Executive Order Calls for PBM Changes, End of IRA ‘Pill Penalty’

A recent executive order from President Donald Trump laid out a host of directives with the goal of lowering drug prices and increasing transparency from PBMs. But experts tell AIS Health that the PBM-related goals are not yet very clear. 

The April 15 order notes the first Trump administration’s efforts, such as drug price transparency rules, encouraging development of generic and biosimilar drugs, and requiring that “government-mandated discounts” are passed through to patients. Trump then said that former President Joe Biden’s administration “reversed, walked back, or neglected many of these initiatives” and signed the “misnamed” Inflation Reduction Act (IRA) into law. While the executive order said the Medicare Drug Price Negotiation Program has a “commendable goal” of reducing Medicare drug prices, “its administratively complex and expensive regime has thus far produced much lower savings than projected.” 

The order thus instructs the HHS secretary and other individuals to explore and make recommendations for drug pricing issues, including: 

·       Providing recommendations within 180 days of the order for how to stabilize and reduce Part D premiums. The order noted that the IRA’s Part D changes “led to inflated premiums and diminished coverage choices for seniors, prompting a taxpayer-funded bailout of insurance companies offering Part D plans”; 

·       Instructing the HHS secretary to work with Congress to end the so-called “pill penalty,” which states that small-molecule drugs are eligible for Medicare price negotiations after nine years vs. 13 for biologics; 

·       Providing recommendations within 90 days on how to promote “a more competitive, efficient, transparent, and resilient pharmaceutical value chain that delivers lower drug prices for Americans”; 

·       Proposing regulations within 180 days pursuant to the Employee Retirement Income Security Act (ERISA) of 1974 “to improve health plan fiduciary transparency into the direct and indirect compensation received by pharmacy benefit managers”; and 

·       Instructing the HHS secretary within one year to develop and implement a rulemaking plan and test a payment model “to improve the ability of the Medicare program to obtain better value for high-cost prescription drugs and biological products” covered by Medicare, including those not subject to price negotiation. 

PBM Changes May Include Data Requests 

Although the order hints at the need for PBM reform, it didn’t provide many details about what those changes could look like. It also did not address broader PBM reforms, such as mandating rebate pass-through and banning spread pricing, which have both generated bipartisan support. 

It is likely that HHS will ask for data from PBMs, similar to what hospitals and insurers already provide for price transparency, says Chris O’Dell, vice president of market solutions for health care data company Turquoise Health. If that is the case, “we [will] no longer have to guess or speculate at spread pricing, dispensing fees, or any of this [information],” he adds. “We're going to be able to see what PBMs are getting paid by every single insurer and we'll find examples where they acquired the product [at] way less than what they are getting paid for it.” 

Other possibilities stemming from the order include proposing regulations under ERISA to improve transparency into fees PBMs pay brokers to steer employers toward their services. But O’Dell predicts that HHS might also look at rebates that large, self-insured employers receive from PBMs. 

“At the end of the day, that means that really sick inpatients or employees who need expensive drugs are paying for something and then the employer is getting a rebate on that product,” he says. “And the executive order is calling that up and saying, ‘We're going to come after these rebates.’ This comes back to this idea that the system is fed by high drug prices that allow for lots of rebates and discounts along the way.” 

Because the order did not specifically mention items such as rebate pass-through, changes are likely to be more along the margins, says Lisa Joldersma, a strategic adviser with Avalere Health. “For example, a tweak to Department of Labor regulations would give large employers greater leverage to manage their PBMs,” she tells AIS Health, a division of MMIT. “‘America First’ policies might take aim at offshore group purchasing organizations, which are another layer in the opaque supply chain.” 

Anything more detailed about PBM reform will probably come later. “This stuff is so complex, that it’s like if you pull out one of the Jenga blocks and you risk crumbling things,” O’Dell says. “These executive orders tend to err on the side of less words, saying they see something bad, but don’t want to get into the details of how they’re going to do it. I think you’ll see a lot more detail [after 90 days] on how they intend to do that.” 

During the company’s first-quarter earnings call on April 17, UnitedHealth Group CEO Andrew Witty said he was “encouraged” by the executive order and decried what he called the “obsession” with PBMs vs. “everyone else in the system.” 

“And if you read the [executive order] carefully, what you'll see in there are quite good, sensible questions to explore what's going on either side of the PBM in terms of the manufacturers and also ultimately, many of the providers in the network,” Witty said. “I'm hopeful...that this will become a much more thoughtful review of how to reform the whole value chain and not simply one component where I think you can make very, very serious mistakes, which could really damage patient access.” 

‘Pill Penalty’ Fix Might Increase Costs 

One of the more surprising elements of the order is the inclusion of removing the pill penalty, Joldersma says. This element has been “prioritized by pharmaceutical manufacturers but requires congressional action and could be expensive to offset,” she adds. 

The order also mentions the need to prevent cost increases for Medicare and beneficiaries, “but stops short of suggesting where offsetting savings could be found,” Joldersma says. “Most big-ticket items would impact either costs or premiums for beneficiaries, so this may signal looking outside of Medicare.” 

The emphasis on prioritizing high-cost drugs for negotiation is “interesting,” Joldersma points out, noting that “this might signal a shift to using net prices for calculating Medicare’s costs for selected drugs, which would be responsive to payer concerns that round one produced a worse deal than they had been able to gain through private negotiation.” 

Trump also called for recommendations for stabilizing Part D premiums while criticizing the Biden administration’s 2024 Part D Premium Stabilization Demonstration. The demo applied a $15 reduction to the base beneficiary premium and placed a $35 limit on any stand-alone Medicare Prescription Drug Plan’s plan-specific year-over-year premium increase. But it was met with widespread criticism from Republican lawmakers. 

“Calling the previous administration’s Part D stabilization demo a ‘taxpayer-funded bailout of insurance companies’ was quite something,” Joldersma says. “The benefit enhancements that have helped fuel recent Part D premium growth are popular among beneficiaries, but it is hard to see policymakers being comfortable with fully exposing seniors to premium hikes. There are limited regulatory tools to address this problem, which is why the previous administration resorted to demos." 

In 2024, Republican lawmakers criticized the stabilization demo in a letter to the Congressional Budget Office, stating it would cost nearly $30 billion over 10 years and “shift financial liability away from large health insurers and onto American taxpayers.” 

This article was reprinted from AIS Health’s biweekly publication Radar on Drug Benefits.