Trump’s very brief cru­sade to lower drug prices

The Washington Post Sunday - - BUSINESS - Steven Pearl­stein

Amid all the ker­fuf­fle in the last week over im­mi­gra­tion, the Supreme Court, Iran and Arnold Sch­warzeneg­ger’s TV rat­ings, too lit­tle at­ten­tion was paid to an ex­tra­or­di­nary meet­ing at the White House at which Pres­i­dent Trump re­neged on a cam­paign prom­ise and sold out mil­lions of “for­got­ten” Amer­i­cans to gi­ant drug com­pa­nies.

It was al­most ex­actly a year ago that Trump, cam­paign­ing in New Hamp­shire, said it was crazy that the fed­eral gov­ern­ment, ef­fec­tively the world’s largest buyer of pre­scrip­tion drugs, was not al­lowed to ne­go­ti­ate di­rectly with the drug com­pa­nies to get lower prices, boast­ing that he could save tax­pay­ers $300 bil­lion a year on Medi­care “on Day One.”

At a news con­fer­ence the week be­fore his in­au­gu­ra­tion,

Trump dou­bled down on his prom­ise to re­duce prices, declar­ing that drug com­pa­nies were “get­ting away with mur­der.” And on Tues­day, he sum­moned drug com­pany chief ex­ec­u­tives to the White House to do to them what he had done to car­mak­ers and aero­space ex­ec­u­tives, sham­ing them into cre­at­ing jobs and low­er­ing prices. “We have to get prices down,” he told the drug­mak­ers. “We have no choice.”

An hour later, how­ever, the ne­go­tia­tor-in-chief emerged to say it was all a mis­un­der­stand­ing. Read­ing al­most ver­ba­tim from the in­dus­try’s talk­ing points, he vowed to “op­pose any­thing that makes it harder for smaller, younger com­pa­nies to take the risk of bring­ing their prod­uct to a vi­brantly com­pet­i­tive mar­ket.” He would have noth­ing to do with any­thing so odi­ous as “price fix­ing” by Medi­care.

Asked about the ap­par­ent 180-de­gree turn­around later in the day, press sec­re­tary Sean Spicer con­jured up the in­dus­try’s new­est and most ab­surd talk­ing point, ex­plain­ing that it was not the job-cre­at­ing drug com­pa­nies but rather gov­ern­ment bu­reau­crats and reg­u­la­tors who were pre­vent­ing the gov­ern­ment from get­ting the best deal for tax­pay­ers.

The whole in­ci­dent pro­vided the lat­est re­minder of Trump’s trou­bling ten­dency to agree with the last per­son he spoke with, in no small part be­cause he un­der­stands so lit­tle about the is­sues about which he so con­fi­dently opines. In­deed, the whole drug price drama was a flim­flam right from the start.

Trump’s orig­i­nal claim of $300 bil­lion a year in an­nual Medi­care sav­ings was ab­surd on its face, given that $300 bil­lion rep­re­sents half of all Medi­care spend­ing and close to half of what the gov­ern­ment and every­one else spends on drugs in a year. That whop­per mer­ited four Pinoc­chios from The Post’s Fact Checker.

Trump also seemed un­aware that while Medi­care is pre­vented from di­rectly ne­go­ti­at­ing drug prices, most of the drugs paid for by Medi­care are bought through pri­vate in­sur­ance plans spon­sored by Medi­care that can and do ne­go­ti­ate with com­pet­ing drug com­pa­nies. The gov­ern­ment’s other big health in­sur­ance pro­gram, Med­i­caid, doesn’t ne­go­ti­ate drug prices, ei­ther, but in most states, the law re­quires that Med­i­caid re­ceive the low­est price charged to any pri­vate in­sur­ance plan. As a re­sult, Med­i­caid pays more than 20 per­cent less for drugs than Aetna or Blue Cross. Sim­i­lar dis­counts are ne­go­ti­ated by the De­part­ment of Veter­ans Af­fairs on be­half of its net­work of hos­pi­tals and clin­ics.

Most ex­perts agree that if Medi­care were al­lowed to ne­go­ti­ate di­rectly on be­half of all 50 mil­lion of its ben­e­fi­cia­ries, it could push prices even lower, al­beit mod­estly. But what Trump doesn’t ap­pear to re­al­ize is that for those ne­go­ti­a­tions to be ef­fec­tive, two other things would have to hap­pen that he might find hard to swal­low.

