Among the drug pricing developments to watch in 2022, those at the top include legislation that would allow Medicare price negotiation and alter antitrust rules for the pharmaceutical industry, Federal Trade Commission rulemaking on unfair methods of competition, and court rulings on the federal 340B drug pricing program and so-called "patent thickets." Continuing state legislative activity on a wide range of issues, such as price transparency and drug importation, merits a close eye as well. We review below these and other key drug pricing issues to monitor during the year.
The Build Back Better Act Stalled in the Senate. The current version of the Democrats' $1.7 billion Build Back Better Act (“BBBA”) includes four major components related to drug pricing:
- Medicare price negotiation. It amends the Social Security Act to establish the Fair Price Negotiation Program, which permits the Department of Health and Human Services ("HHS") to "negotiate" drug prices (with civil monetary penalties and the threat of a 95% excise tax for noncompliance with the Program) on certain older innovator products for Medicare Parts B and D, and makes those prices available to commercial plans;
- Inflation rebates. It imposes mandatory drug rebates on certain Medicare Part B and Part D drugs whose prices increase greater than inflation;
- Restructuring of Medicare Part D cost sharing. It caps the annual out-of-pocket costs for prescription drugs at $2,000 and makes changes to the benefit structure and cost sharing under Medicare Part D; and
- Drops proposed rebate rule. It prohibits implementation of the Trump Administration's rebate safe harbor rule, which would have ended the anti-kickback safe harbor for drug manufacturer rebates paid to Medicare Part D plan sponsors or their contracted pharmaceutical benefit managers ("PBMs").1
If passed, the Act may shift industry incentives in a substantial way, including by reducing incentives to invest in bringing products to market. For example, CBO estimates that Medicare price negotiations would reduce the incentive to invest in research and development and thus lead to a reduction in the number of innovative medicines.2 Others have suggested that biosimilar and generic drugs could suffer as well.3 These critics argue that by lowering the prices of innovator products as they inch closer to the end of their market exclusivity, Medicare price negotiations could reduce the prices follow-on biosimilars and generics would be able to charge, diminishing the incentive to invest in bringing those products to market, which in the case of biosimilars is estimated to be in the hundreds of millions of dollars.4
The current path for BBBA passage remains tenuous, as it has stalled in the Senate after clearing the House on November 19, 2021. If not passed as part of BBBA (or a slimmed down alternative), Congress would need a separate vehicle for enacting the components of drug pricing reforms that have garnered sufficient support.
Beyond BBBA, Dueling Congressional Reports Highlight Different Perspectives on Drug Pricing. Recent dueling majority and minority reports from the House Oversight and Reform Committee reflect why it has been—and may continue to be—difficult to advance federal legislation on the subject of drug pricing, with lawmakers unable to agree on which industry players should be targeted, let alone how to go about doing so.5 The December 2021 reports present findings from eight interim staff reports and five public hearings as part of the Committee's drug pricing investigation that kicked off in January 2019. The Democrats' Majority Staff Report focuses on "reverse payment" patent settlements, "product hopping," patent "thicketing," and other manufacturer conduct that the Majority Report concludes suppresses competition from less-expensive generic and biosimilar drugs, leading to higher prices.6 By contrast, the Republicans' Minority Staff Report takes aim at the role of PBMs and concludes that PBMs drive up drug prices by leveraging the influence these intermediaries have to force manufacturer price concessions for popular drugs.7 The Minority Report learned that pharmaceutical manufacturers must raise prices to pay these growing rebates and discounts, which PBMs then largely pocket rather than pass along to consumers.
