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Trump Administration offers proposal to rein in prescription drug prices

May 14, 2018

On Friday, President Trump announced a much anticipated “blueprint” to control prescription drug pricing. In his remarks in the White House Rose Garden, Trump said, “The drug lobby is making an absolute fortune at the expense of American consumers.”

Our Take: Before we get into the takeaways, we must point out the obvious (and the most important non-event, from the perspective of drug manufacturers). By law, CMS is prevented from negotiating with drug companies for lower Medicare Part D prices or rebates, and Trump won’t be changing that.

Since the presidential campaign trail, Trump has vowed to negotiate Medicare drug prices. Drug manufacturers feared the worst, since CMS is by far their largest customer. Taking a haircut with CMS would have sizable effects on drug company profits.

But Congress has no appetite for amending the legislation, and Trump can’t act by executive order alone. Most analysts viewed the punt on Part D negotiations as a fait accompli.

Former Eli Lilly executive and Health and Human Services (HHS) secretary Alex Azar recently announced that HHS would “give Medicare Part D plans better tools to negotiate discounts on behalf of our seniors—tools that private-sector health plans often already use.” What those tools are, we don’t know.

Instead, President Trump called out “the middlemen,” presumably referring to pharmacy benefit managers (PBMs). “We’re very much eliminating the middlemen,” he said. “Whoever those middlemen were—and a lot of people never even figured it out—they’re rich. They won’t be so rich anymore.”

Just how he proposes to do that, however, remains unclear.

It is telling that pharmaceutical stock prices and PBM shares climbed after Trump’s speech.

But drug companies weren’t left entirely unscathed, at least not through his rhetoric. Trump noted that no industry spends more on lobbying than Big Pharma, and he’s right.

That said, he blamed high drug costs on unfair trade practices. “When foreign governments extort unreasonably low prices from U.S. drugmakers, Americans have to pay more to subsidize the enormous cost of research and development,” he said. Americans do pay higher prices for drugs, but the reasons are complicated and have nothing to do with fair trade. (It is also worth noting that only nine of the top 20 pharmaceutical companies are headquartered in the U.S.)

All in all, the speech was more motivational than substantive. But, Azar and FDA Commissioner Scott Gottlieb have a handle on the issue, and we expect changes coming that will have an impact on the margins—just not, as Trump put it, “the most sweeping action in history to lower the price of prescription drugs for the American people.”

In broad terms, the current administration is focused on four areas related to prescription drugs:

  • Increased competition in drug markets
  • Providing CMS better tools to negotiate prices
  • Developing incentives for manufacturers to lower list prices
  • Developing options for patients to lower their out-of-pocket drug costs

Azar said more details about the blueprint are forthcoming. We’ll keep you posted on the specifics as they are made available.

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