First, for ill­nesses for which there are two or more equally ef­fec­tive drugs, the gov­ern­ment would have to be free to cre­ate a for­mu­lary, in ef­fect telling pa­tients and their doc­tors, “We will pay for this drug but not that one.” There’s noth­ing in Oba­macare that comes even close to that kind of gov­ern­ment in­ter­fer­ence in clin­i­cal de­ci­sions. Repub­li­cans would never ac­cept it, and if he un­der­stood it, nei­ther would Trump.

And then there are ill­nesses for which only one drug of­fers the best treat­ment, ei­ther be­cause it is pro­tected by a patent or be­cause the mar­ket is too small to at­tract an­other firm. In those cases, which ac­count for many of the most ex­pen­sive drugs, there is no com­pe­ti­tion so there could be no com­pet­i­tive bid­ding. The only ne­go­ti­at­ing lever­age the gov­ern­ment would have would be to refuse to pay for the drug, deny­ing it to tax­pay­ing pa­tients. An­other name for it is ra­tioning. Good luck with that.

The ba­sic story about drug pric­ing goes like this:

Be­cause ours is the only coun­try that does not ne­go­ti­ate prices with drug com­pa­nies, us­ing a na­tional for­mu­lary, Amer­i­cans pay roughly twice what pa­tients in other coun­tries do for the most widely used drugs still un­der patent. What that means, in ef­fect, is that Amer­i­cans pay for the 20 per­cent of drug in­dus­try rev­enue that is in­vested in re­search­ing new drugs, giv­ing the rest of the world a free ride. In ex­change for this largesse, a dis­pro­por­tion­ate share of the high-pay­ing re­search jobs are lo­cated in the United States. Drug com­pa­nies also used to pay a dis­pro­por­tion­ate share of cor­po­rate taxes to the U.S. Trea­sury un­til they be­came as in­no­va­tive in tax avoid­ance as they are in prod­uct de­vel­op­ment.

As with just about ev­ery other facet of the Amer­i­can health sys­tem, drug pric­ing is im­pos­si­bly opaque. While drug­mak­ers post ex­or­bi­tant prices for some drugs, large in­sur­ance com­pa­nies and phar­macy ben­e­fit man­agers ne­go­ti­ate large dis­counts on be­half of their cus­tomers that are closely guarded se­crets, but on av­er­age are close to 40 per­cent. One per­verse ef­fect of this sys­tem is that it en­cour­ages drug com­pa­nies to push posted prices ever higher so they can of­fer steeper and steeper dis­counts to win more busi­ness. The re­sult is higher prof­its for in­sur­ers and phar­macy ben­e­fit man­agers, but also higher outof-pocket costs for con­sumers who have no in­sur­ance or whose in­sur­ance poli­cies in­clude large de­ductibles or co-pay­ments for drug pur­chases.

This past week, this re­bate racket was de­tailed in a clas­s­ac­tion law­suit filed in fed­eral court in Bos­ton against the three lead­ing drug com­pa­nies — Sanofi, Novo Nordisk and Eli Lilly — which are ac­cused of con­spir­ing to raise the bench­mark price of in­sulin by nearly 170 per­cent over the past five years, de­spite lit­tle in­crease in pro­duc­tion or dis­tri­bu­tion costs. While fully in­sured pa­tients have to pay lit­tle of this in­crease, the suit al­leges, oth­ers who once paid $25 per pre­scrip­tion now are forced to pay $300 to $450, or as much as $900 a month. The com­pa­nies said the suits were with­out merit.

Drug com­pa­nies have also come to dis­like the re­bate racket, if for no other rea­son than sto­ries of sky-high prices have given them a pub­lic re­la­tions black eye. In­stead, they are push­ing for what they call “value pric­ing,” in which drugs would be priced based on how ef­fec­tive they are in treat­ing an ill­ness and in re­duc­ing other med­i­cal cost.

But while value pric­ing may be a good idea, it won’t do any­thing to help Trump lower drug prices. The in­dus­try is hop­ing that the next gen­er­a­tion of pills and bi­o­log­ics will dra­mat­i­cally re­duce the num­ber of days peo­ple spend in hos­pi­tals, the num­ber of op­er­a­tions they have and the num­ber of vis­its they make to doc­tors’ of­fices. What “value pric­ing” means to the phar­ma­ceu­ti­cal in­dus­try is the abil­ity to cap­ture most of those sav­ings in the form of higher prices, not lower — and with it a larger slice of an ever-grow­ing health-care pie.

JABIN BOTSFORD/THE WASH­ING­TON POST

An hour-long meet­ing trans­formed Pres­i­dent Trump’s view­point.

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