President announces focus on high drug pricing
June 1, 2018
Drug prices in the United States are too high – nearly everyone agrees. But political consensus stops at how to lower prices and fix the problem.
If it were easy, a simple solution would be found. But paying for prescription drugs is a complicated web of prices, incentives, rebates and discounts among the drug companies, insurance companies and the pharmacy benefit managers (PBMs) who are the middlemen who negotiate with the drug companies on behalf of insurance companies.
Think of solving the drug prices mess like a complex jigsaw puzzle. Just moving pieces and placing them randomly won’t solve the problem. It’s going to take painstaking effort to carefully maneuver the odd-shaped puzzle pieces into focus as one smooth mosaic. You need to envision the big picture while focusing attention to the details.
Reforming drug prices takes a similar effort, but it is only one piece in the health care economic montage, which has sharply divided the country politically for at least the last decade.
At the beginning of May, the Trump administration laid out an extensive list of ideas to deal with the issue. But he oversold his proposals or hints of proposals as solutions, describing a set of suggestions as the “most sweeping action in history to lower the price of prescription drugs for the American people.”
During the 2016 presidential campaign, then-candidate Donald Trump regularly attacked exploding drug prices and blamed the pharmaceutical industry, charging they were “getting away with murder.” On nearly every stop along the road to the White House, he routinely complained that prescription drug prices are too high, decrying them as “out of control.”
At the time, one of his proposed solutions stood out to both Democrats and Republicans as a common sense idea – give seniors a break by bargaining down the price of prescription drugs using the massive purchasing power of the $700 billion Medicare insurance program.
That agency, which serves nearly 60 million Americans, buys 29 percent of all the drugs from manufacturers. In other words, if they bought in one shot, they could negotiate a seriously big discount. But when Congress approved Medicare Part D in 2003, it expressly forbid Medicare from negotiating directly with drug makers – a concession at the time to get the pharmaceutical industry on board with giving Medicare prescription drug coverage to seniors.
While Congress won’t let Medicare negotiate with drug makers, other government agencies, including the Veterans Administration, the Defense Department and Medicaid all use this tool to effectively lower drug prices for their patients on Medicare.
Cutting drug prices for seniors is “one of my greatest priorities,” candidate Trump said, that the U.S. could “save $300 billion a year.” Fact check: in 2016, the country spent $329 billion on retail prescription drugs – those purchased at pharmacies and through the mail as opposed to those administered directly by doctors – according to the National Health Expenditures Survey from the Centers for Medicare & Medicaid Services (CMS).
That’s an increase of about $100 billion in the past 10 years. That number is expected to skyrocket to $405 billion in 2021. Many researchers say the biggest reason behind the rising spending is high prices for prescription drugs. Often, companies are rewarded for setting a high retail price because insurers negotiate discounts off that initial price, which is known as the list price.
It’s not clear why leaving the most powerful tool in the arsenal out of the plan was his choice, but it appears to be an unwillingness to take on the drug makers directly. The immediate uptick in stock prices of companies like Merck, Pfizer, Bristol-Myers Squibb and Eli Lilly among others after the Trump blueprint rollout reveals that Trump’s plan won’t impact prices enough to threaten drug makers’ revenues or profits.
What’s the plan exactly?
The White House blueprint is a series of proposals the administration says it will study or evaluate. It has four main themes: increasing competition in drug markets; giving private plans more tools to negotiate discounts for Medicare beneficiaries; providing new incentives for drug manufacturers to reduce list prices; and cutting consumers’ out-of-pocket costs.
Trump verbally scolded the drug makers, pharmacy benefit managers, and insurance companies, saying that the current system has been corrupted by greedy businessmen and middlemen who have made “an absolute fortune” through “dishonest double-dealing” at the expense of consumers who need medicine to extend or improve their lives.
The plan, a thinly described set of executive actions, offers more than 50 different policy ideas and suggestions. But it seemed more like a wish list of potential actions that they might someday try to do, not actions that will happen tomorrow or in the near future.
Administration officials suggest they can implement many of their ideas without any help from Congress. But Trump pledged that he would go to Congress to try to get some of his plans through the legislative process, but offered little in the way of detail on what that might entail. Similarly, an HHS fact sheet outlined what the agency “may” do to try to force the private sector to lower list prices, but stopped short of committing to various actions.
The proposals seem unlikely to significantly lower drug prices quickly, which Trump said was the goal of the plan. The administration says it will let health plans that cover Medicare Part D have “significantly more power” to negotiate with drug makers and would give drug plans more leeway to adjust which drugs they cover.
HHS Secretary Alex Azar acknowledged the plan would need to be moved from the concept stage into actual laws and regulatory changes and would take years to implement. He said the administration will pursue those ideas it can get done, but acknowledged that many of the policy changes were, at best, months away.
“It’s going to take time,” Azar said. “It took decades to erect this very complex, interwoven system.” In addition, he noted that “This is a major restructuring of a huge portion of the U.S. economy. One doesn’t do that lightly.”
Realistically, they are going to need lots of help from Capitol Hill, and with the clout of the pharmaceutical industry, which spent a record $280 million lobbying Congress and the federal government last year, finding any consensus on this issue in the middle of an election year will be extremely difficult, if not impossible. That means that actually lowering drug prices for seniors won’t get serious until after the November elections or further down the road.
How you get your drugs makes a big difference in what it costs you. If you’re employed, you might have coverage through your job. If you’re a senior, you probably have some version of Medicare. If you’re a low-income American, you may qualify for Medicaid. If no insurance is available to you through those avenues, you’ve probably bought subsidized, private coverage through the state-based Obamacare marketplaces. Or, maybe you’re simply uninsured.
In Canada, Australia and many European nations, the government plays a much bigger role in delivering health care coverage, which keeps people’s out-of-pocket costs lower, limits the supply chain and regulates how much private industry can pocket from medications.
In the U.S., drug spending has been steadily rising for years, as specialty medicines for complex or rare chronic conditions such as cancer, HIV and rheumatoid arthritis have become more widely available.
Studies show the increase in drug prices are having a huge impact on American households, leaving seniors particularly vulnerable. A senate report released in March found that the prices for 20 of the most commonly-prescribed brand-name drugs for seniors under Medicare Part D increased 12 percent every year for the last five years.
An AARP report last year found the annual average price of drugs widely prescribed to seniors increased to $12,951 from $6,423 five years ago. Average spending on prescription drugs for everyone, not just seniors, in the U.S. exceeds $1,000 per person per year, where in the United Kingdom it is $497 and in Switzerland it’s $783.
Drug prices in Mexico and Canada are even lower, so during the campaign, Trump pledged to allow U.S. consumers to import low-cost prescriptions from abroad. That idea was also not included in the administration’s suggested solutions proposed in May.
Also contributing to this report were: Stat, NPR, Marketplace, NY Daily News, CNBC, CNN, the Hill, Bloomberg, KHN, the LA Times, the Washington Post and Modern Healthcare.