The long road to lower drug prices hits some potholes
When Washington returned from its winter holiday break in January, it seemed everyone was talking about lowering drug prices.
Energized by a new class of freshmen and a few weeks away from the office, members of Congress were ready to wag their fingers at drug company executives and pitch their fixes. President Donald Trump had unveiled some of his solutions to a problem he said was a top priority, and more would follow.
Now it’s July, and whether it’s the humidity or the lobbyists, Washington — and the prospects for substantial change — look hazy. Two of the Trump administration’s primary targets, slashing rebates to drug supply middlemen and requiring prices in drug ads, fell apart in recent weeks.
But others live on. Let’s walk through some of the most significant proposals to reduce pharmaceutical costs — and see where they ended up.
Capping price hikes under Medicare? A tough sell.
On Tuesday, Sen. Chuck Grassley (R-Iowa), chairman of the Senate Finance Committee, and the committee’s top Democrat, Sen. Ron Wyden of Oregon, released the details of a sweeping plan to control drug costs under Medicare and Medicaid.
One of the most significant proposals in the plan would cap price increases on brand-name drugs and biologic drugs covered by Medicare to ensure they do not outpace inflation, and triggering rebates when they do.
The proposal would start by comparing prices to an “anchor” price set on July 1, 2019 (or, for new drugs, the date they were first marketed), and adjusted for inflation, according to Grassley’s office.
Gage Skidmore
Sen. Chuck Grassley
Under Medicare Part B, the prices would be based on a drug’s average sales price; under Part D, the prices would be based on a drug’s list price.
If a drugmaker increases the price of its drug more than the rise in inflation, it would owe Medicare the difference between the prices as a rebate.
Proponents say that change could shield more Americans from the kinds of eye-popping price hikes that have sparked a public outcry in recent years. But Republicans are likely to oppose the idea, which they claim amounts to government price controls.
Medicaid already applies this strategy and tends to pay better prices on drugs. A report from the HHS inspector general found that Medicare could have collected as much as $2.4 billion in rebates on just 20 brand-name drugs covered by Part B in 2010 had drugmakers been required to pay the same rebates they pay Medicaid.
Dr. Aaron Kesselheim, a professor of medicine at Harvard Medical School who researches the effects of intellectual property laws on drug development, pointed to the problematic lack of restrictions dictating how drugmakers set prices.
“I think that’s a very promising idea, if it sees the light of day,” he said in an interview before the bill was unveiled.
The Senate Finance Committee will mark up the bill Thursday.
Buying your drugs from Canada? Bipartisan, and Trumpian, support.
Importing prescription drugs, an idea that has waxed and waned over the years, has received backing in this Congress, as well as the White House. Grassley, with Sen. Amy Klobuchar (D-Minn.), one of the seven Democratic senators running for president, introduced legislation in January that would allow Americans to import cheaper pharmaceuticals from Canada for personal use.
Trump has encouraged Florida Gov. Ron DeSantis in his effort to start an importation program there.
But perhaps the most intriguing development came July 11, when Health and Human Services Secretary Alex Azar — a former pharmaceutical company executive who had opposed drug importation — suggested an administration plan could be in the works.
Alex Azar
“My thinking has always been, if we’re going to have importation, we have to ensure the safety of the drug supply in the United States,” Azar told reporters, adding he believes things have “changed quite substantially” since the idea was discussed during George W. Bush’s presidency.
Azar served as a deputy secretary of Health and Human Services under Bush.
Those changes, particularly in international distribution, “could open the door to safe approaches,” Azar said. “And so the president and I are committed to importation and making that work, and we’re working on that now.”
Tying prices here to prices abroad? Stay tuned.
Earlier this month, Trump said the administration was working on a “favored nations” policy in which drug prices would be capped at the lowest price paid in another country.
The Office of Management and Budget is already reviewing an administration proposal for an “international pricing index” pilot project, through which Medicare would base the prices it pays for certain drugs on prices in other industrialized countries.
The issue dovetails neatly with Trump’s “America First” ideology, with the president railing against the idea that other countries’ citizens pay less than Americans for the same drugs. He announced the proposal last October, shortly before the midterm elections.
It also runs afoul of the traditional conservatives’ devotion to the free market, though. Grassley said in June that he opposes the pilot project, which he suggested could stifle innovation.
But with Americans paying so much more than other countries for brand-name drugs, something’s got to give, said Dr. Gerard Anderson, a health policy professor at Johns Hopkins University in Baltimore. “That’s just not long-term sustainable,” he said.
Rebate rule? We hardly knew ye.
For months, pharmacy benefit managers (PBMs), the middlemen who negotiate drug prices for insurers, were the target of bipartisan bashing. But this month, Washington abruptly backed off, as the Trump administration withdrew its proposal to eliminate some rebates collected by PBMs in their work for government health plans, including Medicare’s Part D drug benefit.
