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Short Analysis
May 2018

Trump Administration's Prescription Drug Plan: Ample Rhetoric, Modest Potential

After candidate and then President Trump repeatedly promised to slash prescription drug prices, the May 11 announcement of administration drug policy was a significant missed opportunity. The President’s populist rhetoric on the White House lawn was quickly followed by a policy blueprint containing a handful of modest reforms and a variety of half measures with more questions than concrete and consequential policy proposals. No wonder stock prices soared for prescription drug companies soon after the plan was unveiled.

Trump administration announcement is a significant opening for consumer advocates

While failing to make significant new commitments, the administration is signaling its openness to modest positive steps, presenting consumer advocates with opportunities for progress in lowering prescription drug costs. Soon after the May 11 announcement, HHS issued a “request for information” that seeks public feedback by July 16 about the administration's ideas for prescription drug policy.

In the coming months, Families USA will reach out to federal policymakers, encouraging them to build on the administration’s initial proposals and take far stronger steps to rein in out-of-control drug expenses. If the Trump administration remains serious about actually bringing down the cost of drugs for consumers, we look forward to partnering with it on policies that directly strike at the core, underlying problem: unconscionably high prices.  

Majorities of voters of all stripes support bold action on prescription drug costs

These recent events signal the increasing political salience of out-of-control prescription drug costs. Vast majorities of voters—Democrats, Republicans, and independents alike—support bold measures like those promised by candidate Trump, rather than the weak tea now being brewed by President Trump’s team. In the coming months and years, consumer advocates long overmatched by the prescription drug industry will have a unique opportunity to leverage extraordinary public support and achieve major gains for families in America.

Trump administration prescription drug pricing proposals: The good

The administration promises to consider several proposals that could yield gains for consumers. For example:

  1. HHS could lower Medicare beneficiaries’ out-of-pocket cost-sharing by capping drug costs and eliminating copayments on generic drugs for beneficiaries of Part D low-income subsidies.
  2. To curb abuses by Pharmacy Benefit Managers (PBMs), the federal government could forbid PBMs from accepting payments from drug manufacturers; require PBMs to share rebates at the point of sale with Medicare beneficiaries, prohibit “gag clauses” through which PBMs and insurers bar pharmacists from informing patients when buying a drug is cheaper without using insurance than with insurance, and mandate that PBMs act in the best interests of insurers or consumers.  
  3. HHS could limit rebates and other discounts that currently encourage drug manufacturers to hit their bottom-line revenue targets by inflating nominal “list prices.” High list prices raise costs for people who have not yet met their deductibles; people with coinsurance requiring payment of a percentage of nominal drug prices; and people without health insurance. (Of course, such measures to shrink the gap between list and net prices do nothing to tackle the extraordinarily high net cost of U.S. prescription drugs.)   
  4. The federal government could attempt to require drug companies to include their list prices in direct-to-consumer advertisements, which could encourage them to lower those prices below facially outrageous levels. Although arguably tilted toward political theater, this step could have a positive impact. 
  5. Federal lawmakers could cap Medicare Part B’s price increases for covered prescription drugs.

Trump administration prescription drug pricing proposals: The bad

The administration’s plan is missing four key components that are essential to any serious effort that shields consumers from harm:

  1. The plan does nothing to directly limit out-of-control prices. We are the only country in the world where drug manufacturers charge whatever prices they want, leaving each player in a highly fractured market to seek its own discounts. Despite candidate Trump’s promise to solve that problem by having Medicare negotiate aggressively to get low prices for American consumers, his plan keeps the present system’s key features intact. It would give more than 2,000 Medicare drug plans additional authority to negotiate separately with the drug industry, instead of following every other advanced country’s model of aggregating national purchasing power to force major price concessions from powerful drug companies.      
  2. The plan includes no comprehensive measures that stop drug companies from abusing the patent system to delay the introduction of less costly generic drugs.  The administration plan contemplates largely unspecified steps to limit one abusive tactic—namely, using patient safety as an excuse to deny generic manufacturers the samples of name-brand drugs required to develop generic alternatives. This falls short of the much broader attack on patent abuses that consumers need. Ignored by the Trump administration’s proposals are such routine outrages as collusive agreements through which brand-name manufacturers pay generic manufacturers to delay the introduction of generic drugs; “evergreening,” through which drug companies extend patents and delay the introduction of generics by making small changes to existing drugs, such as by changing a drug’s coating or dosage; and delaying the approval of safe and effective generics by filing unfounded “citizen petitions” with federal regulators.
  3. The plan does nothing to spur innovation that prioritizes consumer health over massive corporate profits. Drug companies seeking high quarterly returns frequently ignore critical population health priorities, such as more effective flu vaccines and antibiotics to treat drug-resistant infections. Increased public funding should support research to address such unmet needs. And whenever taxpayers underwrite drug development, they should not be forced to pay for those same drugs a second time in the form of exorbitant prices.  Public investment should yield public returns, not sky-high private profits.   
  4. The plan lacks meaningful transparency requirements that compel manufacturer disclosure of essential information like anticipated price increases, research vs. marketing costs, compensation for drug company executives, profit margins, and a complete accounting of all discounts and rebates. 

Trump administration prescription drug pricing proposals: The ugly

The administration’s plan includes several deeply troubling elements. First, the plan would start allowing some state Medicaid agencies to stop covering certain prescription drugs. Although this proposal is described as increasing state leverage to negotiate lower Medicaid drug prices, that leverage comes from states’ willingness to sacrifice access to medicine for low-income consumers, children, seniors, and people with disabilities. Prescription drug prices need to be addressed through broad-based measures, not by singling out vulnerable populations and targeting them for cuts. 

Second, the administration’s blueprint absolves drug manufacturers from any responsibility for racking up obscene profits by gouging consumers who can’t survive without their medicine. Instead, the blueprint blames lots of other parties, including the Affordable Care Act, PBM negotiating tactics, other countries’ low prices, and expiring patents on blockbuster drugs. 

According to the administration, these and other forces beyond industry control are “forcing drug manufacturers to raise prices,” a step that “satisfied the drug industry’s need to grow revenue.” One would never know from this rhetoric of compassion for apparently powerless pharmaceutical executives that brand-name and generic drug manufacturers rank among the country’s three or four most profitable industries, with the largest U.S. drug companies experiencing a 10-year rate of stock market growth more than twice that of the Standard & Poor’s 500, and drug company profit margins running more than three times the average for Fortune 500 companies.  

Finally, with American drug costs more than twice the per capita levels of those in other developed countries, President Trump no longer supports helping American consumers get the same low prices enjoyed by citizens of other nations. Instead, he wants U.S. trade negotiators to force other countries to pay more. While candidate Trump advocated letting Americans import low-cost drugs from other countries, President Trump proposes to further enrich pharmaceutical companies by ending low prices elsewhere.  

What’s next?

In the short term, advocates should take advantage of the Request for Information and encourage the administration to follow-through on its modest positive ideas while taking much bolder steps to address the root causes of out-of-control drug prices. 

Now and in the future, advocates have an opening to seek meaningful change. While the president’s initial policy proposals were disappointing, this is the first time in years that an administration has shown an interest in tackling drug costs, one of the most vexing issues facing health care consumers. 

Members of Congress and state legislators in both parties hear regularly from their constituents about this issue. These lawmakers see the impact of drug costs on federal and state budgets. Over the next few years, policy debates over drug costs are likely to remain front and center both in Washington and state capitals, with drug industry money facing-off against consumer advocates backed by public opinion and sound policy. Families USA looks forward to partnering with other consumer advocates in that fight.