DRG Payer Pricing Drugs Trump

On Friday, May 11, President Donald Trump outlined his administration’s long-awaited drug-pricing proposal, a laundry list of policies touted as a path to cut rising drug prices.

While full of headlines and strong words about lower prices, the proposal’s impact on pricing appears modest at best. The administration’s American Patients First white paper includes possibly shifting some drugs and therapy classes from Part B to Part D. That could be a major move. While the proposal doesn’t outline which classes could be moved, Part B drugs tend to be among the most expensive, and moving any class could put Medicare beneficiaries on the hook for much greater cost-sharing.

The proposal also calls for exploring site neutrality for physician-administered drugs and between inpatient and outpatient settings for traditional Medicare beneficiaries.

For all the talk about needing Congressional action on some pieces, it’s easy to see how the plan will play out. Anything that can be accomplished by executive order and administrative rule will be easy to accomplish. Anything that requires Congressional approval is a long shot unless it can thread the bipartisan needle in an election year.

Health and Human Services Secretary Alex Azar said there will be an immediate push to require drug companies to include drug prices in TV commercials. He is likely talking about the wholesale acquisition cost, which is essentially the list price, or what a person would pay without insurance. But every plan negotiates rebates and discounts. If you have insurance, seeing the list price in a commercial won’t mean much.

Azar touted new avenues for private-sector negotiation that would affect parts of Medicare but didn’t go into detail. Medicare Advantage and standalone Part D plans already negotiate prices, so it could mean rebate pass-through requirements that give direct financial relief to patients.

However, Trump’s proposal didn’t attempt to cross pharma’s biggest red line: having Medicare directly negotiate prices with drug companies. Just as Medicare wields outsized influence in healthcare policy, it is the world’s largest drug purchaser and would have immense bargaining power. These proposals largely avoid conflict with pharma, and direct negotiation would require Congressional approval, an uphill if not impossible task.

There is some low-hanging fruit that couldn’t have been addressed previously.

Overturning pharmacist gag rules in promoting lower-cost pharmaceutical products will have an immediate impact and makes sense. A handful of states, including Connecticut, Georgia, North Carolina, and North Dakota, have already enacted related laws, and this piece should receive the most bipartisan traction.

It is easier to push the rebate pass-through issue now that consolidation between health plans and pharmacy benefit managers threatens to end the days of large, independent PBMs. The middlemen targeted in the president’s speech are part of or about to become part of larger entities and won’t have their former independence.

Trump also spoke at length about the United States paying far more for drugs than foreign countries-- global freeloading, to use his term. The plan – we’ll make drugs cheaper in the U.S. and Europe will pay for it.

Can the United States force other countries to charge more for drugs? Trump plans to try by exerting other trade pressures. U.S. Trade Representative Robert Lighthizer will push the issue with other countries, but expect them to push back. Even if the United States can leverage concessions, higher prices in Europe and Canada might not change what U.S. consumers pay at the pharmacy

Ultimately, if these policies are implemented, they won’t be judged on the day of announcement, but how they affect what consumers pay at the pharmacy.

Bill Melville is a principal analyst at DRG and national healthcare policy expert whose work appears in Health Plan Analysis and Market Overviews.

Follow him @BillMelvilleDRG

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