President Donald Trump announced new policies Friday aimed at lowering prescription drug prices under Medicare by linking them to rates paid in other countries and allowing Americans to buy medication imported from Canada.
The changes are included in executive orders that come as Trump seeks to repair his standing on health-care issues, particularly with senior voters. Polls have shown sentiment is souring over his handling of the coronavirus pandemic and efforts to eliminate the Affordable Care Act without having a ready replacement.
The president also announced a new policy to require federally qualified health centers to pass discounts they receive on insulin and EpiPens directly to their patients, and a drug rebate rule that removes legal shields for reimbursements paid by drugmakers to middlemen and insurers.
The orders “represent the most far-reaching prescription drug reforms ever issued by a president,” Trump said at an event in Washington. They will “completely restructure” the prescription-drug market, he said.
Democrats and drugmakers quickly pushed back. House Speaker Nancy Pelosi said the moves “take no real action” to lower prices and will put Medicare beneficiaries at risk of higher premiums. Industry lobbyist Stephen Ubl, head of the Pharmaceutical Research and Manufacturers of America, called the pricing policy “radical and dangerous.”
The order tying prescription-drug prices to international benchmarks, which Trump described as the “most favored nations” clause, won’t go into effect until Aug. 24 to give drugmakers time to come up with alternative measures for lowering costs, Trump said. Several top pharmaceutical companies have requested a meeting on the issue, which will be held on Tuesday.
$17 billion savings
The international drug price rule is the only policy backed by the administration that would boost the government’s ability to decide what it will pay for medications. Health officials estimate the policy change proposed by Trump will save Medicare $17 billion in the first five years. In 2018, Medicare spent $335 billion on prescription drugs, a 2.5% rise from the previous year.
“We pay for all of the resources and all of the development and foreign countries pay absolutely nothing,” Trump said. “Americans are funding the enormous cost of drug resource for the entire planet.”
Trump’s plan to import cheaper drugs from Canada is less likely to be effective. Canada’s pharmaceutical market is likely not big enough to satisfy the U.S. demand for drugs.
Secretary of Health and Human Services Alex Azar said that personal importation of insulin would be allowed, after not allowed last year under the previous importation proposal.
Rebate rule
Trump also revived his drug rebate rule, stripping legal shields for reimbursements paid by drugmakers to middlemen and insurance plans providing coverage through Medicare’s Part D drug program or Medicaid.
Those payments create incentives for higher drug prices, drug companies have argued, because they push companies to raise prices in order to meet discount demands by drug middlemen. Instead of middlemen receiving discounts based on the price of drugs, they’d get a fixed fee under the policy change.
The pharmaceutical industry supported the plan, which was one reason for its initial demise. Trump was also apparently concerned in the past that the policy would raise insurance premiums. Lawmakers criticized the rule for its massive price tag too. It would cost taxpayers $177 billion over a decade, according to the Congressional Budget Office.
Jon Conradi, an outside spokesman for the Campaign for Sustainable Rx Pricing, which represents insurers, pharmacy benefit managers, and hospitals, lambasted Trump for bringing it back to the table.
“A reboot of the Rebate Rule, after the administration’s own admission it would increase premiums on Medicare beneficiaries and cost taxpayers hundreds of billions, would be a stunning cave to Big Pharma at the expense of American seniors and taxpayers,” Conradi said before the executive order was announced.
Discount program
The plan to use the federal drug discount program, known as 340B, for hospitals to get cheaper insulin and EpiPens is also new. The 340B program requires drug companies that want to sell their drugs through state Medicaid plans to offer steep discounts to hospitals that serve primarily low-income patients. The program has grown considerably in the last few years.
Health centers will be required to pass on to patients any savings that they get from drugmakers for insulin and epinephrine, Health Resources and Services Administration head Thomas Engels said on a call with reporters.
Drug industry representatives warned that the overarching spirit of four-fold executive order could put jobs and progress on coronavirus therapeutics at risk, while also predicting that implementation was unlikely to make major waves.
‘Cripple’ companies
Drug industry representatives warned that the overarching spirit of four-fold executive order could put jobs and progress on coronavirus therapeutics at risk, while also predicting that implementation was unlikely to make major waves.
Michelle McMurry-Heath, CEO of the Biotechnology Innovation Organization, said adopting foreign price controls will “cripple the small, innovative companies developing the vaccines and therapies that will help end this pandemic and get the American people back to work.”
Ubl, meanwhile, said setting prices “based on rates paid in countries that he has labeled as socialist, which will harm patients today and into the future.”
The Nasdaq Biotechnology Index, a market gauge that includes established drugmakers and smaller makers of innovative medicines, closed down 2.1% on Friday, a steeper decline than the broader stock market. The S&P 500 declined 0.62%.
Diverging reactions
As might be expected, Congress had diverging reactions.
Pelosi said if Trump was committed to lowering drug costs, he should throw his weight behind a bill sponsored by House Democrats that she said better addressed the issue.
Meanwhile, Senate Finance Committee Chairman Chuck Grassley commended Trump, stating that he doesn’t blame the president for taking action “where Congress has failed” to advance legislation. “For those who don’t like these executive actions, there’s time to get to the table and back a legislative solution.”
Congress self-imposed a Nov. 30 deadline to pass drug-pricing legislation, but the Covid-19 pandemic and contentious 2020 election has led many to believe action was unlikely.
“This is going to end up being political noise,” said Alexander Karnal, a partner and managing director at Deerfield Management Co., a healthcare-focused fund. “The types of things the president has talked about doing would only put limitation and risk to the sector. When they come to implementation moving forward, people are going to stand by our industry because of the potential for what it can do.”