Congress May Move on Efforts to Target Drug Pricing with Changes to Antitrust and Patent Law. Antitrust continues to receive attention in Congress, which may push forward with some or all of a package of pending legislation that seeks to bolster competition from generics and biosimilars by revising antitrust and patent law.8 Some of these bills, which were proposed back in April of 2021 (read more here), target conduct specifically referenced in the House Oversight and Reform Committee Majority Staff Report discussed above. The bills propose: (1) making "reverse payment" settlements presumptively illegal under the FTC Act, essentially overriding the rule-of-reason framework laid out by the U.S. Supreme court in FTC v. Actavis to evaluate "reverse payment" patent settlements and shifting the burden to disprove the presumption to defendants; (2) prohibiting so-called product hopping, including both "soft" switches and "hard" switches, potentially disincentivizing manufacturers from pursuing new products due to the burden to prove that launching the new product was done for procompetitive reasons; (3) penalizing brand drug manufacturers for filing so-called "sham" citizen petitions to delay generic and biosimilar entry into the market or otherwise dampen competition; and (4) limiting the number of patents a brand biological drug maker can assert to no more than 20 in an infringement action against a biosimilar following the "patent dance" information exchange created by the Biosimilar Products Competition Innovation Act. It remains to be seen whether Congress will move forward with any of these bills this year.
Potential for Increased FTC and State Focus on Pricing Conduct. The FTC has long been active in addressing conduct that it believes delays or suppresses entry in the drug industry, most notably in connection with "pay-for-delay" patent settlements. There are several indications, however, that the new leadership at FTC is taking an even closer look at the pharmaceutical industry.
In 2021, the Biden Administration pushed the FTC to be more aggressive on drug pricing. The President's July 9, 2021 Executive Order called on the FTC to take direct action regarding the prices of drugs and healthcare costs, with a specific focus on facilitating more competition from generic drugs and biosimilars and preventing allegedly anticompetitive agreements.9 President Biden reaffirmed this direction in remarks delivered on December 6, 2021.10
The FTC's regulatory agenda indicates that it has plans to follow this direction. Citing to the President's Executive Order, the FTC's December 10, 2021 Statement of Regulatory Priorities pledged to define rules to address "unfair methods of competition" linked to "pay-for-delay" agreements as well as other "unfair or deceptive acts or practices."11 Notably, the FTC Statement asserted that case-by-case antitrust enforcement "has proven insufficient, leaving behind a hyper-concentrated economy whose harms to American workers, consumers, and small businesses demand new approaches."12 The FTC also cleared the way for more expansive rulemaking earlier in the year by rescinding its 2015 policy statement that outlined enforcement principles regarding "unfair methods of competition" under Section 5 of the FTC Act.13 On August 5, 2021, the FTC also issued a solicitation for public comment on contract terms that may harm competition.14 Notably, the FTC's solicitation included a public petition that cited exclusive formulary agreements by allegedly dominant drugs as one example of problematic conduct to be addressed through rulemaking to prohibit exclusionary contracts.
FTC rulemaking of could trigger substantial changes and uncertainty for the industry and raise significant compliance challenges. Further, state enforcers may follow suit and increase attention towards these and related areas, as could private plaintiffs.
Court Decisions Expected on Key Aspects of Federal 340B Program. Court rulings are expected in several cases concerning the federal government's 340B drug pricing program, which requires drug manufacturers to make statutorily mandated pricing available to "covered entities" serving needy patients (e.g., hospitals and clinics in low income areas). These cases bear watching given the growing impact of the federal 340B drug program.
Most notably, the Supreme Court is poised to weigh in on the authority of HHS to manage reimbursement rates paid to 340B covered entities. In November 2021, the Supreme Court heard argument in American Hospital Ass'n v. Becerra, a challenge by hospitals and hospital associations to HHS's power under the Outpatient Prospective Payment System to cut the statutory reimbursement rate that the federal government pays to 340B hospitals for outpatient drugs purchased pursuant to the 340B program.
