• Sustainability
  • DE&I
  • Pandemic
  • Finance
  • Legal
  • Technology
  • Regulatory
  • Global
  • Pricing
  • Strategy
  • R&D/Clinical Trials
  • Opinion
  • Executive Roundtable
  • Sales & Marketing
  • Executive Profiles
  • Leadership
  • Market Access
  • Patient Engagement
  • Supply Chain
  • Industry Trends

Changing the Balance of Negotiation to Impact Drug Prices


In the second 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 “Better Negotiation”.

In the second 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 “Better Negotiation”.

In May 2018, The Trump Administration released its plan to combat rising prescription drug prices and out-of-pocket costs - the “American Patients First” blueprint. The plan identified four key strategies for reform: increased competition, better negotiation, incentives for lower list prices, and lowering out-of-pocket costs.

This is the second in a series of five articles that summarize efforts to put each of the blueprint’s four strategies into action. In the first article, we described proposals aimed at increasing competition. Here we focus on the “Better Negotiation” strategy. The blueprint’s goal of improving government negotiating tools is aimed at lowering the costs of Part B drugs and empowering payers offering PDP and MA-PD plans to lower the costs of Part D. The majority of proposed and implemented changes improve payers’ ability to negotiate by allowing the use of more aggressive drug management techniques that ultimately improve their bargaining power with pharma companies.

Implemented policy changes

Dozens of policy changes to improve negotiating efforts have been proposed, but only the following have been implemented:

  • Medicare Advantage plans can negotiate prices for Part B drugs. They are required to share more than 50% of the savings with beneficiaries through gift cards or similar tools.

  • MA-PD plans can utilize step therapy for all Part B drugs ─ stepping through oral or injectable drugs. Final regulations clarifying implementation details will be effective Jan. 1, 2020.

  • The reimbursement rate for newly approved Part B drugs has been changed from wholesale acquisition cost (WAC) plus 6% to WAC minus 3%.

  • Payers can now immediately change the formulary status of a brand name drug (exclude it, change tier, etc.) when an equivalent, newly approved generic is added to the formulary ─ without CMS approval.

  • Payers are allowed to cover Part D drugs on an indication-specific basis.

  • Plans can, with limits, utilize PA, step therapy, and indication-specific formularies for all protected classes except antiretrovirals.

Proposed policy changes

There are many proposals described in the blueprint that are at various stages of implementation. If implemented, they would:

  • Allow exclusion of protected-class drugs that significantly increase price or are new formulations of a current drug;

  • Allow Part D plans to include only one drug per class on formulary instead of two;

  • Allow indication-specific formularies for Part D, providing the ability to exclude drugs from formulary for certain indications;

  • Require that a real-time benefit tool be included in electronic medical records (EMR) and eRx programs. This is currently slated to be implemented in January 2021;

  • Require that plans calculate patients’ out-of-pocket costs based on the price after pharmacy discounts (would lower out-of-pocket costs);

  • Base provider reimbursement on an international pricing index (to be piloted with 50% of providers) and establish 3rd-party vendors to manage a new, flat reimbursement amount;

  • Limit increases in Medicare's payment rate for Part B drugs, based on the consumer price index (CPI), which has ranged from 1.3 to 2.4 over the last four years;

  • Request that HHS develop a list of Part B drugs which could be moved to Part D;

  • Remove impediments to value-based purchasing (VBP) and encourage experimentation with VBP for drugs.

Impact on pharma

HHS and CMS have significantly changed the contracting environment for Part B drugs, opening up opportunities for new approaches to pricing and discounting. To maintain formulary status and optimal coverage with Medicare Advantage plans, many pharma companies will need to re-evaluate their Part B drug pricing and contracting strategies - especially for brands competing with oral therapies. In addition, companies will have to harness the dual forces of HEOR data and value-based contracting to establish brand value.

Proposals not yet implemented could also have broad-ranging impacts on pharma companies-further increasing payers’ leverage to negotiate rebates for Part B and Part D drugs and putting additional pressure on pricing and contracting strategies. In addition, greater drug price transparency will raise the stakes for communications to beneficiaries.


“Better negotiation” proposals in the American Patients First blueprint are intended to improve the negotiation position of Medicare plans for both Part B and Part D drugs. Faced with these game-changing developments, pharma companies have no choice but to adapt–improving strategies for pricing, contracting, value messaging, and more. 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.


Related Videos
Related Content