[Editor’s note: Corie Lok co-authored this report.] In a much anticipated speech at the White House this afternoon, President Trump unveiled a long-awaited plan meant to cut the cost of prescription drugs in the U.S.
The administration’s “American Patients First” plan, released via a speech and an accompanying 38-page “blueprint” document, laid out some relatively modest actions aimed at spurring generic competition, making it easier for Medicare (the government-funded health program for seniors) to manage high drug costs and negotiate discounts, making drug prices more transparent to consumers in advertising, and allowing pharmacists to tell consumers when they can save money on cheaper drugs.
“We are getting tough on the drug makers that exploit our patent laws to choke out competition,” Trump said. “Our patent system will reward innovation but it will not be used as a shield to protect unfair monopolies.”
The plan went on to float some “even bolder actions” that the Department of Health and Human Services said it is reviewing and seeking feedback on. These proposals include targeting the secretive pricing rebate deals between drug makers and pharmacy benefit managers (PBMs), and addressing the “global freeloading” where foreign countries pay less for U.S.-made drugs.
It’s unclear just how or how much those measures will ultimately lead to lower drug prices. And it’s also still unclear how those changes will help the roughly 160 million Americans with private insurance. Some observers commented on the shortage of detail in the blueprint. “A lot of good questions in the plan but very little actual action, especially against PBMs,” tweeted Walid Gellad, a drug policy expert at the University of Pittsburgh.
In a statement, the patient group Patients for Affordable Drugs, while praising some of the proposals, said that others were “a slew of technical changes” that do not say how exactly they will bring down prices.
For the more ambitious proposals, including reforming the rebating system, the plan said HHS would seek public comment and some may require Congressional approval. HHS Secretary Alex Azar, who also spoke Friday, seemed to warn that some of these changes would take time. “This is not a one-and-done deal. It is a comprehensive process…and it will take time to reorder an entire complex multibillion dollar system of our economy,” Azar said.
Indeed, despite Trump’s consistent rhetoric about pharmaceutical companies “getting away with murder,” the administration hasn’t taken action on drugmakers, which have so far largely benefited from his administration. Last year was a record-breaking year for new drug approvals from the FDA. And tax reform lowered the corporate tax rate and eased the repatriation of overseas profits, a victory for drug firms. Their shareholders also benefited as the cash that pharma companies brought back from overseas was used to buy back shares, which in turn boosted pharma stock prices.
The biopharma industry notched another key victory this afternoon: Trump’s plan isn’t giving the U.S. government the power to directly negotiate drug prices, a step Trump supported as a presidential candidate and has pressed multiple times since—and one the industry vehemently opposes. Medicare will continue to be prohibited from directly negotiating prices by law.
Biopharma investors breathed a sigh of relief today. Though the Nasdaq Biotechnology Index was steady much of the day, it rose following Trump’s remarks and closed up 2.68 percent. Despite Trump’s comments about “eliminating the middlemen,” an apparent reference to PBMs, stocks of these companies also rose. Express Scripts (NASDAQ: ESRX) shares closed at $72.80, up nearly 2.6 percent, while CVS Health (NYSE: CVS) shares closed at $64.41, up 3.1 percent.
Rather than bestow price negotiation power, the administration is trying a variety of approaches to Medicare reform in hopes of curbing drug costs. Among the immediate changes that could be coming: enabling Medicare plans to adjust their formularies, mid-year, in certain cases; giving Part D plans “flexibility” to deal with high-cost drugs that don’t provide rebates or negotiated prices; and moving some drugs given under Medicare Part B, like certain expensive cancer medicines, to Part D.
In the report today, HHS laid out some “immediate” actions to try to encourage drug makers to lower their list prices by increasing transparency. Many people, including PBMs, have pointed fingers at drug makers for setting high prices in the first place that then ripple through the healthcare system down to the patient. The HHS will ask FDA to look into requiring drug makers to include their list prices in direct-to-consumer advertising. Also, HHS is directing CMS to make Medicare/Medicaid prices more transparent. In addition, HHS wants to ban “gag clauses” that prevent pharmacists of some Medicare patients from telling them when they can save money by not using insurance.
Another area of nearer-term focus is streamlining the approvals of generic drugs as well as copycat biologic medicines, known as biosimilars, something FDA Commissioner Scott Gottlieb has repeatedly emphasized as a priority. The report says FDA will issue guidance to address loopholes companies use to delay or block generic competition, and policies to improve the availability and adoption of generics.
But when it came to the “bolder” actions that HHS was proposing, the blueprint raised more questions than answers. For example: the plan had several questions about implementing value-based purchasing in federal programs, and restricting the use of rebates, an opaque practice between drugmakers and PBMs. These deals are confidential and they outline the difference between a drug’s “list” and “net” price. That difference—the rebate—is split amongst the plan sponsors, PBMs, and at times, patients in the form of lower out-of-pocket costs. PBMs consider them an important tool to lower drug costs and insurance premiums.
PBMs like Express Scripts and CVS Health wield significant influence over drug prices, both through rebates and by controlling which treatments insurers will cover. PBMs say this makes them crucial players in lowering drug prices. Just a few weeks ago, for instance, Express Scripts, the nation’s largest PBM, cut a deal with Regeneron Pharmaceuticals (NASDAQ: REGN) to reduce the price of the expensive cholesterol-lowering drug alirocumab (Praluent), in return for quick access to the drug. Express Scripts’ chief medical officer Steven Miller said at the time that patients could expect their out-of-pocket costs for the drug to drop by about a third.
But critics, such as the drug industry, have said that PBMs actually keep costs high. Because PBMs pocket at least a portion of the rebates they take from drug makers, they are incentivized to look for the best rebate, and not necessarily the drugs with the lowest price for patients, according to critics. A higher list price means a bigger potential rebate.
Administration officials and appointees have been highly critical of PBMs and the rebate system in various speeches this year. FDA commissioner Gottlieb, for instance, floated the idea of making rebates illegal under an anti-kickback law (something mentioned in the blueprint as well). Earlier this week, Seema Verma, who runs the Centers for Medicare and Medicaid Services, targeted PBMs, saying they get paid both by drug manufacturers and insurers, making it “unclear who they’re actually aligned with.”
The Pharmaceutical Care Management Association, which represents PBMs, said in a statement today: “Getting rid of rebates and other price concessions would leave patients and payers, including Medicaid and Medicare, at the mercy of drug manufacturer pricing strategies. … Simply put, the easiest way to lower costs would be for drug companies to lower their prices.”
PhRMA, the pharmaceutical lobby group, said in a statement that some of the proposed Medicare changes might raise costs to seniors, and, as it often has, blamed the “middlemen” for the rising costs.
The plan also takes aim at foreign governments that impose price controls on drugs made in the U.S., making them much cheaper to buy outside of the U.S. Earlier this week, HHS Secretary Azar accused various foreign countries of “free-riding” off of U.S. drug research. Trump said today that U.S. trade representative Robert Leitheiser has been instructed to “make fixing this injustice a top priority with every trading partner.” But the plan had few concrete details about how the administration would address this.
Craig Garthwaite, a health policy professor at Northwestern University, tweeted earlier this week in the runup to today’s speech:
Let’s be clear about this once and for all — if foreign countries pay more American patients won’t be paying less.
All that will happen from other countries paying more is additional products that are not sufficiently profitable today will come to market. https://t.co/ds9IwaGWt4
— Craig Garthwaite (@C_Garthwaite) May 9, 2018