On April 15, President Trump issued an Executive Order (EO) titled “Lowering Drug Prices by Once Again Putting Americans First.” The EO directly aims to modify drug pricing. Section 3 of the EO, focused on improvement to the Inflation Reduction Act (IRA), has three components to it – (1) improving the Medicare drug price negotiation program (MDNP), (2) make recommendations to stabilize Medicare Part D premiums and (3) aligning small molecules and large molecules in the MDNP.
MDNP Improvements: The IRA allows Medicare to negotiate Medicare Part D and Part B drugs starting in 2026 with 10 Medicare Part D drugs. The EO directs the Secretary of Health and Human Services (HHS) to propose and seek public comment with the goal of improving transparency, prioritizing drugs with high costs to Medicare, and minimizing negative impacts on pharmaceutical innovation.
We could see a push to provide the public detail on how the Centers for Medicare & Medicaid Services (CMS) determines the “maximum fair price” (MFP), including the evidence used (like comparative effectiveness data) and how factors like R&D costs and clinical effectiveness are weighted. Another potential change could be how drugs are selected (gross versus net spending); right now, gross spending is used to select the drugs, but the resulting negotiated price (MFP) is a net price.
The improvement I’d like to see is around orphan drug exemption so that if a drug with an orphan drug designation gets a more general indication, the negotiation clock starts with the general indication and not with the orphan drug approval.
Stabilizing Part D Premiums: The IRA includes a $2,000 annual out-of-pocket cap for Medicare Part D beneficiaries and capping insulin co-pays at $35 per month. It also restructured the Medicare Part D benefit putting more liability on Part D plans. As a result, the premiums for 2025, particularly for standalone prescription drug plans, increased. The challenge is that PDPs are the only way that beneficiaries enrolled in original fee-for-service Medicare and those with Medigap can access Part D benefits. While there was a last-minute demonstration last summer to “fix” the problem for 2025, it seems unlikely that the government would step in with another $5b this year and do it again. The EO directs officials to provide recommendations on stabilizing and reducing Part D premiums.
I know there are groups working on finding a solution and I’m really looking forward to hearing what they are going to propose. I’m genuinely stuck at what to do on this problem because it feels like actuarially, we are where we are…
Getting rid of the “Pill Penalty”: The IRA established different timelines for when drugs become eligible for negotiation. Small-molecule drugs (typically pills) are eligible 9 years after FDA approval (selected at year 7), while large-molecule biologics (often injections/infusions) are eligible 13 years after FDA approval (selected at year 11).
The EO calls this a “distortion” or “pill penalty” that undermines investment in small-molecule drugs. This would require legislation and the EO directs officials to work with Congress to get this done provided this can be done without increasing overall costs to Medicare or beneficiaries. To me, this makes sense, if you had money to invest, why wouldn’t you put it toward a large molecule instead of a small molecule – particularly if you anticipated a mostly Medicare payer mix?
The guess is that small molecules would move up to 13 years but, given the budget neutrality requirement, I wonder if they meet in the middle at 11 years. Not an ideal outcome.
More on Section 4 tomorrow!
