Trump’s drug-price crackdown misses the mark, experts say

Less than a month into his new job, Alex Azar got some praise from his new boss, President Trump.

The newly minted head of the Department of Health and Human Services had already done a great job lowering drug prices, according to Trump.

Azar was “really setting the world on fire now with your lowering of prescription drug prices and a lot of other things you’re doing,” Trump said at an event on school safety.

But several experts and advocacy groups say policies in the administration’s latest budget proposal don’t tackle the biggest driver of high prices: Nothing prevents a drugmaker from setting a price at whatever level it wants.

“I don’t see much in their budget that is really directed towards high drug costs,” said Gerard Anderson, a professor at the Johns Hopkins Bloomberg School of Public Health. “It is really changing patient cost-sharing, but not really lowering the prices of drugs.”

The budget includes 16 policies aimed at easing drug prices, primarily through lowering costs for seniors on Medicare and boosting competition through generic drugs. For instance, it proposes giving free generics to low-income seniors and capping out-of-pocket costs for seniors in Medicare’s donut hole, a coverage gap in which costs are much higher.

Another proposal would require insurance plans to share a portion of the rebate it receives from a manufacturer for a drug. That means a senior would get the benefit of the rebate in addition to the insurer.

“What this would do is pass through the lower competitive price to individuals under Part D,” said Dan Mendelson, president of the consulting firm Avalere Health. “It would cost the federal government money because it would increase the premiums, and the premiums are subsidized in many cases.”

The budget also seeks to expand competition with generic drugs by ensuring faster approval at the Food and Drug Administration. Congress also pursued legislation last year to speed up generic approvals, and the FDA approved the largest amount of generic drugs ever in 2017.

Losing sight of the cause

Advocates, Democrats, and experts praised the cost-sharing proposals in the budget, but were dismayed that Azar and Congress aren’t doing more to lower the list price.

“I think the main takeaway is you can’t really deal with this without touching the manufacturers. They don’t touch the manufacturers in any way,” said Sen. Ron Wyden, D-Ore.

The three groups criticized the Trump administration for most of last year for not doing enough to lower drug prices.

Trump famously said he believed pharmaceutical companies were “getting away with murder.” However, Democrats are upset he hasn’t embraced reforms such as giving Medicare the power to negotiate lower drug prices or letting Americans buy cheaper drugs from Canada.

Azar’s nomination also rankled most Democrats because of his pharmaceutical ties. During his confirmation hearings, many Democrats questioned whether he would do enough to lower high drug prices because of his tenure helming drugmaker Eli Lilly’s U.S. division.

Azar responded to withering criticism over his industry ties at one of his confirmation hearings by noting that “drug prices are too high.”

Azar recently told the House Energy and Commerce Committee that the budget policies would build on Medicare Part D’s program. He added that the budget would discourage “rebate and pricing strategies that increase spending for both beneficiaries and the government.”

HHS spokeswoman Caitlin Oakley told the Washington Examiner that “all options are on the table” but declined to elaborate on new policies that the administration may propose.

So far, Azar and the Trump administration want to leverage greater competition in the pharmaceutical market to entice lower prices.

“This administration is focused on trying to reduce drug prices for consumers through increased competition. That is the mantra,” Mendelson said.

Azar and Food and Drug Administration Commissioner Scott Gottlieb last week used separate speeches to go after insurers and pharmacy benefit managers that oversee prescription drug plans for employers. They called for more transparency in the negotiations surrounding rebates that drug makers pay for prescription drugs, amid criticism that insurers and pharmacy benefit managers don’t share enough of the rebate with patients.

However, there needs to be a balance with the enhanced competition, specifically when it comes to eliminating tools that drug companies use to game the patent system, both critics and patient advocates say.

“The balance is also not to make sure that the patent and exclusivities keep this in the hands of manufacturers without competition,” said Henry Waxman, a former California House Democrat, on a call with reporters this month. Waxman and Sen. Orrin Hatch, R-Utah, led the Hatch-Waxman Act that spurred greater adoption of generic drugs.

However, Waxman said lawmakers aren’t interested in installing price controls for new pharmaceuticals.

“I think we need to look at the existing system,” he said.

But the Pharmaceutical Manufacturers and Researchers of America, the top pharma lobbying group, said critics who seek to attack high list prices have an ulterior motive of wanting price controls.

“A lot of critics in the industry they will never be satisfied for less than direct government price controls of prescription medicines,” a PhRMA spokesman told the Washington Examiner. “A lot of conversation tends to lead to where people keep going back to whether it is having the government set price for Medicare or importing from other countries.”

The spokesman added that greater competition is the best way to hold down costs.

But critics say lowering the list price, which is the price set by the manufacturer, would have a ripple effect across the entire healthcare system.

“When you have drugs that go up in price even only 10 percent a year, the impact on people and on employers and on our system is enormous,” said David Mitchell, founder and president of the advocacy group Patients for Affordable Drugs.

He added that a patient pays for a high drug price one way or another, even if the drugmaker offers a discount or rebate. Drugmakers often provide rebates to employer and government-sponsored plans and offer patient-assistance plans for people who are not insured.

