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Trump Budget Touts Lower Drug Prices, But No Medicare Negotiation

Xconomy National — 

As president-elect, Donald Trump in January 2017 slammed drug companies for “getting away with murder” and said he supported Medicare negotiation. He vowed during last month’s State of the Union speech that drug prices “will come down.”

Today, his administration’s fiscal 2019 budget proposal laid out what it calls a “comprehensive” strategy to lower drug prices. The plan is short on detail, however, and it also says nothing about two major arguments in the drug price debate that Trump has endorsed on more than one occasion, starting with his presidential campaign. The first is drug importation—bringing in cheaper products from Canada and elsewhere. The second is letting the federal government negotiate prices directly with drug makers, a drum he has continued to beat during his presidency.

His top healthcare appointees, including new Health and Human Secretary Alex Azar, who is a veteran of the George W. Bush-era HHS and pharmaceutical giant Eli Lilly (NYSE: LLY), have not supported either idea.

David Mitchell, president of Patients For Affordable Drugs, said that a recent National Academy of Sciences report, which called for Medicare negotiation as well as patent reforms, was “a better blueprint” for lowering prices.

“While we are disappointed that today’s budget doesn’t lay a glove on big pharma, it does contain some potential small improvements to Medicare and Medicaid plan design that need additional detail,” Mitchell said in a statement provided by a spokeswoman.

Among the proposals in the budget are lower payments to hospitals for drugs administered under Medicare’s Part B program; promotion of more generic competition; and a pilot program to let a few states try direct negotiation with drug makers. That last item “is potentially ground-breaking, but which is also potentially a sign of the administration’s recalcitrance to move on drug pricing (depending on the details),” Rachel Sachs, associate professor at the Washington University School of Law, wrote today on the blog of the journal Health Affairs.

The federal Medicare Part D program is projected to spend $94 billion on prescription drugs in 2017, according to the White House’s budget request.

A paper released Friday by the White House’s council of economic advisers titled “Reforming Biopharmaceutical Pricing at Home and Abroad” also addressed drug prices, laying much of the blame on “free-riding foreign governments” and too much domestic regulation.

The paper said other countries that impose price controls—a phrase the drug industry and its backers often use to describe negotiation—are “free-riding, or taking unfair advantage” of U.S. innovation. “In a free market, prices of products reflect their value as opposed to prices in government-controlled markets, which reflect political trade-offs,” the report states.

The paper suggests changing U.S. regulations to spur domestic competition; some of those suggestions, such as streamlining generic approvals and reforming hospital payments, appear to have made their way into the budget proposal.

Another suggestion is to allow faster approval of drugs that lag behind the leaders in their class. “This would serve as a new pro-competition pathway that would enhance therapeutic price-competition by providing expedited entry into monopoly markets,” the report states.

The hepatitis C market is an example of competition at work. Gilead Sciences (NASDAQ: GILD) led the way with sofosbuvir (Sovaldi), a curative therapy approved in late 2013; cheaper competitors, especially the latest from AbbVie (NYSE: ABBV), have cut drastically into Gilead’s business despite Gilead’s attempts to extend its franchise with other hepatitis C drugs.

But many other drug sectors have not worked in the same way, with prices that continue to rise even as additional drugs enter a class. Among the dozens of recent year-end price hikes was a nearly 10 percent increase to the list price of AbbVie’s adalimumab (Humira), a rheumatoid arthritis drug approved in 2002 that has had plenty of long-time competition.

(All the year-end price increases stayed under 10 percent, which is a self-imposed limit that some companies have pledged to stave off criticism.)

A report last year from drug-price watchdog Institute for Clinical Economic Review noted that the price of adalimumab and its closest competitor etanercept (Enbrel) rose 70 to 80 percent in the previous three years to reach about $4,000 a month before the most recent hikes.

That reflects list price, which is the starting point for negotiations with insurers and their agents, known as pharmacy benefit managers. Those list prices are public; for cancer and rare-disease medicines, they often top $100,000 for a course of treatment. The first gene therapy approved in the U.S., a one-time shot in each eye to treat a rare form of blindness, was launched this year with a list price of $850,000.

Discounts and rebates negotiated behind the scenes are not made public. While Medicare’s regional administrators can negotiate, the entire system, which taken as a whole would have tremendous leverage, is prohibited from direct negotiation by the 2004 law that gave birth to the Part D prescription drug benefit.

Taken together, the proposals in the White House advisers’ paper and today’s budget might help the 100 million Americans enrolled in Medicare and Medicaid, writes Sachs. But they wouldn’t necessarily help a larger number of Americans, roughly 160 million, with private insurance. Unlike some efforts, such as the bipartisan FAIR Drug Pricing Act, to force drug companies to report pricing data or penalize those making large price hikes, “this set of proposals is largely very friendly to the pharmaceutical industry and is primarily aimed at curtailing patients’ financial burdens and tweaking incentives for stakeholders at the margin,” Sachs writes.

The lead sponsors of the FAIR Drug Pricing Act, Senators Tammy Baldwin (D-WI) and John McCain (R-AZ), sent an open letter to President Trump today asking for his support. “We write to urge you to make good on your [State of the Union] promise and make fixing the problem of high drug prices a top priority for you and your Administration.”

Photo by Gage Skidmore via Creative Commons 2.0.

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