Trump’s Options to Cap Drug Prices Wane After Rebate Retreat

(Bloomberg) -- The Trump administration’s options for lowering high prescription-drug costs are narrowing after the White House decided to abandon a proposal that would have saddled seniors with higher health costs.

Drugmakers frequently give pharmacy-benefit managers discounts in the form of rebates to win coverage for their medicines. But as anger over soaring drug costs simmered, pharmaceutical companies have complained that PBMs often pass little of the savings from rebates directly to patients with the highest costs..

As part of a “blueprint” to lower drug prices released in January, President Donald Trump said that he’d explore barring the rebates in government programs such as Medicare. His push was fueled in part by the pharmaceutical industry, which fought to turn the president’s ire on the middlemen.

However, ending the rebates was expected to drive up older Americans’ insurance premiums, a radioactive prospect ahead of a presidential election in which health costs are likely to be a marquee issue.

“The president is deeply committed to protecting American seniors,” Health and Human Services Secretary Alex Azar said at a briefing Thursday. “Part of the commitment is he doesn’t want any risk that seniors’ premiums could go up.”

The rebate reversal is another demonstration of the Trump administration’s tendency to outline ambitious directives, only to have them turned aside or tamped down when met with legal challenges or political realities. On Monday, a federal judge ruled that the Department of Health and Human Services had overstepped its authority with its plan to force drugmakers to disclose list prices in advertisements.

The rebate plan had faced opposition from health-industry observers who view pharmacy-benefit managers as a helpful tool to drive down prices. Peter Bach, a drug-cost expert at Memorial Sloan Kettering Cancer Center in New York, said the rebate system is flawed but likely saves more than the middlemen extract in profits.

“The only industry that loved it was the pharmaceutical industry,” Bach said of the proposal.

The PBM’s main trade group welcomed the news. “Only drug manufacturers have the power to set drug prices,” said JC Scott, the chief executive of the Pharmaceutical Care Management Association. “We believe that the key to lowering drug costs is to enact policies that encourage greater competition.”

The shifting political winds were on display in financial markets, as shares of companies that control big PBMs surged, while drugmakers fell. Cigna Corp., the health insurer that recently took over Express Scripts, surged 9.2%, while Pfizer Inc. sank 2.5% and Merck & Co. dropped 4.5%.

Shifting Focus

Drugmakers hadn’t committed to drastically lowering their prices if the rebates disappeared, and they stood to bring in more money if the plan went into effect.

Holly Campbell, a spokeswoman for the drug-industry trade group PhRMA, said the administration’s decision was a “blow to seniors who could have paid less for their medicines at the pharmacy counter.”

Now, the administration is likely to turn its attention more directly to the pricing practices of drugmakers themselves. In recent days, the president has alluded to a plan that could tie the costs federal health programs pay for drugs to those paid by national health programs in Europe. Azar also indicated the administration is working on a way to allow Americans to buy cheaper drugs from other countries.

Azar sought to pass on responsibility for addressing those issues to Congress. He said lawmakers have more tools than HHS to protect seniors from rising premiums while dealing with rebates.

“I think we’re going to continue to see the days of rebates are over,” he said. “We’ve changed the debate.”

Senator Chuck Grassley, an Iowa Republican, said in a statement that the issue was far from dead. “The withdrawal puts even more pressure on Congress to step up to the plate,” he said.

Azar also said he’s working with Grassley and Senator Dick Durbin, an Illinois Democrat, to pass legislation that would give his agency the authority to require that drug prices be mentioned in television ads.

The Trump administration wants to modernize the Medicare Part D prescription-drug benefit, particularly by exposing insurers to more risk so they better negotiate drug prices, a senior administration official said.

The move would require insurers to pay more than they do now in certain phases of Part D where beneficiaries have a gap in government coverage or have reached a maximum out-of-pocket cost that pulls them out of that gap.

Ideological Gulf

Faced with voter pressure to contain drug costs, the administration could also turn to proposals that have tended to conflict with Republican orthodoxy.

Trump has signaled that he is open to allowing Americans to import cheaper drugs from other countries, throwing support behind Florida Governor Ron DeSantis’s move to create a drug-importation program in his state. Some Senate Republicans, such as Grassley, have also indicated that they support such a move.

Azar said Thursday his concerns that such a program would put patient safety at risk have waned, saying the drug-supply chain “has changed substantially.”

“The president and I are committed to safe approaches and we’re working on that now,” he said.

Even under Democratic administrations, the Food and Drug Administration has declined to support buying drugs from abroad to lower prescription costs. The agency, which has faced difficulty in policing overseas manufacturers that make generic drugs for the U.S. market, has in recent years stepped up its approval of generic medicines.

Favored Nation

Trump mentioned last week a “favored-nation clause” his administration is working on but didn’t elaborate. Last year, he outlined a proposal to base the price the U.S. government pays for some drugs on cheaper prices in other countries, where national health programs use their considerable bargaining muscle to contain costs.

Azar wouldn’t offer details but indicated the two are connected when asked about the clause.

“It’s time for American patients to stop subsidizing the socialism of Europe,” he said Thursday.

Republicans have been skeptical of the idea, as it relies on prices in countries where governments largely set them instead of allowing them to be determined by the market. Grassley, whose committee has jurisdiction over Medicare and Medicaid, said last month that he opposed the idea.

Grassley’s committee is working to develop a bipartisan package of drug-pricing bills he hopes the panel will vote on before Congress’s August recess.

Azar, who had been a key proponent of the withdrawn rebate plan, said Thursday he plans to stay in his position as long as Trump will have him.

--With assistance from Robert Langreth.

To contact the reporter on this story: Anna Edney in Washington at aedney@bloomberg.net

To contact the editors responsible for this story: Drew Armstrong at darmstrong17@bloomberg.net, Timothy Annett

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