The Pharmacy Benefit

The Trump administration enacted the Rebate Rule just before leaving office in November 2020. Analyses on the rule, including from government actuaries, show that the rebate rule would increase Medicare Part D premiums by 25% and increase taxpayer costs by 170 billion dollars. PCMA filed a lawsuit to stop the rebate rule from taking effect. In this episode, host JC Scott speaks with April Alexander, PCMA General Counsel, Vice President of State Regulatory Affairs; and Mark Newsom, principal and founder at Health Evaluation, LLC. JC, April, and Mark discuss the PCMA lawsuit, the impact of the last-minute rebate rule, and the Biden Administration's approach to addressing the rule.

Show Notes

The Trump administration enacted the Rebate Rule just before leaving office in November 2020. Analyses on the rule, including from government actuaries, show that the rebate rule would increase Medicare Part D premiums by 25% and increase taxpayer costs by 170 billion dollars. PCMA filed a lawsuit to stop the rebate rule from taking effect. In this episode, host JC Scott speaks with April Alexander, General Counsel and Vice President of State Regulatory Affairs of PCMA; and Mark Newsom, principal and founder at Health Evaluation, LLC. JC, April, and Mark discuss the PCMA lawsuit, the impact of the last-minute rebate rule, and the Biden Administration's approach to addressing the rule.

What is The Pharmacy Benefit?

JC Scott, President & CEO of the Pharmaceutical Care Management Association, discusses the latest trends, public policy developments, and political challenges impacting drug pricing and healthcare.

You'll hear the nation's top thought leaders, policy experts, and political analysts on topics like how employers, unions, and others use Pharmacy Benefit Managers (PBMs) to drive value for their members in the face of growing healthcare costs. You'll also learn about advancements in gene therapy, biologics, other cutting edge therapies, and the patient benefits and cost challenges that come with them.

The Pharmacy Benefit will also analyze the latest news from inside the industry and give you an educated perspective on where things currently stand and where we think they're headed.

JC Scott (00:07):
Welcome to The Pharmacy Benefit, a podcast that highlights the role of PBMs in serving millions of patients and consumers throughout the country. I'm JC Scott. In the last several weeks, there have been significant developments on a last minute rule issued by the Trump administration on prescription drug rebates. For those who haven't kept up with this on again, off again policy, let me give you a little bit of background. Last November, the previous administration issued a final rule that resurrected a proposal it had previously withdrawn in 2019 that would effectively eliminate prescription drug rebates in Medicare Part D.

JC Scott (00:44):
These are the rebates that PBMs negotiate from drug manufacturers and pass along to Part D plans so they can keep premiums low and affordable for Medicare beneficiaries. Multiple government scorekeepers looked at this rule back in 2019 and determined it would significantly increase Part D premiums, and by significant, I mean a 25% premium increase, as well as increased taxpayer costs by almost $200 billion. Those impacts and that analysis were the very reason the rule was withdrawn, but that wasn't the end of the story.

JC Scott (01:17):
The Trump administration decided late last year to try to bring back and finalize the rule without doing anything to account for or address those impacts on seniors and taxpayers. Fast forward to today when we have a new administration in place and a court ruling on the rebate rule, essentially delaying it for a year, but leaving an open question about what happens next. This is a really timely topic. Joining me to talk about it and the urgency around it are two people very familiar with the history and the future of the rebate rule.

JC Scott (01:48):
April Alexander is General Counsel and Vice President of State Regulatory Affairs for us here at PCMA, the trade association that represents PBMs. She handles any number of key legal and regulatory issues on behalf of the industry and has led litigation efforts, including litigation related to the rebate rule. Before coming to PCMA, April served in various legal and governmental affairs roles in both the private and public sectors.

JC Scott (02:14):
Mark Newsom is the principal and founder at Health Evaluations. He's joined us on this podcast a couple of times before, including once over the summer, to talk about the very topic of the rebate rule. Mark has spent more than two decades working in health policy, including in the Centers for Medicare and Medicaid Services, or CMS, and several Fortune 500 companies. April, Mark. Thank you both for joining me. April, let me begin with you. PCMA chose to file a lawsuit against the last administration to try to block the rebate rule. Can you tell us what's happened so far in that lawsuit and what's going to happen next?

