#17.5 - Special Edition: Drug Pricing Follow Up

A quick update on further developments in Trump's drug pricing blueprint

Given a second round of announcements on HHS’ drug pricing plans, and a new round of analysis, I wanted to do a short update on what’s happened with a drug pricing proposal “more sweeping than anybody’s ever proposed before.” (Alex Azar’s words, not mine.)

On Monday, HHS Secretary Alex Azar made a speech following up on President Trump’s Friday speech on drug prices. In this, and the subsequent Q&A with CMS Administrator Seema Verma and FDA Commissioner Scott Gottlieb, the three further clarified the administration’s goals with the drug pricing blueprint. Some specific policies to watch:

  • Azar talked about the possibility of starting to negotiate Medicare Part D (standard prescription drugs) more similarly to Medicare Part B (drugs dispensed/used in the hospital by physicians). Medicare Part B is priced at the average selling price of the drug, plus 6%. If they follow through on this  (and it might take Congressional legislation), it would be the biggest and boldest change in this proposal. 

  • They re-raised the possibility of outlawing PBM rebates by considering them kickbacks (which, let’s be real, they are) - Gottlieb first teased this a few weeks ago 

  • They seem dead-set on removing any restrictions on pharmacists when it comes to advising patients on the cheapest option for paying for drugs (when paying cash might be cheaper than a co-pay, for example). More on that phenomena

  • They plan to be aggressive in calling out pharma companies who “game the system” by failing to supply generic manufacturers with the samples they need for drug development (thus slowing down generic competition)

  • They continue to harp on the notion of requiring drug companies to include list prices in drug advertisements. While this seems tough on pharma, the list price of a drug often bears little meaning for the end user who will end up paying some negotiated percentage or copay based on insurance coverage and PBM leverage. If the goal is to let Americans know that most drugs are very expensive, it’s a little late.

Also, Secretary Azar doubled down on the administration’s refusal to consider Medicare directly negotiating drug prices. In another interview from Monday on the Hugh Hewitt radio show, Azar said: 

“What they’re talking about are cheap, political gimmicks like saying the Secretary should do the negotiating instead of these drug plans. Well, you know what? The same people who bring you $400 toilet seats in procurement are not the people to negotiate best with these big drug companies. You need these big, bad middlemen, these Part D drug plans, to hit these companies hard. I know. I was on the other side. They know what they’re doing. We have to unleash them and sick them on the drug companies. They know how to manage this, but they know how to manage it in a way that is appropriate to our patients and retains free market choice for our patients in their programs. The only, even the Democrats, even Peter Orszag, who was the Democratic head of the Congressional Budget Office, and then President Obama’s head of the Office of Management and Budget, has repeatedly made clear that having me as Secretary do the negotiation wouldn’t yield any savings to seniors or government programs unless you move to a system like Obamacare of rationing care, denying access to medicine, denying choice and moving to a European socialist style system of one size fits all.”

By drawing a straight line from Medicare negotiating prices to European socialism, we can be certain that this administration is trying to kill this issue, and even make it politically untouchable for the next one. 

This quote also gives us insight as Azar once again praises PBMs (the middlemen) and their ability to negotiate on behalf of the government. Given Scott Gottlieb’s recent talk about ending rebates (a sizable revenue source for PBMs), it’s hard to tell if this administration wants to put them out of business, or offer them office space in the West Wing. PBM stock prices, which are essentially flat, indicate investors aren’t sure what to think, but they aren’t panicking yet. 

Overall, the feeling that this blueprint was very preliminary and indecisive hasn’t wavered. Azar’s insisted on Hugh Hewitt that the proposal contained ideas “more sweeping than any drug pricing initiative ever before from a Democratic president, from a Republican president, ideas that have never even been seen by liberals or conservatives.”

Perhaps if the administration hadn’t told us this would be a game-changer, we wouldn’t be disappointed when the proposals weren’t, in fact, game-changing.