How Trump plans to cut prescription drug prices

Who is Alex Azar?
Who is Alex Azar?

President Donald Trump finally explained how he plans to fulfill his promise of lowering prescription drug prices -- at least in part.

On Monday, his administration released its 2019 budget blueprint, which proposed changes to payment policies in Medicare and Medicaid and fast-tracking the development of generic drugs as ways to help accomplish that goal.

"In particular, the budget's efforts to reduce the high cost of prescription drugs, especially for America's seniors, are a reflection of President Trump's deep commitment to addressing this important issue," said Health Secretary Alex Azar.

The budget calls for giving up to five states greater leeway to test drug coverage and payment models in their Medicaid programs. These states would be allowed to determine which drugs would be covered, known as a formulary, which would in theory let them negotiate bigger discounts directly with manufacturers.

Currently, any medications a manufacturer includes in the federal Medicaid drug rebate program are automatically on the formulary. Some states negotiate supplemental discounts for certain drugs. But if states could decide which drugs were covered, they could theoretically obtain even lower prices.

The budget also recommends changes to Medicare to lower drug prices for senior citizens. The administration would require insurers and pharmacy benefit managers to share with Medicare enrollees more of the discounts they receive from drug manufacturers in the Part D drug program. Also, it would give insurers more negotiating power by requiring them to only cover one drug per category, rather than two.

In addition, it would eliminate cost-sharing for generic drugs for low-income seniors and create a new out-of-pocket spending cap.

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One proposal that's not in the budget is allowing the federal government to negotiate Medicare drug prices directly. Many health policy experts and consumer advocates say that the federal government could use its heft to negotiate much lower prices for the more than 57 million Americans in the program, rather than having insurers that provide Medicare Part D prescription coverage wring discounts from manufacturers for their enrollees. Drug companies, however, have lobbied hard to prevent government involvement, and Republicans have generally not supported such a proposal.

The budget would also adjust payments for Part B drugs, which are administered at a doctor's office or hospital outpatient clinic, to discourage manufacturers from raising prices faster than inflation. Plus it would modify the 340B program -- in which hospitals with a lot of low-income patients get deeply discounted drugs from manufacturers -- to reward hospitals that provide more charity care.

The administration also wants to speed the development of generic drugs to enhance competition. It would make sure that generic manufacturers do not try to block their peers from entering the market.

The drug price proposals in the budget come just days after Trump's Council of Economic Advisers released a report on how to reduce pharmaceutical costs while stimulating innovation. That report blamed high prices in part on foreign countries that control drug prices, thereby taking advantage of American innovation without paying for it. The council suggested changing trade policy to address this problem.

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It also contained several broad suggestions for enhancing competition in the generic market and curbing prices in the U.S., including some also contained in the budget blueprint.

The administration's proposals to reduce drug prices were met with skepticism by some consumer advocacy groups. They say the suggestions do nothing to lower the actual prices of the medications -- instead, they just shift the burden of who has to pay for it, said Will Holley, spokesman for Campaign for Sustainable Rx Pricing, a coalition of health care providers, consumers, insurers, pharmacy benefit managers and others.

"None of these proposals get at the price," Holley said.

Also, the budget doesn't deal with ensuring brand-name manufacturers don't interfere with the creation of generic versions of their products, Holley said.

The main lobbying group for pharmaceutical companies, Phrma, did not immediately return a request for comment.

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