PhRMA, the biopharmaceutical industry’s most powerful lobbying group, proposed a “bold” change to the current system for determining drug costs in comments filed with the Trump administration last week. Reflecting PhRMA’s current PR playbook, the proposal places the blame for high drug prices squarely on the other players along the drug supply chain: insurance companies and the pharmacy benefit managers that negotiate rebates and discounts for health plans.
Pharmacy benefit managers, or PBMs, negotiate secret rebate payments from drug makers in exchange for placing their drugs on health plans. PBMs pay themselves with a percentage of the rebates, so they prefer higher-priced drugs that come with higher rebates — an incentive that PhRMA says causes its members to inflate drug prices in order to compete. So, the lobbying group told the Trump administration that PBMs should be required to change their profit model and allow for more transparency.
Two days later, the Trump administration suggested it is seriously considering PhRMA’s idea by putting an aptly named proposal up for regulatory review, but few in the news media made the connection. The headlines were dominated by announcements from major drug companies pledging to delay annual price hikes that had provoked an angry backlash from Trump. Administration officials declared a victory in their quest to keep one of Trump’s major promises to voters, while health advocates quickly pointed out that delaying price increases is not the same as actually bringing them down.
Five drug makers have now pledged to freeze planned price hikes until the end of the year, and Merck said it would discount seven drugs, according to reports. Critics quickly pointed out that Merck did not discount any of its popular drugs, and those that did see a price drop make up just 0.1 percent of the company’s sales. Some companies that announced temporary price freezes had already hiked prices earlier this year, and the freezes will not help those already struggling to pay for medicine.
Advocates chalked the announcements up to cheap PR moves meant to score political points with Trump as his administration finalizes plans for lowering drug costs. Novartis, one of the companies that announced a price freeze, is already in hot water for signing a $1.2 million contract with Michael Cohen, Trump’s embattled personal lawyer, for information on the administration’s policymaking.
“Merck is trying to get credit for doing nothing. Patients will continue to suffer under high prices,” said David Mitchell, a cancer patient and the founder of Patients For Affordable Drugs, in a statement. “The only way Merck and other big drug corporations will stop fleecing patients is by Congress making real structural reforms that break their monopoly pricing power.”
Patients For Affordable Drugs is funded by a billionaire philanthropist and plans to spend millions of dollars supporting and opposing political candidates this election season. However, the Republican-controlled Congress has been reluctant to take up legislation that would reform the drug-pricing system, despite efforts among Democrats. Still, high drug costs are among voters’ top priorities as the midterms approach, and advocacy groups are putting mounting pressure on the Trump administration and lawmakers alike.
This has put Trump and fellow Republicans who generally oppose government market intervention in a bind. Trump has repeatedly promised “massive” drops in drug prices, but a new poll by Politico and Harvard University shows that only 27 percent of Americans even know about his “blueprint” for bringing down pharmacy costs. Less than half of those who have heard of it believe Trump can loosen the pharmaceutical industry’s grip on Washington and make it work.
Now, the Trump administration is moving beyond bluster and considering limited versions of several ideas for lowering drug costs that are supported by reformers — along with proposals favored by the pharmaceutical industry itself. The drug supply chain players — drug manufacturers, PBMs and insurance companies — are once again jockeying for political position and blaming each other for high drug costs.
Some proposals sound bold, but the devil is in the details. The Food and Drug Administration (FDA) announced a new working group to consider allowing imports of foreign versions of certain drugs, an idea the pharmaceutical industry and many Republicans have long opposed.
However, the FDA stated that the federal ban on importing drugs approved by other countries would only be lifted under “narrow conditions.” Such imports would only be allowed to replace specific drugs when sudden price spikes cause a shortage for US consumers, and only if the imports do not violate any domestic patents. The prices for most drugs would not be affected.
Gabriel Levitt, president of the pharmaceutical price-checking website www.pharmacychecker.com, said the FDA already allows imports of foreign versions of medicines to stave off domestic shortages.
“Allowing lower-cost foreign versions to fight price gouging is a great idea — but it’s too limited in scope,” Levitt said in a statement last week. “FDA-approved medicines are available at much lower cost in Canada and the UK, for example, so clearly Americans should be allowed to import them for personal use, as long as they do so from licensed pharmacies.”
