Trump lays out his vision for lower drug prices

Here's why drug prices are so high
Here's why drug prices are so high

Seeking to fulfill his longstanding promise to lower drug prices, President Donald Trump laid out his vision for increasing competition, reducing regulations and changing the incentives for all players in the pharmaceutical industry.

During a speech Friday, the president promised that his administration's actions would reduce what consumers pay at the pharmacy and would end the abuse in the system that leads to high drug prices. He blasted drug makers, health insurers, pharmacy benefit managers and others for profiting off American patients.

"We are going to take on the tangled web of special interests ... the drug lobby is making an absolute fortune at the expense of American patients," Trump said.

The administration also released a 44-page blueprint of the plan, entitled American Patients First.

The blueprint seeks to increase competition and improve the negotiation of drug prices, as well as reduce consumers' out-of-pocket spending on medicines and create incentives to lower list prices. Health and Human Secretary Alex Azar said it includes more than 50 moves that his agency has put into action or has planned.

Unlike Trump's fiscal 2019 budget proposal, the majority of the actions don't need Congress' approval, senior administration officials said.

The Department of Health & Human Services will take "a range of immediate actions" to implement the blueprint, according to a fact sheet provided by the White House on Thursday. The administration will also seek feedback on other potential policies.

Among the steps Trump and Azar mentioned Friday were ending the drug industry's so-called gag orders of pharmacists, which prevent them from discussing cheaper options with consumers, speeding up the approval of over-the-counter medications and asking the Food & Drug Administration to require manufacturers to include prices in their TV ads.

"Consumers would have much more balanced information and companies would have a very different set of incentives for setting their prices," Azar said.

The world's highest drug costs

Trump also lashed out at foreign governments that "extort unreasonably low prices" from manufacturers.

"In some cases, medicine that costs a few dollars in a foreign country costs hundreds of dollars in America for the same pill, with the same ingredients, in the same packaging, made in the same plant," Trump said. "It's unfair and it's ridiculous, and it's not going to happen any longer."

The president said he directed the US trade representative to make fixing this "injustice" a top priority during trade discussions.

Industry and consumer groups largely supported the president's efforts to tackle drug costs. Pharmacy benefit managers, which manage drug coverage and negotiate discounts for insurers, took the opportunity to tout their efforts to control costs. Others, including those representing insurers, physicians, pharmacists and hospitals, blamed drugmakers for the problem.

But AARP said there's no "justifiable reason" why Americans should have the world's highest drug costs.

Related: The 5 most expensive drugs in the United States

"AARP also strongly believes that it is critical that any proposals to lower prescription drug costs don't simply shift the costs around in the health care system without addressing the root problem: the prices set by pharmaceutical companies," said Nancy LeaMond, AARP's chief advocacy and engagement officer.

There are some promising ideas in Trump's plan, such as reining in pharmacy benefit managers, said Peter Bach, a physician who runs Memorial Sloan Kettering's drug pricing lab. But he doesn't see much point in trying to change drug prices in other counties.

However, the blueprint would affect many players in the drug supply chain.

"There's quite a bit of stirring the water," he said. "He's willing to cross some lines that are near and dear to important industries."

Trump has long promised to bring down the cost of drugs and has blasted drugmakers, but Friday's speech was the first time he addressed it at length. His administration has made several moves, though experts have said they mainly tinker around the edges of the problem.

During Trump's tenure, administration officials have provided some insights into how they intend to address the cost of prescription medicines. The White House has made recommendations in the president's budget request and in a report issued by the White House Council of Economic Advisers.

Among the proposed strategies listed on the fact sheet is allowing insurers in Medicare's Part D drug plans "greater flexibility ... to encourage better price negotiation." Officials said Thursday they would get "government rules out of the way that are preventing seniors from getting better deals."

This, however, doesn't mean that the administration will push to allow the federal government to negotiate Medicare drug prices directly, they said. Trump had promised on the campaign trail to give Medicare more of a role in bargaining.

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 Medicare program, rather than having insurers that provide Medicare Part D prescription coverage wring discounts from manufacturers. Drug companies, however, have lobbied hard to prevent government involvement, and Republicans have generally not supported such a proposal.

