On May 11th, President Trump rolled out a comprehensive plan to lower drug prices. The administration’s 44 page executive action on drug pricing, entitled “American Patients First,” is a blueprint that represents the most comprehensive effort by any presidential administration to address the prescription drug price crisis.
The criticism from the mainstream media is that the new effort will accomplish little, because it doesn’t require Medicare to negotiate drug prices. MedicareWire believes the pundits are grossly misinformed. The Trump plan would force a massive change in the pharmaceutical pricing policy that will have a dramatic impact on drug prices, starting with Medicare.
Medicare’s impact on drug prices is largely misunderstood. Many believe the government agency doesn’t negotiate drug prices, but it does and has done so since the Medicare Part D program was enacted in 2003. Medicare’s negotiating process has resulted in Part D spending coming in significantly under budget, representing the most successful cost-control effort in the history of the Medicare program.
In a 2014 report the Congressional Budget Office reported, “The competitive structure of Part D gives plan sponsors significant incentive to hold down spending… sponsors use three main approaches: They encourage the use of less-expensive brand-name drugs, they negotiate lower prices for brand-name drugs, and they encourage the use of generic drugs.”
If the Trump administration’s plan is enacted, it would significantly change how drugs are purchased and sold among drug companies, insurers, and industry middlemen. Some of the changes would lower the out-of-pocket costs Americans pay at the pharmacy, especially for Medicare beneficiaries. One suggestion would end the gag clauses that prevent pharmacists from discussing lower-cost alternatives with consumers.
The Trump plan outlines two types of reform: (1) things the administration can do on its own, and (2) things Congress must enact. While the announcement highlighted the administration’s unilateral actions, the Congressional role is critical to future success. As the President commented, “These reforms are just the beginning. In the coming weeks, we will work with Congress to pass legislation that will save Americans even more money at the pharmacy. For that, we need the help of Congress, and we think it will be forthcoming.”
The Trump administration proposes limiting the growth of Medicare payments for drugs administered by doctors under Medicare Part B coverage to consumer inflation. This change is estimated to save tens of billions of dollars over time. It also clamps down on the ability of drug companies to exploit the system with massive price hikes on old drugs.
In addition to the Part B controls, the administration proposes moving drugs out of Part B into Part D, thus increase the number of drugs that fall under Part D’s negotiating capability. At the same time, the administration is evaluating a rollback on previous mandates that require Medicare to keep prohibitively expensive drugs on its formularies.
The Trump administration plan considers numerous ideas for addressing the issue of high drug prices, including:
- Reforming the FDA’s internal procedures in order to reduce artificial barriers to generic competition.
- Promoting the use of biosimilars (i.e., generic biotechnology drugs) and reducing barriers to their take-up.
- Preventing branded drug manufacturers from gaming FDA risk management strategies and 180-day generic launch rules to forestall generic competition.
- Providing avenues for Medicare to bulk-purchase costly drugs so as to limit the pricing power of monopolies.
- Requiring drug rebates negotiated by PBMs to be passed directly on to the patients using those drugs, instead of being used to reduce premiums for all policyholders. This should incentivize more and wider use of rebates, because price-sensitive consumers will benefit from lower prices on the drugs they themselves use.
- Requiring drug companies to disclose list prices for their drugs in television ads, just as they do for side effects and other drug risks. This should make companies think twice about charging egregious prices, knowing that there will be a PR blowback.
President Trump and HHS Secretary Alex Azar say this is just the start. Meanwhile, it’s time for Congress to do its part. Specifically, Congress should address two laws that have worked behind the scene to drive up the cost of prescription drugs: the Orphan Drug Act of 1983, which allows drug companies to charge outrageous prices for drugs meant to treat rare diseases; and the Biologics Price, Competition, and Innovation Act of 2009, which has done little to promote competition for off-patent biotech drugs. Congress should also pass legislation that helps the Federal Trade Commission to unravel the U.S. drug rebate system. Rebates to pharmacy benefits managers, or PBMs, totaled $129 billion in 2017, according IQVIA, a firm that tracks the drug industry. PBMs are companies, including CVS/Caremark and Express Scripts, that act as middlemen between drug and insurance companies. They’re getting rich at the public’s expense.
