U.S. President Donald Trump gestures during a campaign rally for Leah Vukmir, a Republican Senate candidate from Wisconsin, not pictured, in Mosinee, Wisconsin, U.S. (Photographer: Daniel Acker/Bloomberg)

Trump Springs Globalist Surprise With Medicare Drug-Pricing Plan

(Bloomberg) -- The Trump administration’s drug-pricing plan puts the U.S. on a path toward policies like those in Europe, where governments use tight cost controls.

Under the new proposal unveiled at an event at the Department of Health and Human Services on Thursday, President Donald Trump and health secretary Alex Azar said that the administration would create a reference price for high-cost medicines paid for by Medicare, based on comparable prices from other countries.

Trump “wants the kind of discounts that are applied in Germany and the Netherlands, for the reference reimbursement prices to be applied in the U.S.,” said Rodrigo Moreno-Serra, associate professor of global health economics at the University of York in England.

Many governments use similar benchmarks to decide how much to pay for drugs, according to Moreno-Serra. “It has worked elsewhere.”

Trump has railed against price controls in other countries, which he says aren’t paying their fair share for life-saving drugs that cost billions of dollars to develop. State-run health systems in many countries in Europe and elsewhere often put caps on drug prices and set high standards for value and effectiveness before adopting new medicines.

Creating an index of prices tabulated from what countries with more centralized health coverage pay would allow the administration to drive down U.S. drug costs without putting in place direct curbs on prices -- though Azar rejected the idea that the administration was reading from the playbook of nationalized medical programs to bring the U.S. on par with the rest of the world.

Rather than “divine the value” of a drug, the proposal “respects the fact that pharma voluntarily agreed to sell drugs at discounts elsewhere and we’re saying ‘give us some of that,’” Azar said at a briefing with reporters after Trump’s speech.

Largest Market

The U.S. is far and away the largest global market for prescription drugs, with annual sales reaching about $325 billion in 2015, according to the Kaiser Family Foundation. Medicare, the government-run health program for the elderly, is the nation’s largest single financing source for pharmaceuticals.

Trump’s proposal would give Medicare the ability to negotiate with drug companies and take away cost-based fees for administering drugs that may encourage doctors to prescribe more expensive medications. The plan will affect about a third of the $30 billion spent each year by Medicare Part B, which covers medications administered at a doctor’s office or in a hospital.

It would represent a sea change for a country that has long resisted controls on drug prices. Medicare currently isn’t allowed to directly negotiate with drugmakers on prices -- it reimburses doctors for the purchase price of the medicine plus 6 percent.

“It seems obvious and sensible that they should be allowed to negotiate prices down,” said Rachel Elliott, a health economics professor at the University of Manchester, England. “Medicare is a massive purchaser of medicines; why shouldn’t they be allowed to negotiate a price?”

All countries in Europe look to other countries on drug pricing to some degree. Many depend on England’s drug-price authority, the National Institute for Health and Care Excellence, or NICE, for guidance, Elliott said. NICE requires companies to submit a price for their products and then determines whether it’s worth reimbursement by the National Health Service.

While negotiations between England’s government and pharmaceutical companies may take months, the drugs that make it through are available to the entire population, she said. In the U.S., large swaths of the poor and uninsured can be left out.

“The whole U.K. system is based on an ideal of access,” she said. “In the U.S., if you don’t have coverage, you’re not going to get access at all.”

In some cases, European patients have to pay the difference between the government’s reference price and what the company charges for a drug, said University of York’s Moreno-Serra. However, such patients have tended to seek out cheaper alternatives, leading to savings.

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