BioPharma, Policy, Payers

Trump’s drug pricing blueprint hits a speed bump

The administration's plan to lower drug costs met two major setbacks last week. Experts weighed in on what that could mean.

By Alaric DeArment on July 14, 2019

The Trump administration’s efforts to lower drug prices hit two significant hitches last week.

On Monday, a federal judge in Washington struck down a rule the Department of Health and Human Services had implemented in May that would have required drugmakers to include list prices of medications in television ads, setting up a potential Supreme Court battle. Then, on Thursday, it was reported that the administration withdrew a proposal to crack down on rebates that drugmakers offer to pharmacy benefit managers by removing their safe-harbor protection under anti-kickback laws, a key component of the drug-pricing initiative.

The administration unveiled its blueprint to lower drug costs, titled “Putting American Patients First,” in May 2018 and has sought to introduce several of its proposed fixes into the healthcare system. However, critics have expressed skepticism about how much the administration would actually be able to accomplish on its own without congressional action. Elements of the blueprint have also attracted opposition from the drug industry.

Two experts weighed in on what this past week’s two setbacks mean for the administration’s efforts.

At this point, while some action from the administration is likely, it’s unclear what it will look like, said Dean Erhardt, CEO of D2 Consulting. “I don’t think the administration will say, ‘We lost this battle – let’s give up the war,’” he said in a phone interview.

The problem with the rebate proposal was that it did not address the factors that actually drive drug costs, such as getting products to market, potential limitations on patent coverage and ensuring a return on investment, Erhardt said. Moreover, he said, the administration’s argument that PBMs and insurance companies only put higher-priced drugs on formularies so they get a higher cut flies in the face of statistics showing that more than 80 percent of prescriptions dispensed in the U.S. are for generics.

“My impression is that it would have simply changed the flow of rebates – it wouldn’t have necessarily changed how drug prices are set,” Erhardt said.

Overall, the fixes proposed in the blueprint were at best providing half-measures to remedy the issue of drug pricing and do not address the core issues, said ActiveRADAR CEO David Henka. “It’s like the patient needs a coronary bypass, and to fix the problem you’re putting a Band-Aid on their chest,” he said in a phone interview.

He added that the blueprint is unlikely to accomplish much because the administration is unwilling to take too many political risks, and because having effective reform would require more than addressing the fringes of the issue. For example, having television ads include list prices is “ridiculous,” and the rebate situation is little more than a “shiny object” that doesn’t address the underlying problems that lead to high drug prices.

A better way to address drug prices would be to embed more marketplace transparency in the system, Henka said. One thing the administration could do is implement a reference pricing model, similar to what is already used in many European countries. Under such a model – which would apply not to one-off drugs for rare medical conditions, but to the ones for the most common medical conditions – the drug with the lowest cost in a therapeutic class would serve as the benchmark for reimbursement. If patients wanted a higher-cost drug with similar clinical benefit, they would have access to it, but would have to pay the difference.

“If you want to bump up to first class, you’re welcome to do so, but you’ll have to pay for the higher cost that provides a therapeutic benefit that’s the same,” Henka said.

Photo: Ekkaluck, Getty Images