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Trump Plan Ties Medicare Drug Prices to Cheaper Foreign Ones

Xconomy National — 

[Updated 5:41pm ET with analyst note, see below.] When the Trump administration announced its blueprint for lowering prescription drug prices in May, many observers said it was too soft on the biopharma industry and didn’t contain concrete initiatives that could truly cut costs.

But with the U.S. midterm elections fast approaching and the high cost of drugs and healthcare remaining a key issue with voters of both political parties, President Trump today announced some more aggressive moves, starting with a plan to lower prices for some drugs covered by Medicare.

After much rhetoric from Trump over the last year or two about getting foreign countries to pay more for drugs, today he also announced actions to cut U.S. drug prices based on the much lower prices paid by other countries.

Politico first reported the proposed measures and it set off a flurry of discussion on Twitter among health economists even before the president formally announced the measures in a speech today. The initial Trump plan in May was criticized for being too modest to have impact. But the latest proposal might be too drastic because of the resistance it will likely face from the healthcare industry, wrote Walid Gellad, a health policy researcher at the University of Pittsburgh, on Twitter ahead of the speech. “In my view, giant proposals on pricing that antagonize BOTH pharma AND doctors are too ambitious.” Other observers noted that even if the plan went through, it could disrupt drug supplies in the U.S. and globally.

The president took a populist tone in his brief speech today. He criticized the drug industry for “inflated prices paid by our seniors” and slammed foreign countries for “global freeloading” and “rigging the system” by having lower drug prices. His actions were about “putting America first,” he said.

The Trump plan zeroes in on Medicare Part B drugs, which are administered by doctors in hospitals and clinics. These drugs, which include many treatments for cancer, tend to be pricier than others and their costs aren’t currently negotiated by Medicare. The proposal would experiment with letting insurance companies negotiate the price of some Part B drugs (including expensive biologics), similar to the way they do for Part D drugs, which patients pick up at the pharmacy.

The plan also calls for the use of an “International Pricing Index” to bring down prices of some Part B drugs in the U.S. The index would take into account prices from 16 other countries, including Canada, the U.K. and Japan, according to the Politico piece. A report from the U.S. Department of Health and Human Services (HHS) today estimated that Medicare is paying 47 percent more for a group of Part B drugs than if their prices were benchmarked to international levels. The government’s aim is to lower U.S. prices to these levels over five years.

The administration is also proposing that healthcare providers receive a flat fee from Medicare for prescribing, storing and handling Part B drugs, instead of a percentage of the drug’s price, in an effort to eliminate incentives for providers to prescribe more expensive medicines.

Craig Garthwaite, a healthcare economist at Northwestern University, praised the plan’s focus on Part B spending and the effort to switch to flat fees for doctors. But he wrote on Twitter after Trump’s speech that parts of the plan were “schizophrenic.” “Why would [third-party vendors] negotiate discounts if we’re going to tie U.S. prices to the prices in Europe? It seems like we are not negotiating but tying ourselves to the mast of European price controls? If the price is a fixed amount based on Europe what is competition doing?”

Garthwaite and other observers had several questions about the international drug price index, which Garthwaite said was “the far more interesting and aggressive part” of the new proposal. Such an index could put pressure on other countries to agree to higher drug prices, but what happens if they don’t, he wrote before Trump’s speech. Would drug makers even agree to the lower prices in the U.S.? Stop selling drugs in foreign countries?

“A key question is how the internationally-based reference price will be enforced. Is Medicare willing to say no if the manufacturer won’t accept the price?” wrote Loren Adler, a health policy expert at The Brookings Institution.

In a statement, PhRMA, the pharmaceutical trade group, slammed the proposed model, saying that by “imposing foreign price controls,” it “would jeopardize access to medicines for seniors and patients with disabilities.”

Geoffrey Porges of Leerink Partners wrote in a research note that these measures could lower prices, but cautioned that they “would also risk disrupting price and drug supply in either the US or international markets, depending on the perspective and mix of business of the manufacturer.” He added: “Over time this would cause major shifts in drug development and commercialization priorities – for example, manufacturers are likely to under-invest in office administered injectables, and emphasize self injectable or oral products preferentially. Other manufacturers are likely to avoid commercialization outside the US altogether.”

The proposals would still need to go through the rule-making process at the Centers for Medicare and Medicaid and so the program wouldn’t be implemented until 2020, according to HHS. HHS Secretary Alex Azar said in his introduction of the president that today’s announcements are only the beginning of more government actions aimed at lowering drug prices.