President Trump will deliver Friday afternoon a twice-delayed, much-anticipated speech about his plan to lower drug prices — after a year when harsh rhetoric against drugmakers was accompanied by little action.
A senior administration official, speaking on background, said that Trump will unveil an “American Patients First” blueprint that he called “the most comprehensive plan to tackle prescription drug affordability.” He said that there would also be a request for information on ideas to lower drug prices.
The administration official said that in addition to building from ideas in Trump’s budget, the blueprint would outline four strategies — most of which could be achieved without new legislation. It would aim to increase competition by ending “the gaming of rules” by brand-name drug manufacturers that stymies the introduction of cost-saving generic and biosimilar drugs. The plan would seek to improve negotiation within the Medicare program, but not by using the government's clout to negotiate for Medicare as Trump has previously proposed. It would create unspecified incentives for lower list prices of drugs and would lower out-of-pocket spending by patients.
“What I’m hearing is that they’re looking at a clean slate and going after everybody: the drug companies, the pharmacy benefit managers, everyone,” said one health-care lobbyist, who spoke on the condition of anonymity to speak frankly.
Several health policy experts said that while they expect policies to target out-of-pocket costs for certain patients, they did not yet see signs of concrete policy proposals that would lower the high list prices of drugs.
“Let’s be really clear, the administration has put out a number of different sets of proposals under the heading of: Things that would address drug pricing. None of them would affect the underlying drivers of the problem,” said Rachel Sachs, an associate professor of law at Washington University School of Law. “Most of them would do very little for the 100 to 200 million Americans who are on private insurance.”
With the caveat that anything could happen, here are some things to look for on Friday:
- List prices and rebates
High list prices of drugs are first on the list of problems Health and Human Services Secretary Alex Azar has been highlighting in recent speeches. Food and Drug Administration Commissioner Scott Gottlieb recently caused a stir when he suggested that the federal government could reexamine whether drug manufacturers' rebates on those list prices are kickbacks. The rebates, which are negotiated in secret by a middleman industry called pharmacy benefit managers (PBMs), are not considered kickbacks under current law.
Because of the lack of transparency in the system, it's impossible to tell exactly who benefits from rebates. PBMs argue that rebates are the most powerful mechanism to lower drug prices and produce valuable savings. Pharmaceutical companies — and some insurers and employers — have increasingly lost patience with the opaque system and accuse PBMs of pocketing the rebates.
In his speech, Gottlieb appeared to raise the possibility of eliminating rebates. But most people anticipate something far less radical and instead expect any policy solutions to focus on resolving the problem of two prices: narrowing the spread between a high list price and the secret, rebated price.
“The pricing mechanisms are arcane, and they’re not easily understandable, and there are a lot of different prices along the way — and different people touching the drug at different places in the system,” said Dan Mendelson, president of Avalere Health. “It’s all legally sanctioned, but it’s not transparent to the consumer. So what we’re driving toward is more transparency for the consumer.”
During his presidential campaign, Trump called for the government to use its clout to negotiate Medicare drug prices, but senior administration officials said he would not call for that change — which is stridently opposed by drug companies. The administration officials did not specify particular policies, but in his budget, Trump proposed changes to Medicare benefits. For example, the budget called for allowing prescription drug plans to have more flexibility to exclude drugs and strike better deals.
The budget also called for moving some physician-administered drugs, which include expensive drugs for cancer, rheumatoid arthritis or multiple sclerosis, into prescription drug plans. Health policy specialists say the devil is in the details but point out that consumer effects could be highly variable depending on people's drugs, health plans and what other policy changes occur. Some consumers could potentially pay more for drugs because of how co-pays and coinsurance work in the prescription drug plans.
“The rationale is getting to a more competitive model. ... You're getting mechanisms like rebates and you're having the PBMs and plans negotiate,” said Kim Monk, a managing director at Capital Alpha Partners. “But the problem — one of the problems with moving them over — is it’s tricky.”
- Making other countries pay more
Azar said in a speech Wednesday that other countries are “free-riding off of American investment in innovation,” a reference to the United States' paying much more for drugs than many other developed countries. Senior administration officials did not explain how the government could achieve its goal. Some experts have pointed out that it is not clear that such a change would lead to lower prices for American consumers.
- Out-of-pocket costs
Many people anticipate changes to the Medicare prescription drug benefit, outlined in Trump’s budget, that could insulate seniors from high drug costs. Those changes include a maximum limit on out-of-pocket costs that would help people on very-high-priced specialty drugs. The administration has also for months been vetting the idea of providing the rebates negotiated on drug prices to seniors at the pharmacy counter.
Those changes could help individual seniors. A Johns Hopkins analysis found that on average, the savings from passing rebates to seniors would be $264 over the span of a year, but that those benefits would be concentrated among the small fraction of people who take very-high-cost drugs. It has also been projected to drive premiums up.
“A lot of what they focus in on is not really the price of pharmaceuticals, as much as the out-of-pocket payments of the patients at the pharmacy,” said Craig Garthwaite, an associate professor of strategy at Northwestern University's Kellogg School of Management. “They’re not really thinking about the price to the system with those proposals. They’re thinking of the price to the patient, or — more cynically — they’re thinking about the price to the voter.”
After more than a year of waiting for a clear policy direction from Trump’s ominous statements on drug prices, the industry is worked up. Some insiders noted that the problem isn’t a lack of communication — ideas on drug prices have been coming on a daily basis from leaders in the administration. But there's been little concrete policy proposed to back up the talk, leaving suspense about what will be said and questions about whether it will be followed up with action.
“I think the mood, just generally, across the health sector is 'watch and wait,’ ” said Mark Merritt, president of the Pharmaceutical Care Management Association, the lobby for pharmacy benefit managers.