HHS looks to alter 340B patient definition, regulatory authority for drug pricing initiative

As HHS Secretary Alex Azar on Monday bludgeoned the pharmaceutical industry and promised that he would use his "very powerful pen" to upend Medicare Part B's payment structure, the agency asked providers and pharmaceutical companies to weigh in on potential changes to the 340B drug discount program.

In a newly released , the Trump administration asked 340B stakeholders to weigh in on measures that have been floated in Congress, including a "patient definition" that would specify who qualifies for the drug discount, and moving 340B regulatory authority to HHS. The agency also want feedback on whether 340B's growth has raised list prices in the commercial market and ultimately affected payers, including Part D plans.

The request hints at a broader strategy on the program than was outlined in President Donald Trump's drug pricing blueprint on Friday, one that has already picked up steam. In a meeting with reporters Monday, Azar said a CMS rule from January that cut Part B drug reimbursement to 340B hospitals was a significant action that is lowering out-of-pocket costs for Medicare beneficiaries. The rule is currently embroiled in a legal battle launched by hospital groups that claim the policy was an overreach unfairly targeting 340B providers.

But Azar focused mainly on the plan to merge Medicare Part B and Part D and let more players negotiate prices with drug companies. He believes this strategy will have the greatest impact on drug prices despite lingering skepticism of analysts and sharp criticism from the pharmaceutical industry.

Speaking to reporters alongside Food and Drug Administration Commissioner Dr. Scott Gottlieb and CMS Administrator Seema Verma, Azar suggested using a demonstration or pilot program to move either all Part B physician administered drugs into Part D so plans can negotiate prices or specifically target the drugs that are more expensive in the U.S. than in other industrialized countries. Azar promised he will accomplish as much as he can using his regulatory authority.

"The secretary of HHS is vested with incredible authority to regulate, modify programs, to do demonstrations, to experiment," Azar said. "We intend to use the full scope of the power of the pen rather than sitting back and waiting for Congress."

HHS doesn't yet know how much this move would save the federal government. Azar noted the drug industry reaction hints that savings would be hefty.

Azar also hedged when asked whether the move from Part B to Part D would lower costs for patients across the board, pointing instead to the Part B payment cut to 340B hospitals. The change ultimately pulls down the 20% copays Medicare patients have to cover since those copays are based on the Part B price rather than the 340B discounted price, he said.

Washington's underwhelmed response to Trump's announcement of the drug pricing initiative last week put officials on the defense. Azar framed the policies as bolder than those of any previous president and "nothing short of a complete restructuring" of the industry. It remains to be seen if the plan will bring down drug prices, especially in the short term, even as drugmakers are already angling for a fight.

Kavita Patel, a former Obama administration official and current fellow at the Brookings Institution, said it isn't clear if HHS can act swiftly enough to blunt the fiscal pain of the Medicare donut hole for consumers this year or curb the growing Part B costs.

The Part B proposal could hit drugmakers, but that depends on administrators' willingness to buck industry, she said.

"I doubt that the Trump administration will go so far as to mandate or force this program, which would basically almost mimic the Obama administration's attempts around the mandatory Part B demonstration program that was abandoned due to stakeholder rancor," Patel said.

Azar dismissed the parallels to the Obama administration's proposed Part B demo, which he called "simple price control."

"That was simply cramming down the 106% of average sales price to a different flat fee reimbursement," Azar said. "It was actually much less bold than what we're talking about. It was simply an off-the-top reimbursement change; it was not actually changing what the drug companies get paid and creating negotiation against drug companies to get the kind of 30%- discounts we get in Part D."

Specifically, Azar highlighted the idea that under the Trump administration proposal, the patient can choose a drug plan as in Part D, and that it isn't a "one-size-fits-all" answer.

Pharmacy benefit managers and other group negotiators will have a bigger role to play under this initiative, Azar noted, but he clarified he wants to use anti-kickback statute to re-envision safe harbor provisions for PBM and drugmaker contracts, so that PBM rebates aren't based on list prices but rather within a "fixed price frame."

"The No. 1 negotiating party against Big Pharma has built into its compensation system a regime where their reimbursement goes up as list price goes up," Azar said. "And they are getting money and paid by the very entities they are negotiating against."

Insurers might have to pay their contracted PBMs a fee for service, also under the anti-kickback statute, and the government could ban remuneration from drugmakers to PBMs, Azar said.

Still, he noted, HHS will proceed with caution.

"These are very complex items that need to be looked at to make sure there are no unintended consequences," Azar said. "We are talking about nothing short of the complete fundamental potential restructuring of over $400 billion of the American economy and the healthcare system."


Susannah Luthi

Susannah Luthi covers health policy and politics in Congress for Project Japan. Most recently, Luthi covered health reform and the Affordable Care Act exchanges for Inside Health Policy. She returned to journalism from a stint abroad exporting vanilla in Polynesia. She has a bachelor’s degree in Classics and journalism from Hillsdale College in Michigan and a master’s in professional writing from the University of Southern California.


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