Without going too far out on a limb, it’s a safe bet that manufacturer drug pricing will remain a key focal point atop political agendas in 2020. This is not eye-opening by any means. Nor is it news that 2020 is an election year and the ability to pass legislation will be stymied by political campaigning. But there is an interesting dynamic brewing that has not received significant attention as predictor of national payer actions that may influence the 2020 market access landscape.

In the second half of last year, 2 separate bill proposals from the Senate Finance Committee (Grassley-Wyden Prescription Drug Pricing Reduction Act of 20191) and House Democrats (H.R.3 – Lower Drug Costs Now Act2) targeted drug pricing and patient affordability. Among the many differing and similar proposals, capitation of drug price increases distinguishes itself as a joint provision that may serve as foundational for payer innovation in 2020.

According to a CBS News report in July 2019, the average drug price increase was 10.5% or 5 times the rate of national inflation in 2019.3 Fast forward to January 2020 and the report on drug prices increases is somewhat different. Although numerous, the average increase in price was approximately 5% according to a Reuters report.4 Furthermore, the report notes that most manufacturers have pledged to keep price increases below 10%. Topically, tempered drug price increases are a welcomed outcome of legislative scrutiny, but it does have a profound impact on the other key component of the drug affordability discussion–rebates. The higher the wholesale acquisition cost (WAC), the higher the rebate earning potential. Payers often look to procure higher rebates in order to control premiums and lower the net costs of preferred drugs. Moreover, they also use a price inflation control known as “price protection,” which is almost always built into rebate contracts. Price protection provisions provide rebates to the payer when a drug’s price increases over a negotiated threshold. With lower drug price inflation, rebate potential based on WAC is diminished, thus driving payers to change price protection thresholds to account for the shortfall of less price increases. Payers are also adding inflation protection to increase the overall value of rebates.

Last year we learned that payers have already begun to look toward other profit levers to offset lower (or threatened) rebate revenues. Moving toward 2020, payers may become more innovative leveraging existing profit levers or creating new ones entirely. Evidence of this already exists. For example, Express Scripts (ESI) recently launched a Switzerland-based Group Purchasing Organization (GPO), allowing it to better capitalize on GPO administration fees and tax efficiencies.5 This year, we’ve already seen ESI capitalize on its GPO with a deal to perform pharmacy rebate negotiation for Prime Therapeutics. Bulk purchasing initiatives may begin to take a more robust shape throughout the landscape in 2020, possibly with an added focus on an increasing number of biosimilars on the market. And, although payers will continue their focus on maximizing rebates, they may look to increase emphasis on pharmacy buy-sell spreads. Steerage programs that drive utilization to mail order, specialty pharmacies, and preferred networks could evolve and become primary targets for drug manufacturer engagement.