Separately, the role of contract pharmacies in the 340B program is making its way through the federal courts. As the 340B program grew faster than expected in spending (from $5 billion in 2014 to $30 billion in 2019),15 manufacturers increasingly raised concerns about the growing use of contract pharmacies and potential for fraud, duplicate discounts, and drug diversion. Some manufacturers restricted contract pharmacies' access to 340B discounts, which HHS challenged in violation letters as prohibited by the 340B statute. Manufacturer lawsuits contesting these violation letters and related agency action by HHS so far have resulted in a split among lower federal courts.16 Each case is headed to appeal in a different federal circuit court and worth following in 2022.
Seventh Circuit Ruling Expected on "Patent Thicket" Antitrust Theory. In a case with potentially significant implications for the patent strategies of pharmaceutical manufacturers, the Seventh Circuit is expected to provide the first appellate guidance on antitrust challenges under a so-called "patent thicket" theory. In UFCW Local 1500 Welfare Fund et al. v. AbbVie Inc. et al., indirect purchaser plaintiffs allege AbbVie developed an anticompetitive "patent thicket" to protect its blockbuster biological drug Humira.17 Plaintiffs argue that AbbVie "secured over 100 patents designed solely to insulate Humira from any biosimilar competition" and then entered into unlawful patent settlement agreements. The lower court held that this new theory, which relies on a "disparate set of aggressive but mostly protected actions," failed to state an antitrust claim. The lower court also dismissed the allegation of an illegal reverse payment based on global patent settlement agreements that did nothing more than set dates in different jurisdictions. A decision from the Seventh Circuit is expected in 2022.
Increased Antitrust Scrutiny of Contracts for Formulary Positions. Manufacturers and purchasers of new-to-market brand, biosimilar, and generic products increasingly seem willing to bring antitrust lawsuits arguing that incumbent brands have excluded these competitors from formulary or medical benefit coverage through anticompetitive means.18 In one closely watched case, the Tenth Circuit is expected to rule on a lower court's summary judgment dismissal of allegations that Mylan used formulary agreements to exclude a rival to EpiPen.19 The FTC meanwhile continues its investigation of J&J's Remicade contracting.20 Developments in this area merit a close watch given the importance of favorable formulary and medical benefit policy coverage, often referred to as "access."
Novel RICO Challenges to Manufacturer Prices. Two federal district courts in the past year allowed direct purchasers to proceed with novel RICO actions challenging prices paid to manufacturers for EpiPen and insulin.21 In each case, plaintiffs alleged that manufacturer formulary rebates paid to PBMs violated the Anti-Kickback Statute. Each decision accepted plaintiffs' rationale that violations of the Anti-Kickback Statute (itself not enforceable under RICO by private litigants) may constitute commercial bribery in violation of the Travel Act, an Novel RICO Challenges to Manufacturer Prices. Two federal district courts in the past year allowed direct purchasers to proceed with novel RICO actions challenging prices paid to manufacturers for EpiPen and insulin. In each case, plaintiffs alleged that manufacturer formulary rebates paid to PBMs violated the Anti-Kickback Statute. Each decision accepted plaintiffs' rationale that violations of the Anti-Kickback Statute (itself not enforceable under RICO by private litigants) may constitute commercial bribery in violation of the Travel Act, an included RICO predicate act. It remains to be seen whether these decisions will lead to more challenges seeking to apply this liability theory.
