The final rule implements a provision of federal law that allows FDA-authorized programs to import prescription drugs from Canada under specific conditions, according to a report by Kaiser Health News. Prices are cheaper in Canada because the government there caps how much drug makers can charge for medicines, while the free market reigns supreme in the United States.

Even though insulin is not included among the drugs covered by the rule, the Trump administration also issued a request for proposals seeking plans from private companies on how insulin could be safely brought in from other countries and made available to consumers at a lower cost than products sold in the U.S.

Why now?

Congress has allowed drug importation since 2003, but only if the secretary of the Department of Health and Human Services certified it is safe. That had never happened until this year, when Secretary Alex Azar approved an application by Florida, according to a letter he wrote to congressional leaders.

For decades, Americans have been buying drugs from Canada for personal use – either by driving over the border, ordering medication online or using storefronts that connect them to foreign pharmacies, according to Kaiser Health News. Though the practice is illegal, the FDA has generally permitted purchases for individual use.

About 4 million Americans import medicines for personal use each year, and about 20 million say they or someone in their household has done so because prices are much lower in other countries, according to surveys.

How it would work

The administration envisions a system in which a Canadian-licensed wholesaler buys from a manufacturer of drugs approved for sale in Canada and exports them to a U.S. pharmacy, wholesaler or importer that has contracted with the state in which they operate.

To be eligible for importation, a drug would need to be approved by Canada’s Health Canada’s Health Products and Food Branch and needs to meet the conditions in an FDA-approved new drug application.

Essentially, eligible prescription drugs are those that could be sold legally on either the Canadian market or the American market with appropriate labeling.

Under the final HHS and FDA rule, state importation programs will have the flexibility to decide which drugs to import and in what quantities.

The rule also requires drug manufacturers to provide importers with documentation guaranteeing the medications are the same drugs as those already sold in the U.S.

Parts of this report were reprinted from Kaiser Health News.

Drug makers earlier in the year said they would start reducing prices as well as the rebates they pay PBMs to appease lawmakers and the Trump administration, saying it would reduce the cost of medicine for patients.

But not long after the announcement, the nation’s largest PBM, United Healthcare, fired off a letter to drug companies telling them that if they planned to reduce prices and rebates they would have to give seven quarters of notice (that’s 21 months if you’re counting) when they intend to lower prices.

The letter, which was confirmed in news reports in the health care trade press, highlights what many critics say is an inherent conflict of interest among some of the large PBMs operating in the country.

Some background

When PBMs first came on the market, the services they offered were processing pharmacy claims and negotiating discounts on medications for the health insurance companies with which they contracted.

Later though, they found a new way to make money: rebates. They would approach two manufacturers that made similar versions of a drug and play them off against each other to elicit the largest rebate they could. Whichever one offered the larger rebate would have their pharmaceutical placed on the drug plan’s formulary.

The problem is that these large PBMs do not pass on the full rebate to their clients, like health insurance companies and health plan enrollees. Instead, they keep most of the rebate for themselves. As a result, PBMs with this business model are not motivated to include the lowest-priced drug on their formulary, but rather the one for which they can receive the largest rebate check.

The latest

United Healthcare sent out the letter to drug makers after pharmaceutical manufacturer Sanofi S.A. said it would cut the price of its cholesterol-lowering drug Praluent by 60%. It did so after its competitor Amgen Inc. reduced the price of its cholesterol drug Repatha by the same amount.

United Healthcare’s demand that drug companies give 21 months’ notice when they plan to reduce prices has caught many drug makers off guard, since many of them have been looking to cut prices as pressure mounts on the industry from Washington.

The dominance of United Healthcare’s PBM OptumRX and its competitor Express Scripts means that group health plan enrollees are often left at their mercy, as many large health insurers have contracts with them.

If a drug company does not give the rebate that a large PBM demands, it could lose access to patients – and patients lose access to that drug. The only way to play the game is to offer a larger rebate and increase prices, which in turn increases the prices that patients have to pay.

Fortunately, there are a number of smaller PBMs in the marketplace that have different business models that take payers’ needs into consideration and aim to reduce the out-of-pocket costs for patients. They contract with employers and insurers directly to make this happen.

While the rules seem to be focused on individual plans sold on government-run exchanges, three of the changes would also affect small and mid-sized group plans.

Mid-year formulary changes

Under current regulations, health insurers are barred from making changes to their drug formularies mid-year. They can only introduce changes upon renewal.

The CMS says it wants to boost incentives for drug plans to use generic drugs, so it is proposing a new rule that would allow insurers to:

• Add a generic drug that becomes available mid-year.
• Remove the equivalent brand-name drug from the formulary, or
• Remove the equivalent brand-name drug to a different tier in the formulary.

Under the rules, insurers would have to notify their affected enrollees at least 60 days before the change would take effect. They must also offer a process for an enrollee to appeal the decision.

This rule would affect insurers in the individual, small group, and large group markets.

Excluding certain brand-name drugs

Under existing regulations, all prescription medications covered under an insurance contract are considered an essential health benefit, including the requirements that aim to ensure that the drug coverage is comprehensive. Under the Affordable Care Act, health plans are required to cover 10 essential benefits, and that includes the medications that are required to treat them.

The CMS wants to change this by letting insurers exclude a brand-name pharmaceutical from “essential health benefits”, or EHBs, if there is a generic equivalent that is available and medically suitable.

As with the current rule, the proposal would only apply to plans in the individual and small group markets. That’s because large group and self-insured plans are not required to cover all 10 categories of EHBs.

The proposal would also permit insurers to count only the cost of the generic equivalent (and not the cost of the brand-name drug) toward the enrollee’s out-of-pocket limit. Also, insurers would be permitted to apply an annual and/or lifetime dollar maximum to the brand-name drug, since the prohibition against annual and lifetime dollar limits only applies to EHBs.

Manufacturers’ coupon-handling

Currently, some insurers will count manufacturer coupons for brand-name drugs in addition to what the enrollee pays in calculating their out-of-pocket outlays for deductible purposes. They may do so depending on laws in the various states in which they operate.

For example, take the scenario of a drug that costs $600, and the manufacturer provides a $400 coupon that can be used to reduce the cost of the drug and the enrollee pays $200 out of pocket. Currently, insurers will count the full $600 towards the deductible and out-of-pocket maximum.

The CMS’s proposed rule would allow insurers to only include the actual out-of-pocket expense for the enrollee when calculating how much of an out-of-pocket maximum has been satisfied.

What comes next

The comment period for the proposed regulations ended on Feb. 19, 2019, and the final rules could be out before summer. We will keep you posted once the new regulations are out.

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