Drug Industry Dodges Worst Fears in Trump's U.S. Price Plan
(Bloomberg) -- President Donald Trump’s plan to lower U.S. drug prices avoids some of the harshest steps that the pharmaceutical industry and the network of companies that distribute its products feared.
Calling his proposal the most sweeping attempt in U.S. history to lower drug prices, Trump wants to increase competition for medicines, cut list prices and reduce patients’ out-of-pocket costs. Yet it also preserves -- and in some cases expands -- the role of the pharmacy middlemen the administration has blamed for many problems with drug costs.
“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 on Friday. “We’re also increasing competition and reducing regulatory burdens so drugs can be gotten to the market quicker and cheaper.”
Few of the steps proposed by the administration would take immediate effect. The 44-page document is laid out as topics for discussion and contains more than 100 questions about what the administration should do. Industry stocks gained after the speech.
“It’s going to be months for the kind of actions that we need to take here,”s aid Health and Human Services Secretary Alex Azar, Trump’s top health official. “It took decades to erect this very complex, interwoven system. I don’t want to over-promise that somehow on Monday there’s radical changes. There’s a deep commitment.”
Azar added: “This is the possible restructuring of a major part of the economy. One doesn’t do that lightly.”
Nowhere in the proposal does the administration call for two policies the industry most feared: having the government directly negotiate prices and allowing the importation of prescription drugs from overseas. Trump had previously backed both of those ideas, promising to use the government’s buying power to get better deals.
In the months ahead of the speech, drug companies and pharmacy benefit managers, or PBMs, have traded accusations over who’s to blame for high U.S. drug costs. In the immediate aftermath, company stocks in both industries were up -- a sign that investors think that the worst-case scenario has been avoided, for now.
“The speech was very Trump; it was bombastic, and he made his points,” said Spencer Perlman, an industry analyst with Veda Partners. “But we will have to find out what ideas are real and how they can implement them. If you’re investing for the next six months, today’s a good day for you.”
The Nasdaq Biotechnology Index rose 2.7 percent, the biggest gain in four weeks. The 193-company index is a barometer of investor sentiment about the drug industry and pricing issues.
Some of the proposals would require action by Congress, often an unlikely prospect in an election year. Senior Republicans on Capitol Hill gave measured support for the plan.
Senator Lamar Alexander, chairman of the Senate health committee, said in a statement he especially welcomed proposals to examine the rebate system that makes it “hard for consumers to know what they are paying and what alternatives are.”
“I look forward to reviewing the proposals and working with the president and his team to help patients and protect taxpayers,” Senate Majority Leader Mitch McConnell said in a statement.
Senator Ron Wyden, an Oregon Democrat, said Trump didn’t go far enough.
“Today’s announcement is a far cry from what Trump called for when he said the drug companies were ‘getting away with murder,’” Wyden said in a statement. “They’re breathing a sigh of relief in pharmaceutical board rooms across the country.”
In 2017, total U.S. spending on drugs 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 -- such as people who are uninsured or who have high deductibles, for example -- can face a steep bill.
Azar and other administration officials have singled out PBMs for blame in recent weeks, including companies such as Express Scripts Holding Co., CVS Health Corp. and UnitedHealth Group Inc.’s OptumRx unit. The plan released Friday in particular targets rebates negotiated between the PBMs and drugmakers, which often don’t pass directly back to customers.
“We’re very much eliminating the middle men,” Trump said, without specifying that he would target PBMs. “Whoever those middlemen were -- a lot of people never figured it out; they’re right -- won’t be so rich anymore.”
While Trump criticized the PBMs, the agency’s plan gives the companies new powers in Medicare Part D, the U.S. program to provide seniors with drug coverage. The blueprint would let the plans change their list of covered drugs midyear to push back against price increases for some generic drugs that don’t have competition. It also explores letting drug plans reimburse different amounts for different diseases.
The outline also proposes looking at changing payments for some high-priced drugs administered in the hospital or a doctor’s office. Those drugs are currently covered under the regular Medicare program, known as Part B. Shifting them to Part D program, where their prices would be negotiated by PBMs, could lower their prices while also giving the industry more business.
The drug industry’s Washington-based lobbying group said some parts of the plan could undermine Medicare Part D while other changes shouldn’t be made to Medicare Part B if they would lead to higher costs or limited access to drugs.
“While some of these proposals could help make medicines more affordable for patients, others would disrupt coverage and limit patients’ access to innovative treatments,” the Pharmaceutical Research and Manufacturers of America said in a statement.
Express Scripts said that Trump’s proposals showed the company was more important than ever, and blamed drugmakers for high prices.
“Our role has never been more important to improving health care,” the company said in a statement. Express Scripts shares rose 2.6 percent to $72.80 in New York, and CVS finished up 3.2 percent to $64.41.
The plan includes immediate proposals and longer-term options that aim to increase competition, lower patients’ costs and create incentives for drugmakers to lower base prices.
Another part of Trump’s plan 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 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 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.
The Trump administration also says it may consider whether drug benefit managers should be designated as fiduciaries required to act in the best interests of those who are paying the bills. This is something that PBMs have fought hard against when states tried to impose such requirements in the past.
Widespread enactment of such rules “could have a material adverse effect upon our financial condition, results of operations and cash flows,” Express Scripts said in a securities filing in 2015. The PBM industry has fought back against such polices -- often successfully -- at the state level.
Ross Muken, an analyst with Evercore ISI who follows the PBM industry, called the proposals “relatively benign for the industry and not majorly disruptive.”
“At this point it’s still a threat, and now the question is whether the administration follows through or not on actions that could pose bigger risks to the drug channel,” Muken said.
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