A recent executive order signed by President Trump on Tuesday instructs Congress to alter significant aspects of the law permitting negotiation of Medicare drug prices. This action aims to address one of the pharmaceutical sector’s main grievances.
This order addresses what the industry labels the “pill penalty” within the Inflation Reduction Act. It allows negotiations for Medicare drug prices of small molecule drugs (commonly pills) to occur sooner than those for more complicated biological drugs.
Small molecule drugs qualify for the drug price negotiation program seven years following their approval by the Food and Drug Administration (FDA). A two-year negotiation period follows, after which the new pricing comes into play in the ninth year.
Conversely, biological drugs will be eligible for this process 11 years post-FDA approval, with a two-year negotiation period preceding the new pricing introduced in the thirteenth year.
“This inequity heightens the motivations that companies often promote large-scale investment in molecular drugs over small molecule alternatives. This influences the broader population and impacts various conditions,” a management official disclosed to reporters during a press briefing on Tuesday.
Industry representatives argue that this law suggests that investing in the development of small molecule drugs is not worthwhile.
The modification necessitates congressional action, so the President tasked Health and Human Services (HHS) Secretary Robert F. Kennedy Jr. with collaborating with Congress to facilitate it. Existing legislation in both the House and Senate aims to achieve this result.
Pharmaceutical lobbyists have been pushing to amend the “pill penalty” since the enactment of the law.
The directives fall under an extensive executive order addressing numerous healthcare concerns, confirming Trump’s commitment to uphold one of the Biden administration’s hallmark health policies. While the specifics are emphasized, officials stated that the order will benefit more Medicare beneficiaries.
Furthermore, Trump’s directive seeks to rejuvenate aspects of his initial health initiative, such as promoting the import of prescription drugs from Canada, as well as discounts on insulin and epinephrine for economically disadvantaged individuals.
Additionally, the order intends to modify the prescription drug payment rates according to hospital acquisition costs. Officials have indicated that hospitals frequently obtain substantially discounted drugs, potentially 35% less than what Medicare currently pays.
Beyond prescription medications, the order commands HHS to examine a policy called site neutral payments, which mandates that Medicare pays consistent fees for analogous services, independent of where the service is delivered.
This initiative aims to prevent hospitals from receiving higher payments from Medicare for procedures that could be conducted in lower-cost settings, like doctors’ offices and outpatient surgery centers.
It remains uncertain if HHS can enforce neutral site policies via rule-making without legislative action. Congress has contemplated site neutral payments for years, yet hospitals have consistently opposed attempts to standardize payment levels, claiming it would adversely affect rural providers and those who heavily depend on Medicare and Medicaid reimbursements.
