Editor’s Note: This month, we offer updates on three significant topics on 340B contract pharmacy restrictions, legislators shifting their focus onto PBMs, and other IRA lawsuits. As always, if you have questions on any of the content found in this or previous market updates, please reach out to your IntegriChain Consulting Lead or consulting@integrichain.com and we would be happy to talk you through it.

Table of Contents:

1. Continued 340B Contract Pharmacy Restrictions from Pharma Manufacturers
2. Legislators Shift Their Focus onto PBMs
3. More IRA Lawsuits 

---

Continued 340B Contract Pharmacy Restrictions from Teva Pharmaceuticals

As of July 5, 2023, Teva Pharmaceuticals has become the 23rd manufacturer to add restrictions to 340B-covered entities that contract with pharmacies for the sale and dispensing of 340B-priced drugs. Teva has opted to stop shipping 36 of its drugs to the contract pharmacies (CPs) of 340B safety-net hospitals that also have an in-house pharmacy. However, if a 340B hospital does not have an in-house pharmacy, Teva will still provide 340B-priced drugs to the safety-net provider’s contract pharmacy given that:

1. The contract is with only a single CP
2. The CP is within 40 miles of the hospital hospital parent site
3. The safety net provider submits 340B claims for the designated CP location 

Teva’s 340B restriction policy does not apply for federal grantee covered entities. Teva’s main concern and reason to limit sales to certain 340B contract pharmacies is due to the growth of for-profit pharmacies and concerns surrounding duplicate discounting and diversion. 

References: 

• Teva
• Becker’s Hospital Review
  

Legislators Shift Their Focus onto PBMs

Pharmacy Benefits Managers (PBMs) have recently become a legislative hot topic, both on Capitol Hill and in state legislatures nationwide. Most states have already passed some version of PBM regulations in the past but are now looking to the Federal government to pass a broader reformative law. There are more than 24 bills surrounding PBM reform that are currently pending on the Hill across both the House and the Senate. There are at least nine bills launched by both the House and Senate that include aspects that could be used to develop a legislative bill later this fall in hopes of being passed. On April 20, 2023, Senate Finance Committee Chair, Ron Wyden, and ranking member Mike Crapo released a bipartisan framework, known as “A Bipartisan Framework for Reducing Prescription Drug Costs by Modernizing the Supply Chain and Ensuring Meaningful Relief at the Pharmacy Counter,” to help reduce costs for patients and taxpayers. The framework is intended to highlight the primary foci of potential bills targeting PBMs that may be introduced by the Senate Finance Committee. The Senators argue that as market dynamics have shifted, federal policy has not kept pace. To overcome this, they highlighted four key challenges that call for policy solutions.

Misaligned Incentives that Drive up Prices and Costs

The framework argues that under the current system, higher drug list prices often translate into higher compensation for intermediaries. By associating administrative fees, rebates, and other payments to a percentage of list price, PBMs are incentivized to prefer higher prices, leading to higher out-of-pocket costs for consumers. Additionally, PBMs are able to earn revenue on both sides of transactions – from both health plans and manufacturers – which can create potential conflicts of interest.

Insufficient Transparency that Distorts the Market

Incomplete disclosure requirements have prevented policymakers from accurate line of sight into financial flows and incentives that inform pricing. The framework argues that the current system must do more to address information asymmetries.

Hurdles to Pharmacy Access

As the market has evolved through vertical integration and consolidation, many independent and regional pharmacies have struggled and some have had to shut their doors altogether, leading to access gaps for patients and consumers. Ambiguity in Medicare’s “Any Willing Pharmacy” rules, significant growth in pharmacy fees, and unpredictable performance-based quality measures have contributed to limit the freedom of choice consumers face with respect to pharmacy access. 

Behind-the-Scenes Practices that Impede Competition and Increase Costs

Recent reports have indicated that certain practices appear to drive up out-of-pocket costs for seniors and increase taxpayer spending. Studies have indicated that PBMs sometimes charge health plans more for pharmacy reimbursement than what they ultimately pay pharmacies, pocketing the difference.

