Prescription Drug Affordability

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The court ruling striking down the Affordable Care Act may get in the way of making drugs affordable.

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The question of prescription drug pricing and affordability has assumed far greater salience for American patients over the last several years.

One in four Americans report that they have trouble affording their prescriptions, leading them to skip doses or delay filling a prescription entirely. And although health care in general remains quite polarized politically, there is far more agreement on prescription drug pricing: Eighty percent of Americans believe that prescription drug prices are too high, and drug pricing may be one of the few potential areas of bipartisan compromise in the currently divided U.S. Congress.

In short, it is safe to say that consideration of the future of health care in the United States must involve serious consideration of prescription drug pricing.

Many scholars and commentators—including myself—have evaluated recent proposals from the executive branch, considered the merits of bills introduced into Congress, and assessed the potential for states to become involved in these issues as well.

But one issue that has not received as much examination is how Texas v. Azar—the recent lawsuit led by several Republican state attorneys general seeking to declare unconstitutional the entire Patient Protection and Affordable Care Act (ACA)—has the potential to exacerbate the problems Americans already face affording their prescription drugs.

In Texas v. Azar, the state attorneys general argued that the Tax Cuts and Jobs Act of 2017, which zeroed out the tax penalty from the ACA’s individual mandate provision, renders the entire ACA unconstitutional. Essentially, their argument is that once the mandate is stripped of its force, the rest of the law is invalid. In contrast, the U.S. Department of Justice had initially argued in its brief that merely the ACA’s protections for Americans with pre-existing conditions should be struck down, as opposed to the entire Act.

U.S. District Judge Reed O’Connor agreed with the state attorneys general and declared the entire Act unconstitutional. Further, the Department of Justice has now changed its position and is arguing for that decision to be affirmed. As of this writing, the Department has not yet publicly explained the legal reasons for its change in position, but it is scheduled to file its brief before U.S. Court of Appeals for the Fifth Circuit on May 1.

Legal scholars who have previously disagreed on prior ACA challenges are united in their criticism of Judge O’Connor’s ruling and believe that it likely will not be upheld on appeal. But it is always difficult to say for certain.

Coverage of Texas v. Azar’s implications rightly tends to emphasize its potential consequences for the roughly 20 million Americans who gained access to coverage as part of the ACA—both through the individual markets and through Medicaid expansion—or for the far greater number of Americans (more than one in four non-elderly adults with pre-existing conditions) who might find their protections for health care coverage for those conditions in jeopardy.

But the ACA reached far more broadly into every corner of the complex and fragmented American health care system.

Although the ACA did not make prescription drug pricing and affordability one of its focal points, it contained many different provisions which do affect these issues. Examining three of these provisions—two that are specific to the pharmaceutical industry, and one that is more general—allows a deeper dive into the potential consequences of Judge O’Connor’s decision.

First, the ACA created a new path to approval for biosimilar drugs, in the hopes of improving competition in that growing market.

For decades, there has been an accelerated path to U.S. Food and Drug Administration approval for generic versions of small-molecule drugs, and the lower prices charged by these generic manufacturers have often brought down drug prices significantly over time.

However, until the ACA, there was no such pathway to market for biosimilar versions of innovator biologic drugs, which patients increasingly use in the treatment of complex conditions such as cancer or autoimmune disorders. Now, the Biologics Price Competition and Innovation Act (BPCIA), which was passed as part of the ACA, includes an approval pathway for biosimilar versions of these products, specifying the process through which biosimilars can rely on the data submitted by the innovator biologic in its initial approval process.

The BPCIA was intended to promote the development of competing biosimilars and thereby lower the price of many expensive pharmaceuticals, although the more complex science behind biologics may limit the BPCIA’s effectiveness as compared to the success of the small-molecule generic pathway.

Second, the ACA closed Medicare Part D’s coverage gap—also known as the donut hole—which required beneficiaries with high out-of-pocket drug costs to pay even more out-of-pocket once the cost of their prescription drugs reached a particular amount. As a result, the donut hole often posed affordability concerns for patients entering this phase of their benefits.

The ACA originally sought to close the coverage gap gradually by 2020, slowly reducing patients’ out-of-pocket costs within that phase of their benefits. This closure enabled the tens of millions of seniors in that program to more easily afford the prescriptions they need. (I would note that a more recent budget deal accelerated the closure to 2019. It is not clear what, if any, legal significance Judge O’Connor would assign to this development, given his rationale based on the tax law’s changes as to the rest of the ACA’s validity.)

Third, and more generally, the ACA created the Center for Medicare and Medicaid Innovation (CMMI), which provides the Centers for Medicare and Medicaid Services with the legal authority to “test innovative payment and service delivery models” within those programs.

U.S. Department of Health and Human Services Secretary Alex Azar is seeking to use the agency’s authority under CMMI to test a range of new delivery models, including several novel drug pricing reforms. The agency is currently considering an international reference pricing proposal for prescription drugs in Medicare Part B, as well as a demonstration project for reorienting financial risk over high-cost drugs in Part D.

Without CMMI, it is not clear that the agency could implement these changes through the standard notice-and-comment rulemaking process, and it certainly could not test and evaluate the models before doing so.

These are just three of many ACA provisions relating directly and indirectly to pharmaceutical policy. A final judgment invalidating the entire Act as unconstitutional would not only harm those in the individual market or Medicaid expansion—but would also jeopardize the ability of even more Americans to afford their prescription drugs.

Rachel E. Sachs

Rachel E. Sachs is an associate professor at the Washington University in St. Louis School of Law.

This essay is part of a 12-part series, entitled What Tomorrow Holds for U.S. Health Care.