Incentivizing Lower List Prices

July 11, 2019

In the third in a series of articles summarizing efforts to put each of the “American Patients First” blueprint's four strategies into action, Rick Kelly and Nisha Desai focus on “Incentivizing Lower List Prices.”

In the third in a series of five articles that summarize efforts to put each of the “American Patients First” blueprint's four strategies into action, Rick Kelly and Nisha Desai focus on “Incentivizing Lower List Prices.”

Most of the proposals in the American Patients First blueprint aimed at lower list prices require radical changes to the current, complex contracting relationships which will take time and possibly legislative action. As a result, only one policy has been implemented so far, and it targets list price transparency.

Improved Medicare drug-pricing dashboards. These improved dashboards, easily accessible on the HHS website, show combined HHS and beneficiary spend for more than 2,800 Part D drugs and more than 470 Part B drugs. Spending is summarized in these categories: total spend, average spend per dosage-unit, and change in spend per dosage-unit.

Proposed policy changes

The blueprint has multiple proposals to address the complex relationships in drug pricing. Some are still under consideration, and others have recently been implemented. Here we describe those original proposals and indicate the current status of each.

1. A five-part plan to modernize Part D

Part 1: In May 2019, rules were codified to allow plans to utilize PA, step therapy, and indication-specific formularies for all protected drug classes except for antiretrovirals. A second proposal was to allow plans to meet minimum formulary requirements by covering only one drug per category/class for Part D drugs instead of two.

Part 2: This proposal would exclude manufacturer discounts from the Part D true out-of-pocket (TrOOP) maximum. The current discount amount (70%) is included in the TrOOP calculation, which is used to determine when the beneficiary moves to the catastrophic phase. The stated purpose of the proposal is to eliminate misaligned incentives that encourage the use of a product with a higher list price.

Part 3: One of the most complex and controversial proposals would eliminate all rebates for Medicare Part D (and managed Medicaid). This would be implemented by removing the anti-kickback safe harbor that currently allows pharma rebates. At the same time, point-of-service discounts for beneficiaries would be allowed.

Part 4: This proposal would change cost sharing amounts during the Part D catastrophic phase. Beneficiaries would pay less (0% vs the current 5%), Medicare would pay less (20% vs 80%) and plans would pay more (80% vs 15%).

Part 5: For Part D enrollees receiving low-income subsidies, this proposal, implemented in January, 2019, lowered the OOP for biosimilars from 25% to the generic copay amount.

2. A requirement for manufacturers to include list prices in advertising. This proposal was codified in early May 2019, and is to be implemented by pharma companies sometime in July. The regulation requires that, for drugs priced more than $35, the WAC for a 30-day supply â or the typical course of treatment â be included in television advertisements.

3. Removal of the limit on manufacturer Medicaid rebates. Currently, Medicaid rebates are capped at 100% of the Average Manufacturer Price (AMP). The blueprint proposes that this cap be eliminated with the hope that this would incentivize manufacturers to reduce list price to avoid paying unreasonable rebates relative to a drug’s finances. This change would require action by Congress.

4. Reforms to improve 340B program integrity. One of the blueprint’s objectives is to ensure that “the benefits derived from participation in the 340B program are used to benefit patients.” However, there are no specific proposals from HHS at this time.

Impact on pharma

Potential impacts on pharma companies are as diverse as the proposals. The most impactful are likely to be drug-pricing dashboards, elimination of rebates, prices listed in advertising, and changing Medicaid rebates.

  • Drug-pricing Dashboards. Since this data could be used as source material for reports in the press about prices and price changes, pharma companies should proactively develop communications to explain their pricing strategy in the general press if a response is needed.

  • Elimination of Rebates. This change would result in greater transparency in contracting negotiations with payers and an increased focus on list price. Pharma executives will need to understand the mechanics of implementation and how they relate to current practices. Some of the expertise needed may have previously been tucked away in the bowels of the contracting department, but will now need to be front and center for anyone making go/no-go decisions.

  • Prices Listed in Ads. Because of a greater awareness of prices, beneficiaries will be more engaged in treatment selection. Pharma companies could provide pricing education by directing beneficiaries to a website that clarifies the differences between list price, contract price, and out-of-pocket costs. They may also want to include pricing information in provider-focused sales tools. However, pharma companies are already pushing back. Three pharma companies recently sued HHS to block the price disclosures.

  • Changing Medicaid Rebates. Because pharma companies could begin to lose money on Medicaid prescriptions at a certain price, they may need to reassess their pricing strategies over the life cycle of their brands, taking into consideration the overall financial and patient opportunity in the Medicaid segment.


Proposals under the “lower list prices” strategy in the American Patients First blueprint have three primary goals: remove incentives for pharma companies to increase list prices, improve the negotiation position of health plans, and encourage more price transparency for beneficiaries. Faced with these game-changing developments, pharma companies have no choice but to adapt – revising contracting and pricing strategies and creating strategies for consumer-focused communications about price. Those companies that act first to embrace the new normal – meeting the new challenges with strategic innovation – will be game changers themselves, redefining opportunity in the pharma space.

Rick Kelly, RPH, MHA, Cyan Health, and Nisha Desai, MPH, Cyan Health.