As a result of these challenges, the Finance Committee plans to pursue legislation to reduce costs for patients and taxpayers. The framework indicated that the committee plans to pursue such solutions as:

• Delinking PBM compensation from drug prices to align incentives for lower costs
• Enhancing PBM accountability to health plan clients to drive cost-cutting competition and produce better choices for beneficiaries
• Ensuring discounts negotiated by PBMs produce meaningful savings for seniors
• Addressing and mitigating practices that unfairly inflate the prices patients and government programs pay for prescription drugs
• Modernizing Medicare’s “Any Willing Pharmacy” requirements to improve options and access for seniors
• Increasing transparency to foster a better understanding of how financial flows across the prescription drug supply chain impact government healthcare programs

In an effort to address some of the points brought up in the framework, the Senate Finance Committee introduced a bill in mid-June, known as the Patients Before Middlemen Act (PBM Act), which seeks to prevent PBMs that contract with Medicare Part D plans from tying service fees to the price of a drug, rebates, discounts, or other fees that otherwise escalate the overall drug cost. The bill would also prevent PBMs from stipulating compensation based on a drug price as a condition of entering into a contract.

Although the PBM Act has yet to be voted on by the Senate or Congress, it is just one of many bills targeting PBM reform that have been introduced both federally and state-wide. 

IntegriChain will continue to monitor any potential legislation as it is introduced. 

References:

• Bipartisan Framework for Reducing Prescription Drug Costs
• Fierce Healthcare
• EndPoints News
• NPR

More IRA Lawsuits 

Leading drugmakers have filed lawsuits against Health and Human Services (HHS) and its division, Centers for Medicare and Medicaid (CMS) over Medicare’s newly granted power to negotiate drug prices. Specifically, Merck and Bristol Myers Squibb have filed separate lawsuits against the Inflation Reduction Act (IRA) claiming it violated the First and Fifth Amendments. Pharmaceutical Research and Manufacturers of America (PhRMA), Global Colon Association, and the National Infusion Center Association have taken a different approach raising new arguments over the Eighth Amendment. PhRMA’s lawsuit claims that the excise tax, imposed on any drugmaker that does not comply with Medicare’s price-setting negotiations, violates the Eighth Amendment’s Excessive Fines Clause. The new law would force a tax that starts at 186% of a drug’s annual revenue and increases to a maximum of 1,900% for non-compliance. PhRMA and other groups have raised arguments over the Fifth Amendment’s Due Process Clause, which is usually used in criminal procedures. They argue that the IRA breaches this by denying the public on how the law will be implemented. 

Allowing Medicare to negotiate drug prices would save money for both beneficiaries and the federal government. However, the provision will also harm innovation and hurt patients according to the pharmaceutical industry, providers, and patient groups. The industry argues that price setting provisions in the IRA threaten its ability to fund research and develop new treatments and cures. Pharmaceutical manufacturers have argued that they put access to innovative medicines at risk and jeopardize providers’ ability to prescribe treatments they believe are in the best interest of their patients. Congress has delegated broad authority to HHS and CMS and did not impose any meaningful constraints on the agency’s exercise to its new price-setting authority. While the law defines maximum fair price, it does not limit CMS’s ability to set prices below that ceiling. In addition, CMS wants to prevent manufacturers from disclosing any information about the process, making it less transparent. Legislation has already spurred some manufacturers to rearrange priorities and cut projects, emphasizing the impact of the IRA provision on the loss of new drug innovations and the benefits to patients. 

References:

• CNN
• Fierce Pharma
• Fierce BioTech

As always, IntegriChain continues to support manufacturers in breaking down and staying ahead of new regulations, and if you have any questions or concerns, please reach out to us at consulting@integrichain.com.

GET MORE PHARMA MARKET UPDATES