Top officials from the Department of Health & Human Services previewed some of the administration's priorities in recent speeches.

Health and Human Services Secretary Alex Azar said the agency is focused on several problems in the drug industry.

"These include the high list prices set by manufacturers, seniors and government programs overpaying for drugs due to [a] lack of the latest negotiating tools, rising out-of-pocket costs for consumers, and foreign governments free-riding off of American investment in innovation," Azar said in an address before the American Hospital Association on Wednesday. He noted that the agency will build on proposals in the president's budget, but said Trump "wants to go much, much further."

Some of the administration's efforts will seek to lower what consumers or the federal government pay at the pharmacy or to a provider, which some policy experts argue does little to affect the source of the problem: the high list prices of medications. Few expect the president to try to regulate what manufacturers charge for their drugs.

'A convoluted system'

One area in the Trump administration's sights is the shadowy world of drug price rebates. Insurers often receive big discounts for pricey, brand-name drugs from manufacturers. These concessions are usually negotiated by pharmacy benefit managers, who keep part of the rebate and pass the rest to insurers.

Related: Just who gets those big drug rebates?

The administration is looking to make these players share the discount with consumers, an idea the Obama administration also supported.

Seema Verma, the administrator of the Centers for Medicare & Medicaid Services, recently called rebates a "convoluted system," noting that they allow manufacturers to raise list prices. This, in turn, increases the amount of money insurers and pharmacy benefit managers collect in rebates, giving them no incentive to keep prices down.

"When prices go up, patient cost-sharing also goes up," she said in a speech before the American Hospital Association earlier this week. "We've all noticed the increase in the amount we have to pay at the pharmacy counter. For seniors who are sometimes on fixed incomes, the pain is real. This is not acceptable."

Insurers, however, argue that the rebates allow them to keep premiums low. So requiring them to share the discount could raise rates for everyone, while benefiting the relatively few patients who require high-cost, brand name drugs.

The president's budget calls for insurers who provide Medicare Part D prescription drug plans to give at least one-third of the rebates and price concessions to beneficiaries at the pharmacy, according to Avalere, a health care consulting firm. The Centers for Medicare & Medicaid Services is reviewing comments on passing along rebates in Medicare plans.

Related: How Trump plans to cut prescription drug prices

The administration may also revise how it pays for drugs administered in doctor's offices, clinics or hospitals through Medicare's Part B program.

The federal government currently pays providers 6% more than the average price of those medicines. This also gives manufactures the incentive to raise prices and gives providers the incentive to select more expensive medicines. Among the ideas under consideration by the Trump administration are moving Part B coverage into the Part D program, where insurers can better negotiate prices, and requiring manufacturers to provide more accurate sales data to make sure they don't exclude discounts.

Reducing drug costs in Medicaid is also under consideration. The president's budget calls for giving up to five states greater leeway to test drug coverage and payment models in their Medicaid programs. Allowing states to determine which drugs to cover would in theory allow 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.

Meanwhile, the Food & Drug Administration is focusing on reducing prices by increasing competition from generic drugs and so-called biosimilars, which are nearly identical to super-expensive biologic medicines. The agency has cleared a backlog of approvals for generic medications, and officials have spoken about tackling the "games" manufacturers play to keep competitors off the market, such as using loopholes to block rivals or paying them to delay bringing their drugs to market.

Related: Patients who can't afford their medications pin hopes on Trump

Trump's economic advisers blame high drug costs in the United States in part on foreign countries that control drug prices, claiming these countries are taking advantage of American innovation without paying for it.

"The United States both conducts and finances much of the biopharmaceutical innovation that the world depends on, allowing foreign governments to enjoy bargain prices for such innovations," the council's report said. "Simply put, other nations are free-riding, or taking unfair advantage of the United States' progress in this area."

The council suggested changing trade policy to limit the "underpricing" of drugs abroad.

Health policy experts, however, have questioned whether the administration's proposals to date will have a meaningful impact on the high cost of prescriptions.

"This is not doing anything to fundamentally change the drug supply chain or the drug pricing system," said Gerard Anderson, a health policy professor at Johns Hopkins University.

Additional reporting by CNN's Clare Foran.

Personal Finance


CNNMoney Sponsors