April Alexander (02:50):
Sure. Thanks, JC, and thanks for having me on the podcast today. It's great to be here. So, really, the change in what's called the Regulatory Discount Safe Harbor, that's the rule that allows the retroactive rebating system, the rule is going to go into effect in January, 2022. This seems like a long way away, but all of the behind the scenes work that has to be done to make sure that the program is all ready to go for the Medicare Part D enrollees in 2022 really happens in the 18 months that come before that time.

April Alexander (03:24):
So, when the rebate rule was finalized at the end of 2020, we were already really deep into that 18 month period of preparation. It totally changed the rules that the plans and the PBMs that administer the drug benefit have to follow and it really left a number of questions unanswered about how the program was going to be implemented in 2022. Those questions need to be answered and they need to be answered quickly. Either the rule needed to get delayed or it needs to be overturned so there is more certainty for the Medicare program.

April Alexander (04:00):
We chose the legal avenue because these are really important, serious, legitimate issues. There are problems with the policy enacted within the rule and also with the process that was followed to enact the rule. The issues need to be addressed as soon as possible, and given the short amount of time between the finalization of the rule in November of 2020 and the 2022 plan year that the plans and PBMs are preparing for, and also given the change in presidential administration, a new Congress coming together at the same time, we really just had to go to court to have them hear our legal claims.

April Alexander (04:39):
With respect of how it might intersect with what's happening on the Hill and by the executive, there really are many ways that a rule can be repealed or overturned by the courts, by the agency that issued the rule, or by Congress. We are pursuing our legal claims through the courts, but we would really welcome action by the agency or by an act of Congress.

JC Scott (05:01):
That's great, April. You gave us a good overview there of the multiple pathways that are being considered as folks look at the rebate rule. Can you talk a little bit more specifically about what's happened so far? I mentioned that the rebate rule has effectively been delayed until 2023, and I know a lot of folks listening are very interested in understanding the various timelines here. So, what happened to get to that one year delay and what does that mean in terms of the next step in the legal process?

April Alexander (05:31):
So, PCMA filed the lawsuit in early January, and in that complaint, we outlined all of the problems with both the substance of the rule and also the process that was followed to enact it. Right after that, within a few days, we followed up shortly with a request to the court to rule in an expedited manner on the issue of just the effective date piece of this, that '22 effective date that's looming out there in the future.

April Alexander (05:59):
This was our way of telling the court, "Hey, this effective date is a major problem and we need it resolved ASAP." The other claims are very important and we need to work those out as well, but the effective date piece of it needed to be dealt with right now. So, after we filed our request to the court to look at that effective date issue on an expedited manner, the court scheduled a meeting where the parties get together and establish a timeline to brief the court on the issues and debate the legal issues at play.

April Alexander (06:35):
At that meeting, to set out that timeline for briefing, the government actually offered to delay the piece of the rule that had the 2022 effective date for that entire year out to 2023. That would give the administration some time to look at the entire rule and figure out if it's something that they want to move forward with. So, while it's not a solution completely to the underlying problems that we have with the rule, it was a welcome compromise because it at least gives some certainty that the policy change wouldn't go into effect in 2022, which as I mentioned before, is fast approaching, and we're already in the process of getting ready to implement the program for 2022.

JC Scott (07:20):
So, April, as somebody who is in the room or in the virtual room for this judicial conference with DOJ, what do you think we should or what can we infer about the Biden administration's position here based on how they came into that conference where they offered the one year delay? Anything we take away from that in your mind?

April Alexander (07:41):
Well, I think that any new presidential administration is going to look at the policies that were enacted by the prior administration at the very end of its term, and this gives the Biden administration a chance to look at the rule and analyze the policy and understand it a little bit better and think through the potential impacts on Medicare beneficiaries and the taxpayers and decide if it's something that they want to go through with.

April Alexander (08:09):
It at least signals their interest in it and concern that it's not something that they automatically want to move forward with. So, I think it helps us a bit in understanding they just want to take a closer look at it and that they're not ready to just be okay with this Trump policy.

JC Scott (08:27):
That's helpful. So, in other words, they're brand new to the job and they're trying to take their time about policies they're not absolutely certain with. But on the flip side of that, we probably shouldn't read too deeply into what that offer of a one year delay actually means for their longterm position on this.

