President Trump Plan to Lower Drug Prices the Boldest in American History
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Photo: Skidmore

President Trump Plan to Lower Drug Prices the Boldest in American History


President Trump spoke on Friday at the department of Health and Human Services. At this event, President Trump, the first US president to visit this place in its history, spoke boldly of plans to lower drug costs for American citizens. This is a big story and it goes hand-in-hand with the President's commitment to replace the Affordable Care Act (which is anything but) with actual affordable options for health care for American citizens. His plans were bold and striking.

Forbes Magazine summarized what happened:

Yesterday, the Trump administration unveiled a new proposal to substantially reduce the price of certain costly drugs administered under Medicare, by linking what Medicare pays for these drugs to what other industrialized countries pay. It’s a stunning move that could entirely reshape the way the pharmaceutical and biotechnology industries think about their business model.

This difference between what other countries pay for costly, patented drugs and what Americans pay has long irked President Trump. “For decades, other countries have rigged the system so that American patients are charged much more—and in some cases, much, much more—for the exact same drug,” Trump said. “In other words, Americans pay more, so that other countries can pay less.”

This claim is entirely verified. Drug costs in Russia, for example, are a tiny fraction of the cost for the same drugs (and actually manufactured in the USA), with observed differences in excess of 50%. Generally speaking, prescription medications in Russia are very inexpensive, so much so that insurance policies have little need to cover them. But in the US, the same drugs go for greatly increased costs even with co-pay mechanisms built into the health insurance policies.

The New York Times offered a less than positive assessment on this issue, and took advantage of the partisan politics to cast aspersions over the proposal:

Trump administration officials said they had the authority to use the Center for Medicare and Medicaid Innovation created by the Affordable Care Act to carry out the proposal. That agency has wide discretion to conduct demonstration projects. The Trump administration will accept public comments before starting the project. But the proposal will most likely face fierce political resistance from drug makers, some health care providers and some Republicans in Congress, and it could also be subject to legal challenges.

“The administration is imposing foreign price controls from countries with socialized health care systems that deny their citizens access and discourage innovation,” said Stephen J. Ubl, the president and chief executive of the Pharmaceutical Research and Manufacturers of America, the main trade group for the industry. He said the proposal would “threaten patient access to innovative lifesaving medicines.”

Democrats had their own reasons for skepticism.

It’s hard to take the Trump administration and Republicans seriously about reducing health care costs for seniors two weeks before the election when they have repeatedly advocated for and implemented policies that strip away protections for people with pre-existing conditions and lead to increased health care costs for millions of Americans,” said Senator Chuck Schumer of New York, the Democratic leader.

So for the Democrats and the Times, this news was greeted as political haymaking.

On the other hand, Forbes had a great deal of positives to say about this issue, most notably about how it would work. We offer some of that information here:

Part B of the Medicare program pays for drugs administered in a doctor’s office, such as drugs requiring an intravenous infusion. The way things work today, once a drug is approved by the FDA, a drug company can set whatever price it wants, and Medicare is effectively obligated to pay it.

We talk a lot about the damage that government price controls can do. But the Medicare Part B system today is not a market, but rather a system of price controls dictated by private industry, in which drug companies can effectively charge taxpayers whatever they want for the drugs they deliver to seniors, enriching themselves and their shareholders.

“We have a system right now that is setting prices," notes U.S. Health and Human Services Secretary Alex Azar. “It’s just a really stupid way to set prices. It says, ‘Hey, manufacturer, invent whatever list price you want, and we’ll pay a 6 percent premium on top of that.’”

Fanning the flames is the fact that under the Medicare Modernization Act of 2003, doctors get a 6 percent commission on drug infusions that is tied to the average selling price of a drug: effectively incentivizing physicians to steer patients to costlier drugs, because doctors receive a higher commission the higher the price of the drug.

The Trump proposal would address the problems in Medicare Part B in two principal ways.

First, it would replace the 6 percent doctor commission for Medicare Part B drugs with a new system in which they earn a comparable amount, but without the perverse incentives. Doctors would be reimbursed similarly for administering a costly drug or an inexpensive one: giving them more reason to deliver affordable medicines to their patients. “We aim to make sure doctors make the same whether they’re prescribing a more expensive branded biologic or its [quasi-generic] biosimilar,” added Secretary Azar in remarks at the Brookings Institution.

