President Donald Trump unveiled two controversial rules on Friday aimed at reducing drug prices – a last-ditch effort to fulfill a key 2016 promise that immediately sparked legal threats from the pharmaceutical industry and condemnation from Democrats.
If the two measures announced Friday survive legal challenges, they will radically transform the nation’s drug price system. One will have Medicare pay the same price for certain expensive prescription drugs as other developed nations, a “most-favored-nation price.”
The other will effectively ban drug makers from providing rebates to pharmacy benefit managers and insurers – a radical change in the way many drugs are priced and paid for in Medicare and Medicaid. Instead, drug companies will be encouraged to pass the discounts directly to patients at the pharmacy counter.
During a 22-minute press conference, Trump ran through a laundry list of drug price efforts his administration undertook in his four years in office. Many, however, remain in the proposal stage, were stopped by courts or had little impact. Prices have continued to rise, though the pace has slowed under his presidency.
He also alluded to the fact that he may not be in office next year. “I just hope they keep it. I hope they have the courage to keep because the powerful drug lobby, Big Pharma, is putting pressure on people like you would not believe,” Trump said, referencing one of the rules.
The new rules come just days after Pfizer and Moderna announced the results of their coronavirus vaccine trials. The President accused the companies earlier Friday of withholding the news until after the election in retaliation for his efforts to reduce drug prices.
Basing Medicare reimbursement on drug prices in other countries
The rules stem from a series of executive orders Trump released in July and September.
The most-favored-nation rule allows the US to piggyback on discounts negotiated by other countries – since Congress has banned Medicare from negotiating with drug makers. Other nations typically pay far less for medications, in large part because their governments often determine the cost – which runs counter to Republicans’ allegiance to the free market system.
Though Trump has slammed socialist health care systems that exist in other countries and attacked his Democratic rivals for seeking to implement such a setup here, he has celebrated linking US prices to peer nations’ lower costs.
“In short, with this rule, the head of the Republican Party is endorsing the proposition that Americans should not pay higher prices than do the citizens of other countries – and he is willing to endorse adopting European price controls to reduce prices here,” tweeted Rachel Sachs, an associate law professor at Washington University.
The model, which will operate for seven years, will test paying the most-favored-nation price for 50 Medicare Part B drugs that are administered in doctors’ offices. These medications account for about 73% of Part B drug spending. This will replace the current system, which pays the average sales price plus a 6% add on.
The rule, which takes effect at the start of 2021, could save patients $28 billion.
The President’s executive order in July expanded the initiative to include certain Part D drugs sold at pharmacies, but Friday’s rule only referenced Part B medications. The Part D version is under development, said Seema Verma, administrator of the Centers for Medicare and Medicaid Services.
Trump first outlined an International Pricing Index proposal to set Medicare reimbursement levels for certain drugs on their cost in other countries in October 2018, seeking to bolster Republicans’ standing on health care days before the midterm election. It called for the “target price” to be 126% of the average of what other countries pay.
Directing rebates to consumers
The second rule will effectively ban drug makers from providing rebates to pharmacy benefit managers and insurers – a radical change in the way many drugs are priced and paid for in Medicare and Medicaid. Instead, drug companies will be encouraged to pass the discounts directly to patients at the pharmacy counter.
On Friday, HHS said that patients may be able to save nearly 30%. It will affect patients whose out-of-pocket costs are tied to a drug’s list price – for instance, those who must meet a deductible, use a drug not covered by their insurance or pay co-insurance that is tied to the list price. Those with high medication costs will benefit the most.
However, the Trump administration backed down from issuing this rule last year after it was found to raise costs for seniors and the federal government.
The proposed rule was expected to raise Medicare premiums, while only saving money for the 30% of Medicare Part D enrollees who spend a lot on medication, according to the administration’s estimates from 2019. It would also have cost the federal government $177 billion over 10 years, according to the Congressional Budget Office.
Trump’s executive order in July called for putting this rule in place but only if it didn’t increase costs. Health and Human Services Secretary Alex Azar said Friday that there were a wide range of actuarial estimates, some which of which showed the rule would produce savings. He doesn’t believe the measure will hike premiums based on trends in rebates and premiums over the past 15 years.
Experts took issue with this claim.
“Despite actual analysis of the effect of this rule on spending and premiums showing HUGE increases, Azar says it won’t matter because he just knows,” tweeted Stacie Dusetzina, associate health policy professor at Vanderbilt University Medical Center.
It will take effect at the start of 2022.
Immediate opposition from industry
Pharmaceutical industry groups immediately criticized the rules, promising to consider all options to stop the measures.
PhRMA, the drug makers’ lobbying group, said that the most-favored-nation rule will threaten medical innovation in the US and harm patients.
“It defies logic that the administration is blindly proceeding with a ‘most favored nation’ policy that gives foreign governments the upper hand in deciding the value of medicines in the United States,” said PhRMA CEO Stephen J. Ubl. “History proves that when governments take unilateral action to set prices, it disrupts patient access to treatments, discourages investment in new medicines and threatens jobs and economic growth.
Industry organizations representing insurers and pharmacy benefit managers slammed the rebate rule.
“Simply put, the [Health and Human Services] Secretary’s decision to advance the previously withdrawn rebate rule will drastically increase Medicare Part D beneficiary premiums and taxpayer costs,” said JC Scott, CEO of the Pharmaceutical Care Management Association, which represents pharmacy benefit managers. “PCMA will explore all possible litigation options to stop the rule from taking effect and destabilizing the Medicare Part D program that millions of beneficiaries rely on.”
House Democratic leaders, who have put forth their own plan to reduce drug prices, lashed out at Trump.
“While the coronavirus surges across the country, President Trump is spending his twilight days in office pushing through half-baked proposals that will likely be struck down in court because he’s desperate to cover up his administration’s failure to actually lower drug prices,” said Energy and Commerce Committee Chairman Frank Pallone, Jr. of New Jersey and Ways and Means Committee Chairman Richard E. Neal of Massachusetts.