Trump Promises Aggressive Campaign to Cut U.S. Drug Prices

(Bloomberg) -- Donald Trump said he would propose the most sweeping plan in U.S. history to lower drug prices, an attempt to meet a promise from his campaign that has largely gone unaddressed so far in his presidency.

“We’ll have much lower prices at the pharmacy counter and it’ll start taking effect immediately,” Trump said in a speech in the White House Rose Garden. “We’re also increasing competition and reducing regulatory burdens so drugs can be gotten to the market quicker and cheaper.”

The Trump administration released a blueprint called American Patients First that aims to increase competition for medicines and reduce patients’ out-of-pocket costs. Under the plan, rules preventing government health programs from securing deeper discounts on drug prices would be lifted, the U.S. would push other developed countries with tighter price controls to pay more for medicines, and new incentives would induce drugmakers to lower list prices and prevent them from gaming the system to extend their monopolies.

Read more: Four things to look for in Trump’s drug pricing speech today

For the industry and investors, many of the proposals will come as no surprise. Some were part of a February budget request to Congress, while others have been publicly hinted at by senior administration officials in past weeks.

Trump’s speech and his blueprint represent an appeal to the middle class on an issue many other Republicans might surrender to Democrats. But policies requiring congressional action are unlikely to be adopted rapidly if at all, as affected segments of the health-care industry spring into action to oppose them. Regulations, too, can be challenged by lobbyists or by lawsuits, slowing their enactment.

And Trump abandoned a vague threat before he took office to allow Medicare to negotiate prices with drugmakers directly, a proposal the industry has fought for years.

But David Maris, an analyst at Wells Fargo & Co., called the plan released Friday “a first shot across the bow.”

“The industry is among the most profitable of any industry in the U.S. and as such probably has room to give,” Maris said. “If it doesn’t reform itself, it will be reformed and this is the beginning of that reform.”

PBM Criticism

Health and Human Services Secretary Alex Azar said in a briefing after Trump’s remarks that most of what he’s proposed can be accomplished by executive action. He said his department and the Food and Drug Administration would begin immediately.

“This is the most comprehensive attack on prescription drug affordability in history, by any president,” Azar said. But he described some of the proposals as issues the administration is still investigating, such as the relationship between health insurers and companies that negotiate drug prices on their behalf called pharmacy benefit managers.

PBMS, he said, are “taking it now from both sides” because they are compensated both by their customers -- health insurers or patients -- and by the drugmakers they negotiate with, in the form of rebates.

“We are calling into question today the entire structure of using rebates to negotiate discounts in the retail channel,” Azar said. One possibility, he said, is requiring PBMs to be fiduciaries for their clients and forbidding “remuneration from the pharmaceutical companies.”

Total U.S. spending on drugs in 2017 rose about 0.6 percent, according to a report by Iqvia Holdings Inc., which tracks prescriptions. That modest increase doesn’t tell the whole story, though. List prices rose at a far faster pace, meaning that Americans who pay out-of-pocket for brand-name drugs -- people who are uninsured or who have high deductibles, for example -- can face a steep bill.

Investors appeared unconcerned ahead of Trump’s speech. The Nasdaq Biotechnology Index was up 1 percent at 2:07 p.m. in New York, against a decline in the Nasdaq Composite Index. The 193-company biotech gauge is a barometer of market sentiment about the industry and pricing issues.

“We expect more rhetoric than reform,” Height Securities analysts wrote in a note on Friday. “The president’s bark will be worse than his bite as he blames all parties within the drug supply distribution chain” for high prices.

Drug Plans

The 39-page drug plan includes immediate actions and longer-term policies that aim to increase competition, lower patients’ costs and create incentives for drugmakers to lower base prices.

Azar, a former executive at Eli Lilly & Co., and other drug industry officials have previously singled out PBMs for scrutiny. The firms include Express Scripts Holding Co., CVS Health Corp. and UnitedHealth Group Inc.’s OptumRx unit.

“We’re very much eliminating the middle men,” Trump said in his remarks, without specifying PBMs. “Whoever those middlemen were -- a lot of people never figured it out -- they’re rich. Won’t be so rich anymore.”

But Azar said Trump’s blueprint also relies on pharmacy-benefit managers to help the government get better deals on certain expensive drugs that Medicare currently buys without PBM involvement.

In a speech last week, Food and Drug Administration Commissioner Scott Gottlieb proposed re-examining legal protections for rebates drugmakers give insurers and pharmacy-benefit managers. The remarks sent PBM stocks downward. The blueprint lists the idea as an opportunity for further discussion.

Trump said the plan would also “speed up the approval of over-the-counter medicines” by the FDA.

Trade Pressure

Another part of Trump’s plan, he said, is to pressure U.S. trading partners to loosen price restrictions and pay more for medicines. He believes U.S. prices are high in part because American consumers bear the burden of financing drugmakers’ research and development efforts.

“It’s unfair, and it’s ridiculous, and it’s not going to happen anymore,” Trump said. He said he’s directed U.S. Trade Representative Robert Lighthizer “to make fixing this injustice a top priority with every trading partner.”

Trump also attacked pharmaceutical companies that use patents to extend their monopolies and said he will end a gag rule insurers use to keep pharmacists from telling patients when they could save money by paying list price instead of an insurance co-payment. Azar also said the FDA will immediately look into requiring drugmakers to disclose prices in television ads.

The blueprint seeks feedback on some issues, including whether there are policies the U.S. can pursue that would protect brand-name drug patents in other countries, some of which don’t have a system to prevent competition for a period of time to help drugmakers’ recoup research and development costs.

©2018 Bloomberg L.P.

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