Other proposals reflect the list of regulatory tweaks found in the administration’s blueprint for lowering drug costs, which analysts say could eventually lower costs for some consumers but contains few long-term solutions. Then there’s the proposal to crack down on profits made by PBMs, as PhRMA suggested in its comments to the Trump administration last week.
The Office of Management and Budget is currently reviewing the proposed regulation and the details are not publicly available, but the title suggests major changes to exemptions that essentially allow PBMs to negotiate rebate payments from drug makers in secret and without violating federal anti-kickback laws. Most consumers with health insurance don’t pay the high sticker price of pharmaceuticals because insurers use these rebates to offset costs. That’s why patients with little or no health coverage suffer the most as prices inflate.
At least, that’s how the system is supposed to work. As they have come under pressure for skyrocketing prices, drug companies and some patient advocacy groups have blamed PBMs and insurers for failing to pass the rebated savings along to their customers at the pharmacy counter. Insurers and PBMs point the finger back at drug manufacturers, claiming that high prices have always been the real problem.
PBMs profit from a percentage of these rebates, so they have an incentive to place high-priced drugs with higher rebates on insurance plans. As PhRMA told the Trump administration last week, drug makers say their negotiations with PBMs push up the price of drugs. Alex Azar, a former pharmaceutical executive and Trump’s health czar, echoed this argument during a recent congressional hearing, telling lawmakers that drug companies could actually lose a competitive advantage by lowering prices under the current rebating system.
In its comments to the Trump administration, PhRMA said PBMs should no longer be allowed to base their fees on a percentage of the rebates they secure for insurers, and insurers should use rebate savings to lower deductibles and out-of-pocket costs at the pharmacy counter, instead of using them to lower premiums, as a few insurers have already done for some customers. Rebating agreements should also be more transparent, rather than kept secret under the anti-kickback exemptions.
This would cause major changes to the system of drug pricing and potentially force PBMs and insurers — rather than the drug companies themselves — to reach into their profit margins (or raise premiums) to lower drug costs. By placing the proposal to curb anti-kickback exemptions up for review, the Trump administration has signaled that it’s willing to consider major changes to the rebating system favored by PhRMA.
The Pharmaceutical Care Management Association, the lobbying group for PBMs, said the proposal raises several “troubling questions.” In a statement, the group said that removing the anti-kickback exemption would not lower drug prices, and said the idea that their negotiations cause drug makers to raise prices is a “myth.” Plus, removing the anti-kickback exemption from the federal statute would require an act of Congress, not a new administrative regulation.
“This is a case of ‘the jig is up,’ and now they are trying to find who to throw out of the lifeboat,” said Vikas Saini, president of the nonpartisan Lown Institute, a think-tank focused on building a just and affordable health system.
Saini that if Trump were serious about reducing pharmaceutical costs, he would move toward a system where drugs are treated more like a public utility that everyone needs to use. Transparency is needed across the entire drug supply chain, not just for secret rebate deals negotiated by PBMs. That means drug manufacturers should be required to justify their prices based on the actual cost of developing and marketing drugs, not inflated prices that protect their profit margins when PBMs negotiate savings for insurance companies.
“If Trump were real instead of what he is — which is a kind of loud bait-and-switch kind of guy with the people who voted for him — he would actually support stepping in and making those changes,” Saini told Truthout. “But he’s captive to the ideology of his party, which is that the free market solves everything, even though here it has failed miserably for the past 30 or 40 years.”
On July 16, the same day PhRMA submitted its wish list of policies to the Trump administration, dozens of health and consumer groups sent a letter to Azar pointing out that the US is the only developed country that does not negotiate drug prices with manufacturers at the national level — and Americans pay sky-high prices as a result. Missing from its blueprint to rein in drug prices are reforms to the “broken system of drug innovation,” in which drug companies focus on products that make the most money instead of meeting crucial public health needs, such as better flu vaccines and antibiotics for drug-resistant infections.
“With federal research dollars undergirding industry development of new drugs, national policymakers should ensure that our families’ health needs take priority over drug corporations maximizing their own profits,” the letter reads.
At one point during his campaign, Trump proposed allowing Medicare to negotiate prices directly with drug companies, an idea championed by progressives and opposed by conservatives and the industry. He has since changed his tune, deriding other nations as “free-riders” for negotiating better prices for their citizens. PhRMA couldn’t agree more and included “global free-riding” in its list of suggested targets for the Trump administration, along with PBMs. After providing Trump some positive headlines with temporary price freezes, the industry may very well have the president’s ear.