Last month, President Trump said that drug companies would soon announce “massive drops” in prescription drug prices in response to his administration’s plan for bringing down pharmaceutical costs.
“That’s going to be a fantastic thing,” said Trump, who suggested the announcements would come in two weeks.
Trump made these remarks during a signing ceremony well over three weeks ago, and as Democrats in Congress have gleefully pointed out, not a single drug maker has announced a significant voluntary decrease in drug prices. According to the Democrats’ calculations, drug makers have continued to aggressively raise prices during Trump’s tenure and show no signs of changing course.
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Health and Human Services Secretary Alex Azar was a bit more realistic about the prospect of voluntary price reductions when he appeared before the Senate Finance Committee on Tuesday.
“We’re, of course, not counting on just voluntary reductions in price,” Azar said. “It would be nice if that happens, based on them seeing this is the northbound train, this is where it’s going, we are going to lower list prices … get on the train, get a competitive advantage by moving there first.”
Azar’s “northbound train” sums up the Trump administration’s approach to lowering runaway drug prices, which is a top priority among voters ahead of the midterms. Using the magic of market competition and the power of political suggestion, the Trump administration hopes to incentivize drug companies to lower their prices without heavy government intervention.
The White House blueprint for lowering drug costs is full of small regulatory tweaks meant to prod drug makers in this direction. There’s just one problem: Big Pharma refuses to take responsibility for skyrocketing prices. When Trump and Azar unveiled the blueprint in May after putting it off for weeks, pharmaceutical stocks soared because investors saw that it contained no serious threats to their profit margins.
As Truthout has reported, the major players in the pharmaceutical supply chain blame each other for prices that have consumers in the United States paying more for medicine than anyone else on the planet. Meanwhile, they all benefit from the status quo — a complex system of payments between drug companies and the pharmacy benefit managers that negotiate rebates and discounts on behalf of insurance companies, who in turn pass those savings down to their members.
That’s how it’s supposed to work, at least. For many patients — particularly those with higher deductibles and co-pays — this system still results in painful prices at the pharmacy counter. Growing numbers of consumers ration or go without medicine as a result. Voters are furious.
These secret negotiations between drug makers, insurers and pharmacy benefit managers are supposed to bring costs down for consumers who have health coverage, but they also systematically inflate the market or “list” price of many drugs — including those such as insulin that certain patients depend on to survive. The higher drug companies set these initial prices, the more each player in the supply chain profits.
As a former pharmaceutical executive, Azar is well aware of this. As he explained on Tuesday, drug companies could actually lose access to customers if they were to lower their prices. Wholesalers and pharmacy benefit managers leverage their access to millions of people on health plans to negotiate savings for insurance companies and take a percentage off the top, so they prefer to list drugs on insurance formularies that have high list prices to begin with. This may sound counterintuitive, but as we have explained in previous coverage, that’s how the secretive pricing system works.
“We’ve had many major drug companies with major products who want to make substantial and material price decreases,” Azar said. “This has shown just how broken our system of drug pricing and drug distribution is in the United States.”
Azar has threatened to take a “hard look” at this rebating system if prices do not go down, but he also said that any changes to how a major market works would be years down the road. Sen. Ron Wyden, the ranking Democrat on the Senate Finance Committee, has introduced legislation that would bring some transparency to the secret rebates drug companies pay pharmacy benefit managers and insurers in the Medicare program, but a spokesman for his office confirmed that the bill remains stuck in committee because Republicans refuse to support it.
Ahead of Tuesday’s hearing with Azar, Wyden’s office released a detailed report on the complicated web of financial arrangements that determine the costs of pharmaceutical drugs in the US. The report concludes that no single player is to blame, and serious reforms across the supply chain are needed to bring down costs.
“While the Trump Administration has stated its commitment to lowering drug prices, the blueprint it introduced in May will do little to lower costs for American consumers,” the report reads. “Simply put, the Administration has fallen far short of addressing the long list of entities and financial relationships that push drug prices — and consumer costs — higher.”
Indeed, despite Trump’s tough talk, Republicans remain quietly opposed to bold drug pricing reforms favored by patient advocates and some Democrats, including a popular proposal to let the Medicare program negotiate directly with drug companies. Instead, Azar is proposing slow-moving changes to regulatory rulebooks. Analysts have welcomed some of these tweaks, but say they would only result in modest price reductions for some consumers over a long period of time.
Azar has also threatened to require that drug companies include their prices in television commercials, a highly popular idea that raises legal questions and is not as simple as it sounds. Like Azar’s threats to eventually open the secretive rebating system to public debate, this proposal sends a message to the pharmaceutical supply chain: Find a way to lower prices on your own, or we will place you under public scrutiny.
Trump has repeatedly made the bold promise that drug prices would come down while he is in office, but so far, his administration and Republicans in Congress have shied away from major reforms. Azar is betting that the players in the pharmaceutical supply chain will see the writing on the wall, but critics say they would never lower prices on their own.
Azar better hope his colleagues in the pharmaceutical industry prove them wrong before Trump is up for re-election. Trump hired Azar to keep a major promise to the public, and the president will need someone to blame if it falls through.