In January, HHS proposed passing those rebates along to Medicare and Medicaid beneficiaries as discounts at the pharmacy counter. PBMs would receive a fixed fee for their services.
It had “the potential to be the most significant change to how Americans’ drugs are priced at the pharmacy counter, ever,” Azar said then, explaining it would get rid of a practice that was driving up drug prices, especially for seniors.
The secretary punted the rebate issue to lawmakers, who “have more tools than we do.” The initiative would be expensive, and Medicare beneficiaries would likely feel some of the burden. He said: “We’re not going to put seniors at risk of their premiums going up.”
But Congress shows no interest in picking up the ball. In May, the Congressional Budget Office estimated the HHS proposal would cost the government an additional $177 billion over 10 years.
Now perhaps the biggest threat to PBMs lies in a sprawling package from the leaders of the Senate Health, Education, Labor and Pensions Committee. The bill from Sens. Lamar Alexander (R-Tenn.) and Patty Murray (D-Wash.) would ban “spread pricing” — a PBM practice of charging health plans more than they reimburse pharmacies for drugs, allowing them to collect the difference as profit.
Help for generic drugmakers? There’s still hope.
When it comes to lowering prices, this is one of the few arguments echoed by progressives and conservatives alike: Brand-name drugmakers are suppressing competition in downright unsavory ways.
The Alexander-Murray plan includes a slew of proposals that would make it harder for those manufacturers to block generic competitors and maintain a virtual monopoly. A CBO estimate released Tuesday concluded the package’s proposals to reduce drug prices would save the government about $3.8 billion, and increase federal revenue by about $700 million over 10 years.
Their package includes the CREATES Act, a bipartisan bill aimed at curbing anti-competitive practices against generic drugmakers. Among other changes, it would make it easier for generic drug manufacturers to obtain samples of brand-name drugs to use in their research, thus helping to get their versions on the market faster.
Kesselheim of Harvard Medical School said he thinks the myriad proposals on generics are generally good ideas to help lower prices.
“They’re each like small, individual arrows,” he said. “And taken as a whole, I think they may be useful. But we’ll just see how many of them actually come to pass.”
Art of the drug deal? We’ll see.
Speaker Nancy Pelosi and other House Democratic leaders spent last month listening to their members’ ideas (and complaints) about the ambitious plans to lower drug prices. But they are still quietly working on a plan that would allow the secretary of Health and Human Services to negotiate prices on some of the most expensive drugs — and on behalf of all Americans, not just those with government health coverage, such as Medicare.
Putting aside progressives’ concerns that it doesn’t go far enough, the proposal faces stiff opposition among Senate Republicans, who say they worry about its impact on Medicare.
Skeptics include Grassley, whose views as head of the Senate Finance Committee could make or break any drug pricing proposal that finds its way to the Senate.
Still, House Democratic leaders have been in conversations with White House officials for a while about the plan’s broad strokes, according to a Democratic aide, raising the far-fetched prospect of an alliance between Pelosi and Trump.
Drug prices in ads? Preempted.
An eleventh-hour ruling from a federal judge this month blocked one of the Trump administration’s most prominent efforts to lower drug costs: a rule requiring drugmakers advertising any drug that costs more than $35 a month to include its list price in commercials. Administration officials hoped the requirement would shame the manufacturers into lowering costs.
But three companies — Merck, Amgen and Azar’s former employer, Eli Lilly — sued in June to stop the rule, claiming it violated their First Amendment rights and was not within the government’s authority to require them to disclose list prices. The judge agreed with the latter argument.
Anderson, the Johns Hopkins professor, was one of the researchers on a recent experiment that showed participants were less likely to seek out an expensive drug when its price was disclosed.
“I think that one would have made a difference,” Anderson said in an interview.
This story was first published July 24, 2019, in Kaiser Health News (KHN), a national health policy news service. It is an editorially independent program of the Henry J. Kaiser Family Foundation which is not affiliated with Kaiser Permanente.
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If governments set restrictions on price increases based on the initial price, that’s an incentive for companies to set the initial price for all drugs as high as possible.
Companies respond to regulatory actions.
Also, there’s a problem with using foreign prices of a drug as a basis for US prices: some countries set a maximum price for drugs, which may be based on production costs. That means no profits to pay for failed but once promising drugs or for (the companies which discover) new drugs. Drug companies have argued for years that the US has to pay development costs, true or not.
Any scheme to obtain drugs from foreign suppliers will have to be carefully negotiated and calibrated.
Drugs should be cheaper, but I’m not sure any scheme like the ones in the article is going to outflank the drug companies.