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Trump speech on drug prices: Much ado about nothing

18 May 2018 Milena Izmirlieva

Trump speech on drug prices: Much Ado about Nothing

Last week US president Donald Trump discussed his plans for tackling high pharmaceutical prices in the US in a much anticipated, and feared, speech. Anticipated - as it was expected to provide some clarity on what stakeholders in the industry should expect; and feared - because there were significant risks that a potential pricing reform would be very damaging to the industry. Based on our analysis of prices in regulated markets, the United States paid on average more than 50% that other developed markets.

Plenty of drama but no specifics

In the actual speech, the president blamed many different elements of the healthcare industry for high drug prices in the United States, including manufacturers, health insurers, distributors, pharmacy benefit managers (PBMs), and "many others". Interestingly, Trump pointed the finger at foreign governments, which, he said, "extort unreasonably low prices" from US drug manufacturers, thus compelling them to charge higher prices in the United States. However, there was not a solid pricing reform proposal in the end.

American Patients First blueprint

The Trump administration's proposals for tackling high drug prices were released to coincide with the speech in a Department of Health and Human Services (HHS) document entitled "American Patients First, the Trump Administration Blueprint to Lower Drug Prices and Reduced Out-of-Pocket Costs". The 44-page blueprint identified four main challenges for the US pharma market:

  • High list prices for drugs
  • Seniors and government programmes overpaying for drugs due to lack of the latest negotiation tools
  • High and rising cost of out-of-pocket (OOP) payments for consumers
  • Foreign governments exploiting US investment in innovation.

In order to address high prices and improve competition and reduce OOP costs, the blueprint proposed specific actions that the president could direct the HHS to take immediately, as well as actions that are under active consideration by HHS pending feedback from stakeholders.

Specific proposals to increase competition include:

  • Steps "to prevent manufacturer gaming of regulatory processes such as Risk Evaluation and Mitigation Strategies",
  • The introduction of measures to promote innovation and competition for biologics,
  • Experimenting with value-based purchasing in federal programmes;
  • Requiring manufacturers to include list prices in advertising; and
  • Prohibiting Medicare Part D contracts from preventing pharmacists from informing patients they could pay less OOP by not using insurance.

Significantly, Trump and the blueprint for price reform made no mention of direct government price negotiation, thus steering away from a previous pledge to grant Medicare the ability to negotiate prices.

Is it 'Much Ado about Nothing' in the end?

Some of these measures clearly target the pharma distribution sector and PBMs, but the specific measures aimed at pharma companies can be described as a 'nuisance' rather than measures with a real 'bite' to them. Requiring the inclusion of list prices in TV commercials would certainly be misleading to patients, considering no one really pays the list price of medicines in the US, but they could add 30 seconds or more to the length of a TV commercial as manufacturers have to give the price and some sort of explanation that the consumer should not expect to pay that price. This measure would increase advertising costs to pharma companies, but it may also encourage them to consider the list price of their products more carefully. The average patient may compare the list price of their product to the list price of a competitor product in TV advertising and assume that it would cost them less to buy the competitor product. Explaining to patients in a short TV commercial how to compare like for like when it comes to medicines, including efficacy, dosage and strength of the product and potential discounts the patients may be eligible for would be, at best, difficult and, at worst, impossible. Some companies may be thus encouraged to simply lower the list price to appear more competitive, but they could also sidestep the intended pricing pressure and simply choose to show the lowest possible dose of their product and quote the list price that puts them in the most advantageous light vis á vis competitors.

The questionable issue of blaming other countries

If the advertising requirement is a nuisance, then Trump's decision to blame other countries for the high US prices is pointless. Countries - with single payer systems and mandatory price negotiations, often before a product is allowed to launch - will naturally achieve lower prices than the US which does not allow direct price negotiation between public payers and pharma companies. Private insurers may negotiate drug prices in the US, via the use of PBMs, but savings achieved have not until recently been passed onto patients.

Key takeaways from Trump's speech

It is this last thorny issue - passing rebates to patients - that the US administration is likely to address long before it considers tackling the even thornier issue of direct government price negotiation. Trump has blamed health insurers for failing to pass rebates to patients on several occasions before last week's speech. In recent months some health insurers have started to pass rebates to patients (Aetna and United Healthcare are examples of this), suggesting that they may be taking pre-emptive measures to voluntarily pass rebates rather than face regulations requiring them to start passing at least some rebates to patients.

And the size and potential impact of these rebates is not insignificant. Our newly-released study found that over the next 10 years, passing through rebates at the point of sale (POS) for diabetes medicines could reduce total medical spending by approximately USD20 billion. The study, supported by funding from Pharmaceutical Research and Manufacturers of America (PhRMA), modelled the effects of passing through rebates at POS on Medicare Parts A and B spending as a result of improved adherence. This is the first research to quantify these effects. We also found that passing through a portion of rebates at the POS would reduce overall per beneficiary healthcare spending by USD1,352 and lower patient OOP spending by USD367 in one year.

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