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What the Trump administration portends for pharmacy

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The January 20, 2017, inauguration of President Trump as the nation’s 45th president is certain to bring with it changes in the health care environment, which may impact pharmacy in a variety of ways.


David Farber, King & Spalding

As important as the new administration, however, is the fact that a “unified” government will take over in Washington, with Republicans controlling the House, Senate and White House for the first time in over a decade. This, too, portends significant health care change in the coming 100 days, and further change in the coming two years.

What should pharmacy watch for as the new Congress reconvenes, the new president is inaugurated, and the new administration takes over?

The new team

The nomination of Rep. Tom Price (R., Ga.) as the incoming Secretary of Health and Human Services and Seema Verma as the new Centers for Medicare and Medicaid Services administrator signals a significant shift in CMS’ orientation.

Price, who was a practicing orthopedic surgeon for more than 20 years before he came to Congress, is particularly sensitive to relieving physicians of external pressures such as insurer oversight, reimbursement pressures and medical malpractice risk.

In contrast, Verma comes from a consulting background on Medicaid policy issues, and while she has a deep understanding of Medicare policy as well, her deep experience working with states to implement Medicaid waivers suggests a focus on increasing state flexibility and using Medicaid waivers as a major policy tool.

Repeal and replace

President-elect Trump did not say much during the campaign about health care reform, except one mention: Obama­care “repeal.” Building on that theme, since election day Congress has openly pledged to repeal Obamacare as soon as it reconvenes in January.

cdr-filler-opinion-750The details, as always, remain challenging. There are numerous congressional proposals, including one authored by Price that was introduced into the Congress several years ago, on exactly how a “repeal and replace” might occur. Indeed, “repeal” is relatively straightforward, and we can expect a “reconciliation budget” resolution similar in scope to H.R. 3762, which in 2015 was passed by the Congress but vetoed by the president.

But preserving coverage options for the approximately 20 million Americans who have secured some form of coverage remains a challenge. While it is widely recognized (even by Democrats) that the current ACA coverage is too expensive and limited in scope, repealing it outright without any replacement will impact millions — and particularly those Americans who live in key electoral states such as Wisconsin, Michigan, Pennsylvania, Texas and Florida.

Pharmacy has a lot at stake in this debate. Because prescription drugs is one of the 10 “essential benefits” of ACA coverage, pharmacy is at risk of losing 20 million customers — or, in reality, perhaps 10 million Exchange customers, given that few expect those states that have adopted ACA Medicaid expansion to abandon it.

Moreover, a key feature of ACA that helped pharmacy was the closing of the so-called Part D “doughnut hole” — the elimination of the coverage gap between $2,700 and $4,500 of benefits for Part D beneficiaries. Prior to 2010, the doughnut hole caused beneficiaries to defer, if not abandon, use of prescription medications, which in turn impacted pharmacies dispensing those drugs. While there is no political call for repealing ACA’s doughnut hole provisions, a broad-based repeal effort might have the unintentional consequence of sweeping away this important reform.

Drug pricing

As important as the number of covered lives is the cost of prescription drugs, which directly impacts pharmacies as well as their customers. President-elect Trump said very little during the campaign on the subject, but he could not have been more clear in an interview with Time magazine on December 7, when he noted: ““I’m going to bring down drug prices. I don’t like what’s happened with drug prices… .”

While few expect the new administration to continue President Obama’s “Part B Demo” efforts, there is a good likelihood that the new administration will continue to explore value-based drug pricing arrangements and, perhaps, to expand value-based care to include prescription drug costs. In turn, this may have a major impact on retail pharmacies, which to date have relied upon a “fee for service” reimbursement model based upon ingredient cost and a dispensing fee.

The new president’s focus on drug pricing as a “populist” issue in a sense may continue the efforts to reduce prices begun under President Obama and the Congress. Although pharmacy has been shielded from scrutiny during the pricing debate, there has been a renewed focus on the prescription drug “supply chain,” which includes both PBMs and pharmacies.

In that respect, pharmacies will need to more clearly articulate their “value proposition,” something that may seem obvious to the industry but is poorly understood across the policy world. No less will be required in a new, Trump-led world focused on prescription drug prices and the mix of payments to others in the supply chain that make up price.

Medicare, Medicaid reform

Finally, congressional Republicans (including Price) have long sought fundamental reform to both the Medicare and Medicaid programs. As of mid-December, a heated debate already has begun in Congress as to whether and how Medicare reform could be achieved, and whether Medicaid could be turned into a “block-grant” program.

The argument in favor of Medicaid reform is that it would leave states the discretion to spend Medicaid dollars as they choose, rather than be constrained by federal law. Missing from the debate about Medicare reform, however, is any discussion of Part D, which remains a beloved program in Congress.

The Medicaid debate has significant implications for pharmacy, which is responsible for one of the largest budget lines of any state’s Medicaid program. That being said, Medicaid reform could solve MAC (maximum allowable cost) pricing and DIR (direct and indirect remuneration) woes, which plague industry today. While the incoming Trump nominees have yet to signal where the next administration may land on the issue, there is much at stake for pharmacy, and Medicaid reform bears a careful watch.

For the first time in decades, everyone inside the Beltway is happily professing ignorance on what 2017 will bring in terms of health care policy reform. Other than some form of Obamacare repeal, which appears inevitable, not much else is clear, and it is impossible to predict what the president-elect and his new team will do. For those who embrace change, this is your time. But for those who hope for consistent reimbursement, the next few years may prove a rocky road.

David Farber is a partner in the Food and Drug Administration, life sciences and health care practices at international law firm King & Spalding, based in Washington, D.C.


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