharmaceutical executives refused to attend a meeting with Trump to discuss the proposal.

Category: Drug Pricing

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