April Alexander (08:43):
Exactly. exactly. I think they probably just need to take some time and really think about it.

JC Scott (08:48):
April, let me ask you just two slightly more granular questions, and then I want to turn to Mark. I know that as part of this agreement with the administration on the litigation, the litigation is temporarily on hold while they do that review, and there's this discussion I've read about in the media that the court has asked for a status report by the 1st of April. How meaningful is that status report in your mind? At what point do you start to think about having to re-up that litigation?

April Alexander (09:19):
That's a great question. The important thing is that the one year delay is a great compromise in the short term. But as I said before, we still have to work on these underlying legal claims, and the 2023 plan years is going to be fast approaching very quickly. So, we set the April 1st status update so both parties could come to the court and say, "Now that we've had a chance to think about this a little bit more, what's next?" Are we going to go to court and pursue our legal claims? Or maybe by then, the agency has decided that they want to take action to repeal the rule, or potentially Congress has decided to repeal the rule.

April Alexander (09:58):
So, we're not sure what's going to happen on April 1st, but at least it will have given the agency a little bit of time to review the rule and maybe come up with a position on whether or not they support that position and want to move forward with it, or want to take steps to repeal the rule. We are hoping that after they have had a chance to review the rule and understand the impacts, all the negative impacts on Medicare beneficiaries and on taxpayers, that they will decide to walk back from the Trump policy and we won't have to litigate. But in the event they haven't decided yet or that they are sensing that they want to move forward with this policy, we will have to take our litigation off hold and continue prosecuting our legal claims.

JC Scott (10:44):
That's helpful, April Mark, I'd like to turn to you, if I could. April alluded a couple of times to the practical impact of this rule on companies, and we have a one year delay, but still a lot of uncertainty. Can you speak to, if you're in a plan's shoes, how they would approach that uncertainty? Maybe the best place to start, Mark, is just to talk to us about the bid cycle. What are the very first steps as PBMs and plans are negotiating with drug manufacturers, how long of a timeline is that, and how do the companies have to think about the practicality of dealing with uncertainty on the rebate rule?

Mark Newsom (11:23):
Thanks, JC. That a core question, if not the core question, and April did a great job of underscoring some of the dynamics here. So, first, I think a lot of people don't realize how much runway is needed to put together the Medicare benefit package. It's already in play already now in February of 2021 to go live for January of 2022, and actually begins before that. Typically, PBMs and plans and drug manufacturers start discussing contracts around rebates and formulary placement in the fall before.

Mark Newsom (12:04):
So, in October of 2020, you're talking about what a benefit package is going to look like in 2022. That's how far in advance. The reason for that is there's a lot of complexity in the submission of bids to CMS. All formularies are prior approved and reviewed by CMS, and then there are a number of different payment policy issues worked out with CMS, as well as member facing materials. So, websites, written materials, the plan compare too. It's a lot of moving puts and takes.

Mark Newsom (12:42):
So, it takes about a year to put that all together. This delay takes immediate pressure off. But as I said, things begin in fall. So, in September and October of this year, people will already begin working on what 2023 work looks like. So, I just want to go back off though and talk this through from a regulator's perspective, since I used to be one, and one of the core unique issues of this is that the rebate rule came out from the Office of Inspector General, and they have jurisdiction over the anti-kickback statute.

Mark Newsom (13:21):
But what they don't do is they don't actually run the Medicare Part D program, and there wasn't a CMS rule attached to this. So, to actually make this real for the Medicare program, CMS would also have to do their own rulemaking and interpretive guidance to make this real for benefit packages. So, that work would also have to be done and takes its own time through a regulatory cycle. Ideally, all of that would be known and finalized if any of this was going to happen for 2023 before those negotiations begin in September and October of this year.

JC Scott (13:58):
That's really helpful context and a nice reminder, Mark, that you're a recovering regulator. But that helps provide some great context for us as we think about the timelines around this thing, because I've heard even from some companies that they start those negotiations on drug costs as early as late summer. So, as I think about it, that means both the regulator and the companies have to essentially assume they're going to be doing all of this two or three different ways to plan for different scenarios in the face of uncertainty.

