Lowering drug prices may be nearly as complicated as bringing peace to the Middle East. But President Donald Trump plans to tackle the thorny health care issue in a long-awaited speech on Friday.
The president plans to provide a blueprint that lays out the framework of how he will reduce drug costs, according to senior administration officials. Unlike his fiscal 2019 budget proposal, the majority of the actions he’ll discuss Friday don’t need Congress’ approval, they said.
Trump has long promised to bring down the cost of drugs, but he has yet to weigh in on the issue at length.
During Trump’s tenure, administration officials have provided some insights into how they intend to address the cost of prescription medicines. The White House has made recommendations in the president’s budget request and in a report issued by the White House Council of Economic Advisers.
Health and Human Services Secretary Alex Azar previewed some of the administration’s priorities in a speech before the American Hospital Association on Wednesday, saying the agency is focused on several problems in the drug industry.
“These include the high list prices set by manufacturers, seniors and government programs overpaying for drugs due to [a] lack of the latest negotiating tools, rising out-of-pocket costs for consumers, and foreign governments free-riding off of American investment in innovation,” Azar said. He noted that the agency will build on proposals in the president’s budget, but said Trump “wants to go much, much further.”
Some of the administration’s efforts will seek to lower what consumers or the federal government pay at the pharmacy or to a provider, which some policy experts argue does little to affect the source of the problem: the high list prices of medications. Few expect the president to try to regulate what manufacturers charge for their drugs.
One area in the Trump administration’s sights is the shadowy world of drug price rebates. Insurers often receive big discounts for pricey, brand-name drugs from manufacturers. These concessions are usually negotiated by pharmacy benefit managers, who keep part of the rebate and pass the rest to insurers.
The administration is looking to make these players share the discount with consumers, an idea the Obama administration also supported.
Seema Verma, the administrator of the Centers for Medicare & Medicaid Services, recently called rebates a “convoluted system,” noting that they allow manufacturers to raise list prices. This, in turn, increases the amount of money insurers and pharmacy benefit managers collect in rebates, giving them no incentive to keep prices down.
“When prices go up, patient cost-sharing also goes up,” she said in a speech before the American Hospital Association earlier this week. “We’ve all noticed the increase in the amount we have to pay at the pharmacy counter. For seniors who are sometimes on fixed incomes, the pain is real. This is not acceptable.”
Insurers, however, argue that the rebates allow them to keep premiums low. So requiring them to share the discount could raise rates for everyone, while benefiting the relatively few patients who require high-cost, brand name drugs.
The president’s budget calls for insurers who provide Medicare Part D prescription drug plans to give at least one-third of the rebates and price concessions to beneficiaries at the pharmacy, according to Avalere, a health care consulting firm. The Centers for Medicare & Medicaid Services is reviewing comments on passing along rebates in Medicare plans.
The administration may also revise how it pays for drugs administered in doctor’s offices, clinics or hospitals through Medicare’s Part B program.
The federal government currently pays providers 6% more than the average price of those medicines. This also gives manufactures the incentive to raise prices and gives providers the incentive to select more expensive medicines. Among the ideas under consideration by the Trump administration are moving Part B coverage into the Part D program, where insurers can better negotiate prices, and requiring manufacturers to provide more accurate sales data to make sure they don’t exclude discounts.
Reducing drug costs in Medicaid is also under consideration. The president’s budget calls for giving up to five states greater leeway to test drug coverage and payment models in their Medicaid programs. Allowing states to determine which drugs to cover would in theory allow them negotiate bigger discounts directly with manufacturers.
Currently, any medications a manufacturer includes in the federal Medicaid drug rebate program are automatically on the formulary. Some states negotiate supplemental discounts for certain drugs. But if states could decide which drugs were covered, they could theoretically obtain even lower prices.
Meanwhile, the Food & Drug Administration is focusing on reducing prices by increasing competition from generic drugs and so-called biosimilars, which are nearly identical to super-expensive biologic medicines. The agency has cleared a backlog of approvals for generic medications, and officials have spoken about tackling the “games” manufacturers play to keep competitors off the market, such as using loopholes to block rivals or paying them to delay bringing their drugs to market.
Trump’s economic advisers blame high drug costs in the United States in part on foreign countries that control drug prices, claiming these countries are taking advantage of American innovation without paying for it.
“The United States both conducts and finances much of the biopharmaceutical innovation that the world depends on, allowing foreign governments to enjoy bargain prices for such innovations,” the council’s report said. “Simply put, other nations are free-riding, or taking unfair advantage of the United States’ progress in this area.”
The council suggested changing trade policy to limit the “underpricing” of drugs abroad.
Health policy experts, however, question whether the administration’s moves will have a meaningful impact on the high cost of prescriptions.
“This is not doing anything to fundamentally change the drug supply chain or the drug pricing system,” said Gerard Anderson, a health policy professor at Johns Hopkins University.
One proposal that’s not on the table is allowing the federal government to negotiate Medicare drug prices directly. Many health policy experts and consumer advocates say that the federal government could use its heft to negotiate much lower prices for the more than 57 million Americans in the program, rather than having insurers that provide Medicare Part D prescription coverage wring discounts from manufacturers. Drug companies, however, have lobbied hard to prevent government involvement, and Republicans have generally not supported such a proposal.