State Focus on Drug Pricing Likely to Continue. With federal legislation stalled, states seem ready to continue their legislative efforts targeting drug pricing in 2022. States have continued to advance new drug pricing legislation, increasing compliance burdens on pharmaceutical companies, PBMs, and others in the distribution and payment chain. In 2021 alone, states debated more than 650 proposed laws (some carried over from 2020) and passed more than 30 such laws. These new state laws establish novel drug-importation programs, require pricing transparency from pharmaceutical manufacturers, mandate disclosures from PBMs and insurers, cap consumer cost-sharing on certain drugs, and curb discriminatory contracting in the 340B program, among other changes.22 States may also continue to pursue additional PBM reimbursement regulation given the Supreme Court's December 2020 decision in Rutledge v. Pharm. Care Mgmt., which granted states more leeway in regulating PBM prescription drug rates to pharmacies without conflicting with ERISA.23
Challenge to California's Bill Prohibiting "Pay-for-Delay" Patent Settlements Moves Forward. Industry observers are monitoring the progress of litigation challenging California's first-in-the-nation statute rendering "pay-for-delay" patent litigation settlement agreements presumptively anticompetitive.24 California's law marks a stark departure from the rule of reason framework for analyzing patent settlements established by the U.S. Supreme Court in FTC v. Actavis. On December 9, 2021, the Eastern District of California granted the Association for Accessible Medicines's (AAM) request for a preliminary injunction.26 The court concluded both that AAM had standing (a change from the first unsuccessful challenge) and the group could succeed in showing that the law unconstitutionally reaches across state lines in violation of the Dormant Commerce Clause.27 In January 2022, California moved to narrow the injunction to permit enforcement where the contested settlement is connected to sales in California.28
White & Case's Global Competition/Antitrust Group and the White & Case Pharmaceuticals & Healthcare Industry Group are tracking these developments in competition and drug policy closely, with a specific focus on potential investigations and litigation.
1 Build Back Better Act, H.R. 5376, 117th Cong., Subtitle I Part 1: Lowering Prices Through Drug Price Negotiation, Sec. 139001 (as reported by the Committee on the Budget, with modifications, Nov. 3, 2021); Id. at Sec. 139101, Medicare Part B Rebates by Manufacturers; Id. at Sec. 139102, Medicare Part D Rebates by Manufacturers; Id. at Sec. 139201(a), Caps Annual Out-of-Pocket Costs; Id. at Sec. 139301, Prohibiting Implementation of Rule Relating to Eliminating the Anti-kickback Statutes Safe Harbor Protection for Prescription Drug Rebates. See also Michael Gallagher & Kevin C. Adam, Trump Administrations Eleventh Hour Drug Pricing Regulations Face an Uncertain Path Forward, WHITE & CASE (Dec. 3, 2020)
2 Kristina Peterson, Medicare Drug-Pricing Debate Pits Savings Against Innovation, WALL ST. J. (Oct. 11, 2021).
3 Christopher Holt & Douglas Holtz-Eakin, The Potential Impacts of the Build Back Better Act's Drug Policies, AM. ACTION F. (Jan. 13, 2022), ("The combination of price setting by the HHS secretary and inflation penalties would likely reduce generic and biosimilar market entry . . . .").
4 Cathy Kelly, Strange Bedfellows: Generics Firms Join Big Pharma In Opposing Price Negotiation Legislation, PINK SHEET (Nov. 12, 2021), .
5 David Baumann, High drug prices: Congress can't agree on a solution or even who's to blame, BENEFITSPRO (Dec. 15, 2021), .
6 U.S. House of Representatives Comm. on Oversight and Reform, DRUG PRICING INVESTIGATION, MAJORITY STAFF REPORT (Dec. 10, 2021), h
7 U.S. House of Representatives Comm. on Oversight and Reform, Minority Staff, A VIEW FROM CONGRESS: ROLE OF PHARMACY BENEFIT MANAGERS IN PHARMACEUTICAL MARKETS (Dec. 10, 2021), .
8 Michael Gallagher et al., Federal Lawmakers Turn Their Sights to Drug Pricing, Introducing a Package of Bills Seeking Changes to Antitrust and Patent Law, WHITE & CASE (May 25, 2021)
9 See Michael Gallagher et al., What Does President Biden’s July 9, 2021 Executive Order on Competition Mean for the Pharma Industry?, WHITE & CASE (July 13, 2021), .
10 President Joe Biden, Remarks by President Biden on How His Build Back Better Agenda Will Lower Prescription Drug Prices, THE WHITE HOUSE (Dec. 6, 2021), .
