As the latest round of negotiations for the Trans Pacific Partnership (TPP) free trade agreement starts this week in Vietnam, some member countries are publicly defending their prescription drug reimbursement programs.  If the TPP agreement contains language similar to the pharmaceutical chapter of the Korea free trade agreement—which sources say is a likely possibility—they may have reason to worry.  For example, New Zealand’s government prescription drug program, Pharmac, has been under attack by the U.S. pharmaceutical industry, and may have to be modified to be compliant with the TPP agreement.

Though there is no accompanying public outcry, the TPP agreement also raises the possibility of altering health care programs here in the U.S.  The pharmaceutical chapter of the Korea agreement regulates prescription drug reimbursement programs operated at the “central level” of government.  This is similar to the language in the Australia agreement (see Annex 2-C); but in response to pressure from states surrounding the Australia agreement, the Korea agreement includes a footnote stating that the agreement does not apply to Medicaid because it is a “regional level of government health care program.”  Yet there is still uncertainty about how pharmaceutical chapters like that in the Korea agreement will affect other U.S. programs such as 340B and Medicare Part B.

Preliminary analysis indicates that three primary requirements contained in the pharmaceutical chapters are not met by the Medicaid, Medicare Part B and 340B programs.  First, the agreements require that the programs provide drug manufacturers with an independent review of reimbursement decisions if they so request.  None of these programs provides such an opportunity.

In addition, the agreements require that drug manufacturers are able to apply for reimbursement of additional indications for their drug.  While these programs do not limit the indications for which a physician may write a prescription, federal law does prohibit drug manufacturers from marketing a drug for a use which have not been approved by the FDA (so-called “off-label” marketing).  As such, it can be argued that a drug manufacturer which petitions a federal health care program to reimburse for an off-label use would be in violation of federal law.

Finally, the pharmaceutical chapters require that a health care program’s decision regarding the amount of reimbursement for drugs be based on “competitive market-derived” prices.  In the U.S., although Medicaid and 340B prices are set in relation to an “average” price over a given time, the reality is that multiple non-market factors affect the reimbursement calculations.  These factors operate in a careful balance which would be upset by a strict interpretation of “competitive market derived prices.”  In contrast, the Medicare Part B pricing calculation also incorporates an “average” price, but the pricing generally lags behind by almost six months.  This pricing lag can cause a price which does not always accurately reflect a “current” market price, and could also violate a strict interpretation of “competitive market-derived” pricing.

It is unclear exactly what the consequences would be if the U.S. is found to be in violation of these free trade agreements.  But it is certainly possible that if the U.S. is required to modify the Medicaid, Medicare Part B and 340B programs to make them compliant, the government would be paying more money for the drugs purchased under these programs, and much of the increased cost may be shifted to the vulnerable people who benefit from these programs.


For more in-depth analysis of how the Korea pharmaceutical chapter applies to 340B see

For more in-depth analysis of how the Korea pharmaceutical chapter applies to Medicare Part B see