JC Scott (14:30):
Then when I think about what April talked about, I know that litigation doesn't just happen overnight. So, if there's a desire to get some certainty by late summer, early fall, you walk back the legal timeline, it sounds like that litigation probably can't be on hold for too long. The industry, the participants working on behalf of seniors need to know the rules of the road sooner than later.

Mark Newsom (14:53):
That's absolutely true. The fundamental reality is that in any given year, you're both operating with the current coverage year paying claims and working on the next two years, and it's a nonstop process with all the stakeholders, providers and prescribers, pharmacies, drug manufacturers, plans and PBMs, and then the regulators CMS. It's an ongoing process.

JC Scott (15:20):
So, let's switch gears a little bit, Mark. April talked quite a bit about how the legal pathway could play out, there's also the potential for the administration just to use its authority to walk back the rule, and there's the possibility that Congress could act. It feels like a lot of the near term focus is on Capitol Hill. The Congressional Budget Office has scored the rule as costing taxpayers about $170 billion over 10 years, and I assume that revenue could be used as an offset for some other policy that Congress might want to advance. Mark, can you talk a little bit about how that works from the budget standpoint and the legislative standpoint, and maybe just generally what the political legislative dynamics are around the rebate rule?

Mark Newsom (16:06):
Sure. Without getting completely in the weeds on CBO scoring, what matters for pay-fors in legislation is did CBO put this in the budget baseline? And they did. They also noted that they realized that there's a lot of activity happening in this space and they might have to reexamine how they put that in the baseline in the future. But for now, it's there, and so there is pay-for money to be had.

Mark Newsom (16:34):
In terms of how Congress could approach this, there's a number of different ways. I know there's a lot of talk about the Congressional Review Act, or CRA, and at a high level, what plays out there is the comptroller general that runs the GAO. The [inaudible 00:16:52] report to Congress, that's already happened on December 22nd. GAO submitted a letter to the committees of jurisdiction, House Ways and Means, Energy and Commerce, and Senate Finance, outlining what this rule did and that it could be reviewed under the Congressional Review Act.

Mark Newsom (17:09):
If Congress chooses that pathway, they would have to pass a joint resolution of the House and Senate. It would have to be signed by the President or they'd have to override a presidential veto. If all that happened, the rule was just disapproved. The language says shall not take effect or continue in the law. CRA's been used before, but not often. The more likely scenario for congressional action is that they change the law. They could change the anti-kickback law or they could change the Medicare law as it applies to rebates.

Mark Newsom (17:44):
Certainly, there's been discussion in recent history of doing those kinds of things, whether you're talking about HR3 in the House side or the package the Senate Finance Committee put together, and we can expect in this Congress, there will be continued debate on drug costs and drug pricing and that rebates and Medicare Part D will be part of that discussion.

JC Scott (18:08):
That's helpful, Mark, and I do want to come back to that point about the broader context on the discussion about high drug prices and how Congress might approach that. But I think what I hear you saying is in terms of the rebate rule itself, there are a couple of different tools and pathways that Congress could use. They can net some of that savings simply by putting into statute that the rural can't go into effect, and that might be the cleanest and easiest way to start before than perhaps later on coming back to a discussion about how rebates fit into the broader picture on drug pricing.

Mark Newsom (18:39):
Absolutely. Congress always has options and they can create their own.

JC Scott (18:45):
So, let's do a little predicting then when it comes to the rebate rule, April and Mark both, how do you think this could and should play out this year when it comes to these pathways? We've got the courts, we've got Congress, and we've got the administration potentially exercising its own authority. How does it fit together and what's your best guess on what's likely to happen? April, you want to go first?

April Alexander (19:06):
Sure. It's a really tough prediction. It's really a challenge for a new administration to inherit a bunch of policies from a prior administration and take the time to thoughtfully review those. They've got to get political appointees in place within the agencies, and that takes time, and then analyzing the policies to determine how they want to proceed takes time. As we've discussed, this is a big policy and it carries a lot of costs for seniors and others enrolled in Medicare, along with the federal government.