However, Mitchell said the high list price is still paid for. “You and me pay for it one way or another through premiums, taxes, or out of our pockets.”

He gave an example of an employer that may be faced with higher healthcare costs because of higher drug prices.

“If I can give you a dollar in your paycheck or have to instead put a dollar in your healthcare, then you don’t get it in your paycheck,” he said. “When they move the list price, that affects what is paid all down the system.”

What can be done

Leaders have several avenues to attack list prices, chief among them clamping down on the schemes that brand-name drug companies use to delay generic competition.

“Meaningful steps to stop patent abuse would be an important step to making a difference in drug pricing over the long haul,” Mitchell said.

He pointed to various methods that drug companies use to extend their monopoly of a drug and delay generic competition. These schemes include paying a generic drug company to delay entry into the market.

Another method is called evergreening, in which a drugmaker makes a slight adjustment to a patent and then gets a new patent that extends the life of the drug.

An example of this practice is insulin, which has been around since the 1920s but has no generic alternative.

“We had a perfectly good treatment for insulin for a long time, then a drug company developed a slightly different version of it,” Johns Hopkins’ Anderson said. “So, it was maybe a little bit better and maybe a little bit easier to dispense. It was essentially the same drug, but they were able to get a patent on it and charge significantly more.”

Eli Lilly is one of three drug companies that offer a patented version of insulin.

Anderson said Congress needs to clamp down on evergreening and other similar practices.

The CREATES Act, which targets brand-name companies that refuse to give a generic company a sample of their product, is gaining support. The generic company needs a sample to start work on developing a generic version, but a drugmaker can deny sending a sample by using safety rules under the Food and Drug Administration.

CREATES would take away access to that loophole. Lead House sponsor Rep. Tom Marino, R-Pa., said he wants to add the legislation to the two-year spending bill that Congress must pass by March 23.

Congress already rankled the pharmaceutical industry by adding a provision to a short-term spending bill last month that closes Medicare’s donut hole a year earlier than planned.

The donut hole refers to a coverage gap that puts a temporary limit on what a drug plan covers for drugs. Starting in 2019, rather than 2020 as planned, Medicare Part D patients who are in the donut hole will receive drugs at a lower price since drug companies must offer a discount of 70 percent of the negotiated price of a product, which is up from 50 percent.

Cutting out the middleman

While congressional action is needed to take on anti-competitive practices, Anderson said the administration could make some moves of its own to lower prices.

It can tell prescription drug plan providers on Medicare how much they must provide in cost sharing, for example. Prescription drug plans determine which drugs they will cover on insurance plans and get rebates from drug companies.

“They often will choose the more expensive drug to put on their formulary simply because they get a bigger rebate,” Anderson said. “We need to change that.”

A bigger rebate for a product would mean higher profits, creating a perverse incentive to reach lower prices, Anderson added.

“You also want to have more of the expensive drugs being sold because you get higher rebates on the more expensive drugs,” he said. “You want more drug sales and the more expensive drugs.”

Mitchell wants to boost transparency on pharmacy benefit managers, which oversee prescription drug plans for employer-sponsored health plans.

A PBM negotiates a rebate with a drug manufacturer. However, those negotiations are kept secret and the full rebate is not shared with patients, Mitchell said.

“The rebate system is broken,” Mitchell said. “We don’t know when a PBM negotiates a rebate, how much they put in their pocket, or give to the insurer, and PBMs have a variety of other charges.”

The Pharmaceutical Care Management Association, which represents PBMs, shot back that the Federal Trade Commission has found state laws requiring PBM transparency are not necessary and could raise healthcare costs if insurers are not willing to enter negotiations because of transparency concerns.

“PBMs support transparency that offers consumers and plan sponsors the information they need to make the choices that are right for them,” spokesman Charles Cote told the Washington Examiner. “However, we oppose mandates that the Federal Trade Commission and economists say will raise costs by giving drug companies and drugstores pricing powers that could help them tacitly collude with their competitors.”

A 2017 report from the Commonwealth Fund think tank recommended that the federal government or an independent panel monitor price increases and require manufacturers to justify them.

“This information could be made publicly available, and the intent would be to promote open data and information-sharing,” the report said.

Gottlieb called the current system “rigged” in favor of companies and not patients. He gave an example last week of the deals surrounding biologic drugs, in which a brand-name drug company makes a deal with an insurer or PBM to cover a brand-name drug over a generic version in exchange for discounts or rebates that aren’t passed on to the patient.

“Everybody wins. The health plans get the big rebates. The PBMs get paid on these spreads. And branded sponsors hold onto market share,” Gottlieb said. “Everyone, that is, but the patients.”

Azar was light on specific proposals to address greater price transparency but said last week his vision for HHS is to help drive the healthcare system to more value-based care, which includes more transparency.

“This is the direction we are going,” he told reporters on Thursday. “Now the job will be for us to run the processes here to make that a reality and drive that forward.”

Mitchell said he is hopeful that the Trump administration will pursue policies that will attack high prices.

“I think the jury is out,” Mitchell said regarding what the administration plans to do on high prices. “Mr. Azar said he wanted to take it on, and his boss said he wants to take it on. Let’s see if they bring up more proposals to do so.”

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