trump budget drug prices
Here's why drug prices are so high (2018)
01:45 - Source: CNN Business
CNN  — 

President Donald Trump outlined a plan Thursday to revamp how Medicare pays for certain pricey drugs, a step that comes as Republicans seek to bolster their standing with voters on health care in the days before the midterm elections.

Under the proposal, Medicare would set the reimbursement level for certain drugs administered in doctors’ offices and hospital outpatient centers based on their cost in other countries, which typically pay far less. The so-called “target price” of these drugs, which include treatments for cancer, would be 126% of the average of what other countries pay.

The announcement, which Trump teased at a Wisconsin rally late Wednesday – “very soon, drug prices will go plunging downward” – came as the President is working to mobilize his loyal Republican base ahead of the midterms by revisiting his 2016 promises to un-rig the US economy.

Trump has made lowering drug prices a central promise of his presidency. In his remarks Thursday, he combined that with a swipe at foreign trade practices, framing the Medicare proposal as a way to restore fairness for American healthcare consumers.

“The American middle class is effectively funding virtually all drug research and development for the entire planet,” Trump said. “We will no longer accept the inflated prices being charged to our seniors. At long last, the drug companies and foreign countries will be held accountable for how they rigged the system against American consumers.”

The proposal is likely to run into major resistance from drug companies, as well as doctors, hospitals and some patient advocacy groups. Such blowback has doomed prior administrations’ attempts to control Medicare payments.

Pharmaceutical manufacturers charge 1.8 times more in the US than in other countries for drugs that fall under Medicare Part B, which are also used to treat conditions such as multiple sclerosis and autoimmune disorders, according to a Health and Human Services Department report released earlier Thursday.

Along with setting reimbursement levels, the proposal would remove from the process hospitals and providers, many of whom now buy the medications at a discount and then bill Medicare. Instead, private vendors would negotiate with drug companies on their behalf and then bill the federal government.

The administration is also seeking to change how doctors are reimbursed for administering the drugs, reducing their incentives to select high-priced options. It could pay them a flat fee, instead of the current system of providing a percentage of the medication’s cost.

This International Pricing Index model, which would be phased in over five years and take effect in half the nation, would save $17.2 billion for patients and taxpayers, the agency said. Patients alone would see their out-of-pocket costs drop by $3.4 billion.

Some experts said this policy – if it’s implemented – could have a big impact on drug prices. The US can push drug companies to accept lower prices by the sheer size of its Medicare enrollment, said Rena Conti, associate professor for markets, public policy and law at Boston University.

“This is a huge policy change and one that has great potential to reduce the prices that taxpayers for these drugs and Medicare beneficiaries pay for these drugs,” she said. “It really changes business as usual for a lot of institutions that make money off of high prices of drugs.”

Republicans’ complex relationship with health policy

The President’s message on drug prices illustrates the complicated relationship the party has with health care policy. On the one hand, Trump continues to tweet about how his administration and party have fought to help people with pre-existing conditions and how he will hold those in his party accountable if the seek to roll back those protections.

But the administration has in fact been supportive or actively engaged in efforts that could affect people with pre-existing conditions – from repeated attempts to roll back Obamacare to efforts at the agency level to loosen regulations that provide ironclad protections for consumers who are or have been sick.

Also, Trump’s Justice Department is seeking to invalidate the health reform law’s provisions governing pre-existing conditions as part of lawsuit being brought by 20 Republican states.

After nearly a decade of promises to repeal and replace the Affordable Care Act, Republicans have struggled to message health care on the campaign trail. Democrats have attacked the party for gutting protections for people with pre-existing conditions.

In fact, Democrats – after years of being on defense on Obamacare – have made healthcare a centerpiece of their midterm campaign strategy.

“It’s hard to take the Trump administration and Republicans seriously about reducing health care costs for seniors two weeks before the election,” Senate Minority Leader Chuck Schumer said in a statement about the Medicare pricing plan.

With less than two weeks to go until Election Day, many Republicans now don’t talk about repealing Obamacare. They talk about bringing down costs.

From free market to price fixing

High drug prices have also been a source of anxiety for many Americans. But basing Medicare reimbursement on what other countries pay would be a huge departure from how the program currently works – and run counter to Republicans’ allegiance to the free market system.

“This is price fixing. This is setting the rates based upon international standards,” said Gerard Anderson, a health policy professor at Johns Hopkins University. “It couldn’t be more anti-Republican.”

Already, the pharmaceutical industry lobbying group came out swinging.

“The administration is imposing foreign price controls from countries with socialized health care systems that deny their citizens access and discourage innovation,” said Stephen Ubl, CEO of the Pharmaceutical Research and Manufacturers of America (PhRMA). “The United States has a competitive marketplace that controls costs and provides patients with access to innovative medicines far earlier than in countries with price controls, and it’s why we lead the world in drug discovery and development.”

Another concern: The federal government’s negotiating power is more limited when it comes to Part B drugs because Medicare cannot exclude medications. Previous administrations have resisted the idea of restricting Americans’ access to drugs or treatments, which is more common in other countries’ national health care systems.

While Trump officials could use an Obamacare-created innovation center to pilot new payment proposals, it would have to take a hard stance on prices.

“We don’t negotiate because we don’t use the threat of walking away and other countries do,” said Rachel Sachs, an associate professor of law at Washington University.

The Trump administration released a 44-page blueprint in May that laid out his vision for increasing competition and changing the incentives for the industry. Trump at the time also blasted foreign governments that “extort unreasonably low prices” from manufacturers, saying “it’s unfair and it’s ridiculous, and it’s not going to happen any longer.”

Earlier this month, he signed bills ending the so-called gag-order on pharmacists, which prevent them from discussing cheaper options with customers. And Azar also announced a proposal requiring manufacturers to include the list price of any drug paid for by Medicare or Medicaid in television ads.

The administration has also unveiled several plans seeking to curb the cost of Part B drugs, which can be among the highest-priced medicines, in recent months.

Overall, however, many industry experts say that most of the efforts merely tinker around the edges of the nation’s problem of high-cost drugs. They don’t get at the root cause – the prices that manufacturers charge.