"American Patients First" Plan Marks a Good First Step: Here's What Should Happen Next to Lower Drug Costs

Specialty Pharmacy TimesSeptember/October
Volume 9
Issue 6

With American Patients First, the administration is doing its part to improve prescription drug affordability—now it’s time for Congress to do theirs.

Among the myriad issues competing for Americans’ daily attention, a March 2018 Kaiser Health Tracking poll shows that a majority of the population feels that bringing down prescription drug costs should be a top priority for lawmakers.

Although prescription drugs comprise only 10% of health care spending and costs have been mostly stable over the past year, they remain the sector of health spending that consumers interact with most frequently and directly. The typical consumer may not make monthly visits to the doctor’s office, but 60% are returning to the pharmacy counter with some regularity, according to a study in the JAMA.

So when the Trump administration released its American Patients First plan to lower drug costs, it drew a mixture of praise and criticism from industry groups, but few in Washington, DC, shrugged it off as inconsequential.

The long-awaited 39-page document detailed steps the administration could take immediately on its own, such as releasing new FDA policies to improve the availability and adoption of biosimilars, and solicited feedback from stakeholders on a laundry list of policies the administration may consider for future action, including changing the formula used to determine a drug’s average manufacturer price (AMP).

At the Council for Affordable Health Coverage (CAHC), where I serve as president, we view the administration’s plan as a promising first step. Our broad membership of employers, insurers, life science companies, pharmacy benefit managers, brokers, agents, patient groups, and physician organizations may not agree on everything, but we all share the same goal of helping to aid the systemwide shift toward value-based care—something this blueprint could help effectuate.

In private markets, insurers and drug companies are already entering into value-based arrangements (VBAs), in which manufacturers are reimbursed for a product’s efficacy instead of the volume of prescriptions. Such purchasing agreements create incentives for manufacturers to work with health care providers to ensure that drugs are prescribed more appropriately rather than receiving the same payment per dose regardless of efficacy.

Some arrangements come with money-back guarantees if a drug doesn’t work. Others require drugmakers to pay for hospital stays if their product fails to prevent an inpatient admission. For too long, fed- eral barriers have prevented Medicare and Medicaid beneficiaries from reaping the benefits of these promising models.

That is why it is significant that within the American Patients First plan there is a provision directing CMS to “develop demonstration projects to test innovative ways to encourage value-based care and lower drug prices.” The document goes on to explain that these payment models would “hold manufacturers accountable for outcomes” while aligning with CMS’ priorities of “value over volume.”

Such changes could address drug costs in a dramatic way by encouraging resources to be allocated to treatments that provide the most benefit at the lowest cost to consumers and society, but only if done correctly. To direct CMS to begin experimentation with value- based arrangements is one thing, but to clear the underlying barriers that impeded the use of such models in the first place is another.

For example, one of the most significant impediments to value-based arrangements for prescription drugs is the deceptively named Medicaid best price law. Enacted in 1990, the policy requires that manufacturers submit pricing data for inclusion in the computation of AMP, a measure used as a benchmark for rebates to the Medicaid program. Likewise, manufacturers must provide the maximum of a percentage rebate (often 23.1% of AMP) or their best price rebate to the Medicaid program. Similar reporting requirements are pegged to reimbursement for some drugs in the Medicare program. These policies create artificial pricing floors that eliminate incentive for VBAs.

For example, if a manufacturer agreed to provide a deep discount or rebate to the health plan if a drug therapy did not meet the therapeutic goal, the best price rule would be triggered and might require that deep discounts be applied to all Medicaid reimbursement.

The American Patients First plan does not directly include policies to reform the best price law, but it does pose a question in the accompanying request for information regarding whether it may “pose a barrier to price negotiation and certain value-based arrangements,” a sign that at least CMS is listening.

We Need Congress to Act

The administration’s blueprint was never intended to be the final word on how to address prescription drug costs. It should instead be a catalyst for meaningful action from lawmakers: recognizing that laws passed by Congress give greater certainty to manufacturers, payers, and patients than administrative rules and guidance that can be overturned at the whim of President Trump’s successors.

That is why we at the CAHC are calling on legislators to supplement the frame- work set forth by the administration with concrete steps of their own, such as:


Currently, when the FDA approves a breakthrough treatment, many hurdles remain before the medication reaches the hands of those who need it most. Current rules prohibiting pre—FDA approval communications between drug manufacturers and health plans create a lag between the time a drug is approved by the FDA and the time a coverage determination has been made by the insurer.

The PIE Act, sponsored by Rep. Brett Guthrie (R, Kentucky) and already passed by a House subcommittee, would untie the hands of manufacturers and insurers and allow them to proactively and confidentially share needed information prior to FDA approval. This would, in turn, help drive accurate, timely evaluations for new treatments and provide incentive for the uptake of value-based arrangements.


Enacted in 1972, the federal Anti-Kickback Statute was intended to crack down on fraud and abuse by prohibiting arrangements in which entities could receive inappropriate payments for referring a product or service that would be paid for by federal health programs. Although the law has historically been effective in capturing true misconduct, its broad and rigid approach has also had the unintended consequence of hampering the adoption of innovative arrangements and patient engagement efforts that can truly benefit consumers.

There is a lengthy list of exceptions— or safe harbors—to the law, but none of these exceptions explicitly protect VBAs for prescription drugs that would tie reim- bursement for medications to agreed-on patient outcomes.

In such models, proper medication adherence is important to determine whether the outcome is based on the effects of the medication, as opposed to a poor outcome resulting from nonad- herence. Because these contracts often reduce pharmaceutical manufacturer pay- ment if the clinical outcome target is not met, adherence programs can be an important component of the contract.

A safe harbor for VBAs with medication adherence provisions can help tackle rising health care costs too. Poor medication adherence is estimated to result in approximately $300 billion in avoidable annual health care spending, due largely to increased hospitalizations. Improving prescription drug access and affordability through the increased uptake of VBAs can tackle the growing problem of nonadher- ence and ultimately help bend the health care cost curve.


Although the president’s drug plan hints at future reforms to the Medicaid best price and AMP formulas, manufacturers and payers need greater clarity now. Congress should intercede by passing leg- islation allowing manufacturers to exclude discounts, rebates, or price guarantees included in VBAs from price-reporting programs. Clear exceptions to best price and AMP rules would give apprehensive drugmakers the certainty needed to fully embrace the potential of value-based purchasing arrangements throughout their dealings with health plans.

In a newly released cost estimate compiled by an alumnus of the Congressional Budget Office, the CAHC has projected that these 3 simple steps could save more than $47 billion in national health expenditures over the next 10 years. These steps would translate into real relief for patients at the pharmacy counter and real savings for hardworking taxpayers who bear the brunt of rising health costs.

With American Patients First, the administration is doing its part to improve prescription drug affordability—now it’s time for Congress to do theirs.

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