President Trump postponed a speech on drug pricing this week, leaving observers to wonder whether the White House is rethinking its long-awaited plan to fulfill a major campaign promise and bring down the price of prescription drugs.
During his State of the Union address in January, Trump said that “fixing the injustice” of high drug prices was one of his administration’s top priorities. On March 19, Trump and Health and Human Services Secretary Alex Azar said they would roll out a list of policy proposals for decreasing drug prices “in about a month” while speaking at an event in New Hampshire. That was more than four weeks ago.
Meanwhile, first-quarter lobbying spending by Pharmaceutical Research and Manufacturers of America (PhRMA), the trade group for the pharmaceutical industry, has increased for the second year in a row, from $8 million last year to almost $10 million in 2018, according to federal lobbying disclosures. Last year, PhRMA’s first-quarter spending spiked by 34 percent in the wake of Trump’s election.
As Truthout has reported, the cost of pharmaceuticals is expected be one of the top issues shaping the midterm elections. Polls show voters are angry about high drug prices and want political leaders to prioritize bringing them down. Drug manufacturers as well as insurance companies and their pharmacy benefit managers are jockeying for position in the unfolding political debate.
The White House announced Trump would postpone the drug-pricing speech on Monday, a few days after Azar returned from a brief stint in the hospital due to a bowel condition, according to reports. Azar, the former pharmaceutical executive Trump tapped to tackle the drug-pricing issue, is expected to return to work this week, where reports suggest he is surrounding himself with industry insiders.
“Until President Trump decides to take on corporations instead of hiring their executives and lobbyists, he will fail to deliver the change he promised and the relief that Americans making hard choices between filling prescriptions and putting food on the table need,” said Steven Knievel, an advocate with Public Citizen’s Access to Medicines Program who has analyzed the White House’s current policy positions on drug prices.
Trump Promises to Tackle Drug Prices
Tapping into consumer anger, Trump accused drug manufacturers of “getting away with murder” and pledged to bring drug prices down on the campaign trail. While the FDA is working to speed up approvals of generic drugs to promote price competition, the White House has had little else to show for all the tough talk.
Drug-pricing measures outlined in the president’s budget proposal, which is used to outline policy objectives for Congress, could have a modest impact on costs for some consumers but would not prevent manufacturers from price-gouging and abusing patents to maintain monopoly control over drug formulas, according to analysis by Knievel and Public Citizen.
The president’s budget proposal did not include plans to allow the government to use Medicare’s massive buying power to negotiate drug prices directly with manufacturers, an idea Trump appeared to support in the past. The proposal has support from frustrated voters of all stripes as well as many Democrats but is generally opposed by the industry and Republicans in Congress, who doubt the government can get better deals than private plans, according to the Kaiser Family Foundation.
Still, the pharmaceutical industry is going on the political offensive. PhRMA and various drug and health product companies have already spent nearly $85 million on lobbying so far this year, with individual companies like Pfizer, Novartis and Amgen spending $3.3 million each or more, according to the Center for Responsive Politics. The industry has contributed millions of dollars in campaign contributions to candidates from both parties running in the 2018 elections. PhRMA is also funding a multimillion-dollar media and television campaign to clean up the industry’s image.
Failing to Challenge Big Business
Drug manufacturers set the market price of drugs they make and use exclusive patents to maximize profits. However, the actual prices consumers pay at the pharmacy counter are also shaped by their insurance plans and secret rebating deals struck by different players in the drug supply chain.
In exchange for access to their customers, insurers and their pharmacy benefit managers demand discounts and lucrative rebate payments from drug makers that can substantially lower the total cost of a drug. This means high drug prices do not reflect the actual revenues collected by pharmaceutical companies.
In 2017, the total value of these discounts and rebates provided to insurers reached a record $153 billion, according to the Drug Channels Institute. The difference between the market or “list” price of pharmaceutical drugs and what insurance companies actually pay for them has grown by 10 percent since 2016, but the average cost of brand-name drugs has only grown 1.9 percent. This suggests insurers have incentives to choose high-priced drugs for health plans in order to gobble up steep rebates.
Patient advocates say this system of secret rebates and discounts has put upward pressure on the price of certain drugs such as insulin that people need to survive. This is not a problem for people with robust health coverage, but because insurers often calculate benefits using the inflated list price of a drug, not the “net price” they actually pay after rebates, consumers with high copays and deductibles may pay more out-of-pocket at the pharmacy.
Under pressure from angry consumers and politicians over high drug prices, drug manufacturers are playing a blame game with insurers, arguing that they must continue raising their prices in order to offer competitive rebates and discounts. PhRMA has also suggested that insurance companies may not be sharing all of the savings from discounts and rebates with their customers in the form of lower premiums.
The insurance industry has pointed the finger back at drug makers, claiming that manufacturers alone set the original list prices for drugs and insurers are only trying to secure the best deals for their health plans. However, two major insurance companies, Aetna and UnitedHealth Group, recently pledged to pass rebate savings on to some of their customers when they buy drugs at the pharmacy, a sign that insurers are not immune to public anger over high drug costs.
Last year, the Centers for Medicaid and Medicare Services proposed requiring that health plans pass some rebate savings along to Medicare Part D beneficiaries at the pharmacy counter, which may be the Trump administration’s boldest drug pricing reform proposal to date. This would lower costs for some older Americans and dampen the incentive to offer high-priced drugs on health plans, but it would also raise premiums and increase government spending while doing nothing to control actual drug prices, according to Public Citizen.
“This reform in isolation would increase spending on prescription drugs, so it should be paired with reforms that actually lower the exorbitant prices set by prescription drug corporations,” Knievel told Truthout in an email.
Trump and Azar could go much further by requiring Medicare plans to be transparent about how they use rebate revenues and calculate premiums, or ask Congress to outlaw anticompetitive practices that manufacturers use to keep drug prices high. Drug makers spend huge sums of money promoting their products on television, so why not limit the advertising expenditures they can deduct from their taxes, as some Democrats have proposed?
Controlling prescription drugs costs requires crafting new rules for big businesses with serious political clout, and that’s not something a former pharmaceutical executive and a president who ran on promises to slash regulations may be able to stomach. Of course, we can’t be sure about that until we see what their plan for tackling drug prices looks like, and we’ve already been waiting on it for a while.