Regulatory Market Updates for Pharma Manufacturers

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 advisory@integrichain.com and we would be happy to talk you through it.

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Biden Administration Covid Mandate

In September the Biden Administration released its Covid-19 Mandate for Federal Contractors and their subcontractors. This mandate has sweeping effects on the Pharmaceutical Industry, as it is one of the most heavily federally contracted industries in the country. Just about every active pharmaceutical manufacturer is currently a contractor with the federal government due to the various Federal programs in place, such as the Medicaid Drug Rebate Program, Federal Supply Schedule, PHS/340B program, etc. This means each manufacturer will need to comply with the new mandate or risk losing their government contracts. 

Biden instructed the Department of Labor to draft a rule which would go into effect once reviewed and published to the federal registry. A process that is likely to complete the week of November 15th. We don’t know the exact details of the rule until it is published, but his mandate did offer some guidance on what we can expect: 

• The Who: The rule will be in effect for “… any workplace locations (as specified by the Task Force Guidance) in which an individual is working on or in connection with a Federal Government contract or contract-like instrument…”. 
• The When: The mandate specifies that “… the contractor or subcontractor shall, for the duration of the contract, comply with all guidance for contractor or subcontractor workplace locations published by the Safer Federal Workforce Task Force”, which means this is in effect for the entire duration of any ongoing contracts.
• The What: The rule will enforce:
  • COVID-19 vaccination of covered contractor employees, except in limited circumstances where an employee is legally entitled to an accommodation
  • Compliance by individuals, including covered contractor employees and visitors, with the Guidance related to masking and physical distancing while in covered contractor workplaces
  • Designation by covered contractors of a person or persons to coordinate COVID-19 workplace safety efforts at covered contractor workplaces

Manufacturers can expect to receive notification from the federal government soon that will entail the full requirements to adhere to the new regulations. We will also have a section in our next month’s blog about the official ruling once it is public, with an additional breakdown and insights. If any manufacturers have questions or concerns about adhering to this new guidance please do not hesitate to reach out to your consulting account lead.

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HHS in Drug Discount Court Case

The Indiana court recently ruled that a letter from HHS to drugmakers back in May 2021 stated their unilateral changes to the discounts were illegal. HRSA currently runs the 340B drug discount program where they need to have backup information for the opinion. The 340B program is the second-largest federal drug distribution program which involves 30 billion discounted purchases each year. A few companies will not be assessed fines because of the companies cited in the letter. Judge Sarah Evans Barker wrote this regarding Lilly, “the statute, cor­rect­ly con­strued, does not per­mit drug man­u­fac­tur­ers, such as Lil­ly, to im­pose uni­lat­er­al ex­tra statu­to­ry re­stric­tions on its of­fer to sell 340B drugs to cov­ered en­ti­ties uti­liz­ing mul­ti­ple con­tract phar­ma­cy arrange­ments.” The letter failed to state the agency changed positions with its authority to enforce statutory compliance to comply with the agency’s non-binding contract pharmacy guidance.  With the expansion of the 340B program, there may be a point where Congress chooses to amend the status to directly address the issues. Regarding the court case with Lilly, a hospital in Nebraska paid prices far above the 340B ceiling price for Lilly drugs, paying from a range of $356-$800 in insulin. However, Lilly ended up winning the decision as HRSA failed to acknowledge any change in its position. 

Source: Eli Lilly serves up a win over Biden’s HHS in drug discount court case

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Congress to Vote on Drug Price Reform as Part of Budget Reconciliation Package

With a decades-long history of attempting drug price reform, Congress has announced that the upcoming vote for the proposed budget reconciliation package will include lowering the cost of prescription drugs.  The agreement consists of three parts: allowing Medicare to negotiate a small amount of high-cost drugs, implementation of inflation rebates, and out-of-pocket maximums for Medicare beneficiaries.

Medicare to Negotiate Prices for a Subset of Drugs

Although just a small number of drugs would be affected, for the first time, the price negotiation would apply on a national level. As the agreement currently stands, 10 products would qualify in 2025 and increase to 30 drugs by 2028. To qualify, drugs must be without exclusivity and competitors and covered under Medicare Part B or Part D programs. Insulin will also be included in these negotiations with out-of-pocket costs not exceeding $35 per month for Medicare beneficiaries.

For small molecular entities, the price will not exceed 76% of the Average Manufacturer Price (AMP) paid by wholesalers. The time period since the loss of exclusivity will be a factor in negotiated price, with longer time spans since exclusivity resulting in lower prices. The guidelines for large molecular entities have not been solidified yet.

Manufacturers will be able to participate in the negotiations with input on research and development costs, financial support from the government, whether the treatment addresses a disease area with an existing need and the degree to which the drug is more effective than existing therapies. Innovation will also be considered in negotiations, though it has not been clearly defined in the agreement.

Implementation of Inflation Rebates

Another part of the upcoming package includes a rebate for price increases higher than the rate of inflation. Because the inflation rebates and Medicare negotiations in this agreement will affect already existing drugs, we could see manufacturers begin to launch drugs at higher prices to maximize revenue knowing potential price increase constraints are further down the line.

Out-of-Pocket Caps for Medicare Beneficiaries

The agreement states a prescription drug maximum out-of-pocket cost of $2,000 per year for Medicare beneficiaries. This part of the agreement also aims to decrease the percentage that Medicare pays after out-of-pocket costs are met, effectively pushing some costs back to the manufacturer in the hopes that this will encourage manufacturers to negotiate more affordable prices. 

Source: Democrats Revive Drug Pricing Reform With A Narrow Set Of Proposed Measures