Axios Vitals

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October 26, 2018

Good morning ... Situational awareness: Saturday is the DEA's National Prescription Drug Take Back Day. It's a coordinated opportunity to get rid of extra pills that may be sitting around, including and especially prescription opioids, to reduce the risk of misuse.

You can find your nearest collection location here.

1 big thing: Trump wants to import single-payer drug pricing

President Trump speaks at HHS
President Trump speaks at HHS. Photo: Chip Somodevilla/Getty Images

The Trump administration’s latest plan to reduce U.S. drug prices is to import some of the price controls imposed by Europe’s single-payer health care systems.

  • “It seems a little bit at odds with the rest of how the government views socialized medicine, single-payer, etc.,” Northwestern University health economist Craig Garthwaite said.

Driving the news: The plan that HHS outlined yesterday would apply to drugs administered by a doctor, not the kind you pick up at a pharmacy.

  • Today, Medicare pays a fixed rate for those drugs, based on their average price within the U.S.
  • Under the new proposal, Medicare would still pay a fixed rate. But it would be tied to the prices for the same drugs in other countries — mostly countries in Europe, most of which have single-payer health care systems.
  • For the drugs that would be affected here, Medicare currently pays almost twice as much as other countries, according to HHS.

“We’re setting a price right now. We’re just not setting a very good price,” Azar told reporters, in response to questions about whether the new proposal amounts to government price setting.

What they’re saying: The Obama administration proposed a similar policy in 2016, and industry groups killed it. There’s pretty decent chance that could happen here, too.

  • “The administration is imposing foreign price controls from countries with socialized health care systems that deny their citizens access and discourage innovation,” PhRMA president Stephen Ubl said in a statement.
  • Cancer treatment relies heavily on the physician-administered drugs whose prices would fall under this plan, and cancer doctors led the charge against Obama’s version. The Community Oncology Alliance said Trump’s proposal "will interfere with the quality, accuracy, and timeliness of treatment."

2. Price setting vs. market competition

There is, obviously, an argument that government price setting works. It’s just not usually an argument Republican administrations make.

  • But President Trump’s public comments on drug prices return frequently to the theme that Europe is taking advantage of the U.S., and we should be paying what they’re paying.

Between the lines: There's at least some conservative competitive element, as the new plan aims to weaken Europe's price controls before piggybacking off them.

  • This is a subject of active debate in the health care world, but the economists I spoke to yesterday said the administration is probably correct to say that tying U.S. prices to European prices would drive up European prices, at least a little.

How it works: The idea is that, if drugmakers can no longer count on high U.S. prices to subsidize lower reimbursements abroad, they'll simply have to strike more favorable deals with European countries.

  • Sure, a single public payer has a lot of leverage, the argument goes, but will the U.K. really walk away from providing its citizens a promising cancer treatment?

The plan also calls for a new purchasing arrangement for physician-administered drugs. Currently, doctors have to buy the drugs, store them, and hope they can use them and bill Medicare. HHS' proposal would have third-party vendors buy the drugs, then sell them to doctors.

  • Azar and other HHS officials mentioned this arrangement a couple of times yesterday, as a way the new plan still tries to foster market competition.
  • But the experts I spoke to said that if you're already starting from a fixed slightly-more-than-Europe price, it's hard to see how much more of a discount those vendors could realistically produce.

“It feels a little bit like, ‘If we mention competition in this document, no one will pay attention to the fact that we’re importing European price controls,'” Garthwaite said.

3. Health care companies' huge tax windfalls

The Republican tax law has rerouted billions of dollars from the federal treasury into the bank accounts of health care companies and Wall Street investors.

By the numbers: These are some of the tax savings that have been calculated so far in 2018, according to my colleague Bob Herman's analysis of Q3 earnings reports...

  • UnitedHealth Group: $1.1 billion
  • Bristol-Myers Squibb: $463 million
  • Johnson & Johnson: $430 million
  • Gilead: $413 million
  • Biogen: $118 million
  • Universal Health Services: $92 million

Details: These numbers were calculated by taking each company’s effective tax rate from the first 9 months of 2017 and applying it toward operating profits in the first 9 months of 2018.

  • The difference between that number and the amount the company actually paid so far this year, under a lower rate, equals an estimated total savings.

The bottom line: Some companies have had similar or even higher tax bills this year compared with last year. But these 6 companies alone have reaped $2.6 billion from the lower corporate tax rate — a haul that has more than paid for any lobbying to get the law across the finish line.

4. ACA premiums could be 16% lower

Premiums for insurance sold through the Affordable Care Act are going down next year, for the first time in the law’s history. But they could be going down even more, if not for some of the Trump administration’s policy choices.

By the numbers: Across all insurance plans that comply with the ACA — whether they’re sold through the exchanges or not — premiums are about 6% higher than they otherwise could have been, according to a new Kaiser Family Foundation analysis.

  • The difference is even starker for middle-of-the-road silver plans — the most popular type of plan sold through the ACA’s exchanges that's also used to determine the size of people’s subsidies. Those could be 16% cheaper, Kaiser says.

How it works: Trump’s decision to cut off the law’s cost-sharing subsidies caused insurers to raise premiums significantly, mostly for those silver plans. Nullifying the individual mandate and opening up access to skimpier short-term plans are also expected to hurt the ACA’s overall mix of sick and healthy people.

  • Those factors all drove premiums higher this year, and will limit the size of premium decreases next year, Kaiser says.

5. 1 💰 thing: McKesson and drug prices

If drug manufacturers do not raise any list prices for their brand-name medicines this January, one of the most common times for price hikes, then drug wholesaler McKesson would lose between $75 million to $90 million, McKesson CFO Britt Vitalone told Wall Street investors yesterday.

The bottom line: That amount is a small percentage of McKesson’s projected profit for this year, Bob notes. And McKesson says most of its brand-name contracts have fixed terms — but still, it’s not nothing.

  • McKesson and other drug wholesalers used to rely on higher list prices for revenue and profit. That model is clearly changing.