May 14, 2018

The holes in Trump's drug pricing plan

HHS Secretary Alex Azar at the podium. Photo: Chip Somodevilla/Getty Images

Pharmaceutical companies' stocks soared Friday when President Trump released his plan to curb prescription drug costs — and that's a pretty accurate assessment of how big a threat this proposal is.

The bottom line: It would mostly move costs around. There are few new steps in here to try to lower the sticker price of prescription drugs. It does call for increased competition from generics — a push that's already well underway at the Food and Drug Administration — but focuses most of its attention on middlemen.

Some of those goals are contradictory.

  • "We are calling into question, today, the entire structure of using rebates as the method of negotiating discounts," HHS Secretary Alex Azar said during Friday's White House press briefing.
  • But in the meantime, the proposal would give pharmacy benefit managers — the companies that negotiate those rebates — a bigger role in Medicare.

Real change is a long way away. The plan includes few immediate actions, and more calls to either study an issue or for Congress to act — both of which give industry more room to flex its lobbying muscle.

Some ideas may not work: Experts have already questioned whether parts of the plan are feasible — not just politically, but substantively.

  • Trump, for example, wants foreign single-payer systems to start paying more for drugs, saying their low prices mean that U.S. payers end up footing the bill for all the world's research and development.
  • "I don’t think the fact that I pay higher prices than students at movie theaters lowers their price, so I’m not particularly bullish on this idea either. Prices reflect willingness to pay, and with pharmaceuticals, the United States is willing to pay a lot. We’ll pay less when we decide to pay less," American Enterprise Institute's Ben Ippolito told Axios' Caitlin Owens.

Even the small things are hard: One seemingly minor proposal from Trump's proposal helps explain how many steps are involved here, and how that complexity can lead to stasis.

  • The proposal: "Call on the FDA to evaluate the inclusion of list prices in direct-to-consumer advertising."
  • Breaking it down: Drugs' list prices absolutely matter, especially to the uninsured and people with high deductibles, who often have to pay at least some part of the list price before their coverage kicks in.
  • But most patients don't pay the list price. Their prices have been discounted by some combination of wholesalers, PBMs, insurers, employers and Medicaid rebates. And then the consumers themselves only pay some portion of that discounted price.
  • So, disclosing the list price — the highest relevant number — would give many consumers an artificially inflated understanding of how much they would have to pay. And, because there's so much variance in the prices for each payer, it's hard to find another metric that would give consumers a better idea of what they're in for.

The big question: I asked Nick Bagley and Jonathan Adler — two law professors who are often on opposite sides of health care legal issues — whether there could be any First Amendment problems with requiring drug makers to disclose their list prices. Both said the government would be on solid ground.

  • Yes, but: With so many technical and policy questions, you can see how even this relatively simple proposal could end up not making it across the finish line.
The system is rocket science. It's unbelievably complex.
— Alex Azar, HHS secretary

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