April Alexander (19:34):
We really think this is a policy the Biden administration should reject, but I'm not sure how quickly they could do that, given all these changes, I think maybe the cleanest and the best way would be for Congress to repeal it and to take one of the actions that Mark had just discussed just to state their intent that they want to keep that money, keep that savings for something that actually benefits taxpayers. I would hope that Congress would act. But again, if the courts need to be involved, we won't hesitate to restart our litigation in a timeframe that fits into the need to have certainty on the policy late this summer and fall. So, I'm not sure if I really committed to an answer there, but my hope is that Congress acts sooner rather than later on this.

JC Scott (20:18):
Thanks, April. Okay. Mark, April made a bold prediction. Agree or disagree?

Mark Newsom (20:24):
I am generally in agreement with April. I suspect that once [inaudible 00:20:29] is confirmed by the Senate and we get a CMS administrator also confirmed by the Senate that then the Biden administration will be able to fully review this and have conversations with leadership on the Hill on how to move forward. I suspect it will be some combination of action by the administration as well as action by the Hill.

JC Scott (20:53):
Thanks, Mark, and I'll throw my own two cents into this prediction game and say that it feels to me very unlikely that this rebate rule as it currently exists is ever going to be implemented simply because I don't think any rational person and certainly any publicly elected public policymaker wants to see the risk of a 25% increase on seniors in their Medicare premiums, let alone the budgetary impact that we've talked about today.

JC Scott (21:21):
But I assume that doesn't necessarily mean that everyone thinks the current rebate system and the current drug pricing system is working at top efficiency right now. So, Mark, a closing question to you. Can you talk a little bit about the bigger picture on addressing high drug prices? What do you think happens next politically on drug pricing reform? What are the kind of policies that you think should be in the mix when we're trying to address things like not only high prices, but for some consumers, high out of pocket costs as well?

Mark Newsom (21:53):
So, I think the core thing here is achieving balance. You don't want to blow up what is working and you want to focus on where the pain points are. That's going to require all stakeholders to give a little. So, I think policy makers that are serious about this issue, they want to incentivize innovation in the drug market, but they also want to make sure that we have a thriving, generic, and biosimilar market. They want to see premiums be flat, but they also want to deal with high out of pocket costs for that subset of the population that's dealing with that.

Mark Newsom (22:38):
So, that's going to require a combination of policies. You can't do just one thing. You can't just focus on rebates. You got to look at a variety of policies and market solutions. Rebates are going to be part of that. Particularly, your traditional brand drug subsidies from the government are always part of that. I think there's going to have to be a serious discussion about an out of pocket maximum or cap. Then you're going to have to look at solutions for high cost specialty drugs, and many of those drugs, particularly orphan drugs, have little or no rebates relative to traditional brands. So, again, it's a situation where just playing around with rebates is not going to fix that problem.

Mark Newsom (23:24):
Generally, I think it's always better if you're going to do big, broad structural changes to do that through legislation, rather than trying to tweak something technical like the anti-kickback law, which only applies to government programs, by the way, and it is only one piece of the system. So, as I suggested earlier, I really do think that once the Biden administration has all of its key politicals in place, they're going to sit down leadership on the Hill and talk this through on what's a more comprehensive and thus legislative approach.

JC Scott (24:03):
That makes a lot of sense to me, Mark. A comprehensive approach rooted in greater competition out there in the marketplace, figuring out a way to address that out of pocket costs question for those who do suffer from high out of pocket costs. You need a variety of different approaches and not these one-offs because fundamentally, I think Congress is looking to address this, as you said, without raising costs elsewhere in the system in terms of higher premiums. It'll be interesting to see if, with all the work on their plate up there on Capitol Hill, whether something that comprehensive is feasible for them to tackle here in this year.

Mark Newsom (24:39):
Absolutely. It's going to be fun to watch for those of us that are into these things.

JC Scott (24:45):
Well, Mark, April, thank you both for joining me today. This has been a really informative and a really timely discussion.

Mark Newsom (24:53):
Thank you.

April Alexander (24:53):
Thank you. Thank you for the opportunity.

JC Scott (24:55):
And thank you all for listening. I encourage you to subscribe to The Pharmacy Benefit and download all of our podcast episodes, and you can do that on Google Podcasts, Apple Podcasts, Spotify, or wherever you find your favorite podcast. I'm JC Scott. Thanks for joining me.