Friday, March 17, 2017

Pharmaceutical Drug Pricing, According to President Donald J. Trump

By: Marcus J. Hopkins, Blogger

Screenshot of President Donald J. Trump speaking at January 10th press conference about the pharmaceutical industry.
Source: Fox Business News; WATCH CLIP
"I think a lot of industries are going to be coming back. We have to get our drug industry coming back. Our drug industry has been disastrous. They’re leaving left and right. They supply our drugs, but they don't make them here. To a large extent. And the other thing we have to do is create a new bidding procedures for the drug industry because they're getting away with murder. 
Pharma has a lot of lobbies, a lot of lobbyists and a lot of power. And there's very little bidding on drugs. We’re the largest buyer of drugs in the world, and yet we don't bid properly. And were going to start bidding and were going to save billions of dollars over a period of time (National Public Radio, 2017)."
 President Donald J. Trump


Those two paragraphs during then-President-Elect Trump’s first press conference on January 10th, 2017, resulted in the nine biggest pharmaceutical companies (by market cap on the S&P 500) shedding $24.6 billion dollars in just twenty minutes (Shen, 2017). Fox Business Network (FBN) analysts were falling all over themselves to explain what he meant, desperate to make it seem like he wasn’t saying that there needs to be a cap on industry profits and to make it into an issue about taxes, regulations, and the Food and Drug Administration (FDA) approval process (Fox Business Network, 2017). In just two paragraphs, Donald Trump managed to place pharmaceutical companies and lobbyists on the defensive – a position few likely thought they’d be in, after his electoral win in 2016, as market-oriented Republicans have consistently been sympathetic to the industry.

But breaking beyond his rhetoric and getting at the heart of what he’s attempting to say about the way the Federal government in the U.S. deals with pharmaceutical pricing is no simple task, largely because the issue of pricing is cloaked from the public as a result of existing Trade Secrets laws at both the state and Federal levels. These laws allow companies to keep secret how they set the price for their drugs, as well as what and how prices are negotiated with private insurers and government payers, like Medicaid and Ryan White Part B – the AIDS Drug Assistance Program (ADAP). While the Centers for Medicare and Medicaid Services (CMS) are privy to this information, the exact price that each state’s Medicaid program pays is not public information, and releasing that data could result in serious consequences for those programs.

Of the three major public healthcare programs – Medicaid, the Veterans Administration, and Medicare – only the latter is barred by law from negotiating drug prices (Kertscher, 2017). This is a result of a provision inserted into the Medicaid Modernization Act (2003); the act that introduced the controversial Medicare Part D. Medicare Part D is a voluntary insurance program for prescription drugs for people on Medicare that was introduced by former President George W. Bush that has been in place since 2006. It created a market wherein private insurance companies offer various plans (at the county and zip-code-based levels) subsidized by the Federal government. One of the main provisions of the Act states that, “…in order to promote competition,” the Health and Human Services (HHS) Secretary “…may not interfere with the negotiations between drug manufacturers and pharmacies and prescription drug plans.”

There have been various attempts, since 2003, to amend this part of the legislation, as it strictly forbids the Medicare program from using its leverage to essentially force pharmaceutical companies to provide drugs for lower prices. This leverage exists in the form of the 55.3 million Medicare beneficiaries. The 59 state and territorial Medicaid programs have used their numbers – 74.165 million – to successfully negotiate considerably larger rebates from drug manufacturers than the private plans in Medicare Part D “…by a substantial margin” (Department of Health and Human Services, 2015). What differentiates Medicaid from Medicare is that the former is a Federally-funded, state-administered program, where the latter is essentially a model of what other nations refer to as “Universal Coverage.”

Opponents of Medicare drug negotiation argue that allowing the largest government-funded healthcare program to negotiate lower prices will lead pharmaceutical companies to push for higher prices for everyone else (those not enrolled in Medicare). They also argue that the private insurers have greater leverage to negotiate, despite their seeming inability to negotiate better than state governments. Others, still, argue that Medicare negotiation is essentially anti-“Free Market,” and amounts to “price controls” that would serve as a disincentive for drug makers to continue investing in the research and development that produces new drugs (Cubanski & Neuman, 2017).

What makes now-President Trump’s two-paragraph-stock-temblor difficult for pharmaceutical companies – not to mention “Free Market” Republicans – to swallow is that it is entirely heretical to the “small government” line toed by modern Republicans. That a sitting Republican president should dare utter the belief that Big Government should be allowed to use its leverage to “negotiate” (read: “force”) lower drug prices for Medicare is antithetical to everything market-based Republicans and small-government Conservatives have argued for the past forty years. And, let’s be honest: this is the kind of stuff that made and continues to make Trump so troublesome for the Republican Party. He’s unpredictable, often shoots from the hip without a filter, and leaves his mess to be cleaned up by a staff of harried, but loyal adherents who either have to step in and try to translate what he’s said into comprehensible English, or twist themselves into human pretzels to try and convince people that he didn’t actually say what he said, and then, explain what he was supposed to have meant. It’s very unsettling, and often provides political opponents enough artillery to successfully derail his (and thereby their) agenda.

Despite President Trump’s seeming willingness to work with pharmaceutical companies on the issue of FDA approval procedures and regulatory issues (Johnson, 2017), both he and his media surrogates continue to float his argument for Medicare negotiations (Daurat & Olorunnipa, 2017). He also faces considerable opposition from his own party – one that has made no bones about their opposition to the idea.  To their way of thinking, the private sector is better suited to negotiate lower prices, rather than Big Government coming in to tell them what they can charge. His Secretary of Health and Human Services, Tom Price, has, in the past, been consistent in his opposition to Medicare drug negotiations and has repeatedly blocked measures that would allow the HHS to do so. In his confirmation hearings, however, he stated that his “boss will be the President of the United States,” in response to questions on the subject. While not an overt statement in support, it came across as more of a resignation that that’s what Trump wants, despite his own wishes.

Congressional Republicans even have some evidence to back up their claims. The Congressional Budget Office (CBO) has indicated that competition among plan sponsors in Medicare Part D markets has led to lower costs (Congressional Budget Office, 2014). The caveat is that those savings are largely seen only in regions where there are a large number of sponsors – essentially, places where there is a market for their services: areas where retirees have higher incomes. Part of the reason why Medicare Part D has come in at a lower price tag than the CBO initially projected is that enrollment is 12% lower than expected (CBO). Advocates of Medicare negotiation have suggested that this lower enrollment is due to people in smaller markets being unable to afford the monthly expenditure for Part D coverage, as well as the fact that the prices in those smaller markets’ plans simply aren’t low enough to make the plans attractive. Essentially, “Why buy something you can barely afford only to still be unable to afford your medications?”

There’s little question that the coming year is likely to produce many questions about President Trump’s assertion that the drug companies are “getting away with murder,” especially as his positions continue to be amorphous. What this will mean for Medicare has yet to be seen, but you can bet that whatever it is, it will leave critics and proponents, alike, trying to figure out how they got there.


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Disclaimer: Guest blogs do not necessarily reflect the views of the ADAP Advocacy Association, but rather they provide a neutral platform whereby the author serves to promote open, honest discussion about public health-related issues and updates. 

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