What Happened to Trump's Drug-Price Promises?

(Bloomberg Opinion) -- Two weeks means 14 days to most of us. But it’s now been a month since President Donald Trump promised “voluntary massive drops in prices” from drug companies in two weeks — and there’s been no sign of them. 

Presidential statements that diverge from reality are now commonplace. But drug pricing has been a Trump focus, and the subject of a hyped policy plan released last month. That makes the lack of progress particularly glaring. 

Health and Human Services Secretary Alex Azar has been saddled with the task of explaining this situation, and in a Senate hearing Tuesday he made a case that the administration is living up to its promises. It wasn’t convincing. The administration’s  already vague  blueprint hasn’t gotten any more specific since it was released.

On the subject of those promised price cuts,  Azar said some companies are willing, but are concerned that pharmacy benefit managers (PBMs) — the middlemen, essentially, that make a chunk of their revenue from drugmaker rebates —  might retaliate and direct business to rivals charging higher prices for competing medicine and giving them bigger secret discounts. 

This is a convenient excuse designed to deflect blame. The fact is, drugmakers don’t want to lower prices, voluntarily or otherwise, because it hurts profitability. Yes, PBMs play a role in the process, but price increases — not to mention extremely high initial price points — have been enormously lucrative for drugmakers as well. Nothing in the administration’s plan will change their unfettered pricing power.

Azar has suggested a rather extreme workaround to this issue, ending the rebate system entirely and replacing it with fixed contracts. That would theoretically make it easier for drugmakers to lower list prices or hike them less regularly, though it wouldn't compel them on either front.

But it would be a radical shift to the system marking a dramatic redistribution from middlemen to individuals and drugmakers with unknown consequences. And Secretary Azar has yet to provide substantial details about how it would actually be enacted.  

Similarly, Azar didn’t use his testimony to provide any fresh detail about proposed shifts in Medicare coverage that could help ease prices. 

Trump once advocated for using the government’s negotiating power as custodian of Medicare to squeeze price cuts out of drugmakers. But in a previous hearing, Azar specifically rejected the notion of a government-set drug list that could be used to do exactly that. Instead, the administration’s plans have been downgraded to theoretical actions that would boost the negotiating ability of fragmented private insurers that run Medicare Part D plans. 

Azar has proposed bringing physician-administered medicines covered under Medicare Part B  into Medicare Part D.  Part B drugs aren’t subject to negotiation and are reimbursed more generously than Part D drugs. But the impact of that shift would be muted without other changes to increase negotiating power.

Part D plans must currently have at least two options available for any disease state, and are required to cover essentially all drugs in certain classes. HHS is looking into easing these restrictions, which make it tough for Part D plans to get favorable pricing. But there’s little detail on a possible timeline or on what specifically the agency wants to do. 

Azar hasn’t been clear about exactly which changes HHS could do make its own, and which would require Congressional action. Ones involving the latter seem unlikely anytime soon, especially with midterms approaching, given the likely strenuous objections of drugmakers, providers, and beneficiaries to various parts of these policy shifts. 

In the hearing, Azar noted that drugmakers often increase prices around July 1 and that he hopes they’ll show some restraint. That’s a rather notable rhetorical step-down from more grandiose claims by his boss — and a rather tidy encapsulation of how the administration’s drug-pricing efforts have delivered so far. 

©2018 Bloomberg L.P.

Bloomberg
View Opinions From Business And Policy Experts On BloombergQuint