Second, it would link Medicare Part B prices to an International Pricing Index based on sixteen other countries: Austria, Belgium, Canada, Czech Republic, Finland, France, Germany, Greece, Ireland, Italy, Japan, Portugal, Slovakia, Spain, Sweden, and the United Kingdom. Why these countries? Because, in a policy brief published by HHS’ Assistant Secretary for Planning and Evaluation (ASPE), they found it relatively easy to acquire pricing data from these countries, out of those “in the G7 and all countries in Germany’s external reference pricing market basket.”

The program would be piloted under the Center for Medicare & Medicaid Innovation, an agency created by the Affordable Care Act to investigate ways to make the Medicare and Medicaid programs more cost-effective, now led by Adam Boehler. The pilot would cover half of the U.S. population, and the administration estimates that the plan could reduce Medicare Part B spending by $17 billion over the next five years.

And, because seniors enrolled in Medicare are required to pay for a share of their Medicare Part B drug costs, lower Medicare drug prices would translate into significant savings for seniors receiving infused medications.

Forbes also does note that the drug industry is expected to fight this very hard. After all, it destroys an easy path to incredible profits.

The Pharmaceutical Research and Manufacturers of America (PhRMA), the main drug lobby, reacted swiftly to the news, claiming that it would “jeopardize access to medicines for seniors and patients with disabilities living with devastating conditions such as cancer, rheumatoid arthritis and other autoimmune diseases.” The Biotechnology Industry Organization (BIO) argued it would continue “a troubling trend towards undermining the Medicare Part B drug program.”

But what really undermines the Medicare program is its unsustainable cost: the single biggest contributor to America’s debt and deficit problems. Many pharmaceutical and biotechnology companies—but not all—have contributed to this problem by charging egregious and exploitative prices to the Medicare program.

Ironically, the Trump administration’s own “American Patients First” drug price blueprint derided the idea of setting prices based on an international index. It characterized the use of “the price of a medicine in one or several countries to derive a benchmark or reference price” as “price controls [that] prevent drug companies from charging market rates for their products, while delaying the availability of new cures to patients living in countries implementing these policies.”

But as I noted above, the prices that Medicare currently pays aren’t “market rates” in any meaningful sense of the term. A market is based on competition and voluntary exchange. In the case of Medicare Part B, drug companies charge whatever they want, and taxpayers foot the bill. That’s not a free market by any definition.

The most market-based model in Medicare for prescription drug coverage is also its most cost-effective: the Medicare Part D program, that pays for drugs seniors buy at the retail pharmacy. Medicare Part D gives seniors the choice of dozens of private plans that compete on price. This system has led to remarkable cost savings, and is a big part of why America leads the world in the use of inexpensive but effective generic medicines.

The ideal path to prescription drug reform would include expanding the Part D model into drugs administered in the hospital and doctors’ offices, by piloting an integration of Part A and B drugs into Part D plans. Fortunately, the Trump administration is also exploring this idea, which could lead to even greater savings, over time, compared to the International Pricing Index.

And the International Pricing Index itself could be improved. The Index proposed by the administration leaves out the more market-oriented health care systems in Europe, like Switzerland and the Netherlands, and includes more single-payer-oriented systems like Canada and the U.K.

The good news is that the Trump administration is playing hardball. For too long, even the most modest, incremental reforms have been blocked by industry lobbyists who want nothing to interfere with skyrocketing drug prices. By taking dramatic action, the administration is finally forcing the industry to the bargaining table. The result, we can hope, will be more affordable medicines for everyone.

One can expect the fun and games to begin as this issue is brought before Congress, hopefully very soon, if not before, the midterm elections. The Obamacare act was like a sack of stones on the backs of millions of Americans. However, the President and his people have found ways to use elements of the ACA to actually do what the ACA was billed as doing - to make health care affordable and to minimize its economic impact of the lives of the American people, particularly the elderly and infirm.

Author: Seraphim Hanisch