11 Statement of Regulatory Priorities, FED. TRADE COMM’N (Dec. 10, 2021), .
13 FTC Rescinds 2015 Policy that Limited Its Enforcement Ability Under the FTC Act, FED. TRADE COMM’N (July 1, 2021), .
14 Solicitation for Public Comment, FED. TRADE COMM’N (Aug. 5, 2021), .
15 Jeremy Docken, Industry Voices—The 340B drug program grew faster than the infrastructure that supports it. Here's how to tackle that challenge, FIERCE HEALTHCARE (June 9, 2021), .
16 See Sanofi-Aventis U.S. LLC v. U.S. Dep’t of Health and Hum. Servs., No. 21-00634, 2021 U.S. Dist. LEXIS 214462 (D.N.J. Nov. 5, 2021) (holding manufacturers cannot unilaterally impose restrictions on offers to covered entities); Novartis Pharms. Corp. v. Espinosa, No. 21-cv-1479, 2021 U.S. Dist. LEXIS 214824 (D.D.C. Nov. 5, 2021) (vacating violation letters and finding that 340B does not prohibit manufacturers from imposing conditions on the use of contract pharmacies); Eli Lilly and Co. et al. v. Becerra et al, No. 1:21-cv-0081 (S.D. Ind. Oct. 29, 2021), ECF No. 144 (setting aside violation letter as arbitrary and capricious, but finding that 340B statute does not permit manufacturers to impose conditions on covered entities’ access to discounts).
17 UFCW Local 1500 Welfare Fund et al. v. AbbVie Inc. et al., No. 20-02402 (7th Cir. July 30, 2020).
18 See e.g., Mylan Pharms. v. Teva Pharms. et al., No. 2:21-cv-13087 (D.N.J. Jun 29, 2021), Compl. (ECF No.1) (alleging Teva blocked generic rival to Copaxone); In re Remicade Antitrust Litig., 345 F. Supp. 3d 566 (E.D. Pa. 2018) (alleging J&J excluded biosimilar competitors to Remicade); Shire US v. Allergan, No. 2:17-cv-07716 (D.N.J. Oct. 2, 2017); In re EpiPen Mktg., Sales Pracs. and Antitrust Litig., No. 2:17-MD-02785, MDL No. 2785 (D. Kan. Aug. 4, 2017), ECF No. 2254 (alleging Mylan excluded branded competitor to EpiPen).
19 Teva’s motion to dismiss is pending in Mylan, while In re Remicade is set to complete discovery this year.
20 Report on Rebate Walls, FED. TRADE COMM’N (May 28, 2021), .
21 In re Direct Purchaser Insulin Pricing Litig., No. 3:20-cv-3426, 2021 U.S. Dist. LEXIS 128571 (D.N.J. July 9, 2021); In re: EpiPen Direct Purchaser Litig., No. 20-cv-0827, 2021 U.S. Dist. LEXIS 8362 (D. Minn. Jan. 15, 2021).
22 See Michael Gallagher et al., States Remain the Drivers of New Drug Pricing Legislation As Washington Weighs In, WHITE & CASE (Aug. 23, 2021), .
23 See Michael Gallagher et al., Supreme Court Green Lights Arkansas Law Regulating PBM Pricing Practices, WHITE & CASE (Dec. 22, 2020).
24 See O’Shaughnessy et al., California’s New Reverse Payment Law Departs from the Supreme Court Standard in FTC v. Actavis, WHITE & CASE (Oct. 17, 2019), .
25 FTC v. Actavis, Inc., 570 US 136, 156 (2013).
26 Ass'n for Accessible Meds. v. Bonta, No. 2:20-cv-01708-TLN-DB, 2021 U.S. Dist. LEXIS 236387, at *13–26 (E.D. Cal. Dec. 8, 2021).
28 Ass’n for Accessible Meds. v. Becerra, No. 2:20-cv-01708 (E.D. Cal. Aug. 25, 2020).
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