Print Friendly and PDFPrinter Friendly Version

Short Analysis
July 2018

Trump Administration's New Prescription Drug Proposals Move in the Right Direction for Consumers

Last week, the Trump administration announced a second round of drug pricing proposals that, while relatively modest on their own, take important steps toward future reforms that could significantly reduce prices now burdening both consumers and the overall health care system. These announcements came after Families USA and other consumer advocates urged the administration to do more to reduce the underlying prices of drugs than the administration originally outlined in its drug pricing blueprint in June.

Targeted Drug Importation

One new proposal would allow importation of lower-cost prescription drugs when a generic-drug manufacturer that is the sole source of a particular medication significantly raises U.S. prices. Previous drug importation proposals have offered “work-arounds” that help affected consumers without directly addressing the dynamics that raise charges above those in other countries. This new proposal offers the additional advantage of deterring manufacturers of sole-source generic drugs from dramatically raising U.S. prices. More broadly, this policy shows the administration’s potential openness to remedying market failures that let manufacturers raise prices virtually without limit and that create incentives against investing in patient-centered medication development.

Pharmacy Benefit Manager Rebate Reform

A second recent administration proposal involves a proposed regulation that is not yet public but has gone to the Office of Management and Budget for review. Based on limited information available thus far, the regulation is likely to limit pharmacy benefit managers’ (PBMs) ability to claim rebates from drug manufacturers and retain them to pad PBM profits. Depending on its details, the proposal could limit current conflicts-of-interest through which PBMs typically receive payments both from health plan sponsors, which want to limit prescription drug costs, and manufacturers, which want to maximize prescription drug revenues. Eliminating such conflicts-of-interest could be an important step towards cleaning up this highly problematic segment of the prescription drug industry.

Reduced Medicare Part B Payment for New Drugs

A third proposal would lower Medicare payments for certain drugs soon after their introduction. Before a new drug’s average sales price can be calculated, Medicare Part B (the Medicare program that covers physicians’ visits and certain other outpatient services) currently pays the wholesale price, plus 6 percent. The administration’s proposal would reduce the latter add-on from 6 to 3 percent. On its own, this step is limited, but it raises the possibility of critically important future federal interventions to lower Medicare drug prices more broadly.

Increased Availability of Biosimilars

The Food and Drug Administration proposes to increase the availability and usefulness of so-called “biosimilars,” drugs that can effectively substitute for biological products. Biologics often result from synthesis of larger and more complicated molecules than conventional medications and thus can be much harder to replicate than traditional prescription drugs.

Conclusion

To date, these more recent proposals lack detail and appear modest in scope. They neither lower drug prices across the board nor refocus innovation broadly towards meeting patient needs, but they are important steps in a direction that is positive for consumers. Unfortunately, for that very reason they are likely to generate significant opposition from industry. Families USA will continue urging policymakers to directly address the core dysfunctions that plague prescription drug development and pricing, and we stand ready to work with the administration, Congress, and our other state and national partners to advance policies that that lower prices and improve innovation.