How administration’s strategy will affect costs and the public

The Trump administration has made lowering drug prices one of its top priorities, and last week it unveiled a proposal that could vastly rewrite the way drugs are sold in the United States.

Why it matters

The proposal takes aim at the secret deals drug companies strike with pharmacy benefit managers, the industry intermediaries that negotiate the price of drugs for insurers and large employers.

These after-the-fact discounts, called rebates, have come under harsh criticism and are blamed for helping to push up the list price of drugs, which consumers are increasingly responsible for paying.

Under the proposed rule pharmacy benefit managers would lose the legal protections that allow them to accept rebates from drug companies for brandname drugs covered under the Medicaid and Medicare government programs. Any such discounts would instead have to be credited at the pharmacy counter when patients fill a prescription.

The Trump administration says this could result in significant savings for people 65 and older, who increasingly have been forced to pay out-of-pocket costs based on the rising list prices of drugs. People who are covered by Medicaid, the health care program for low-income Americans, generally pay little to nothing out-of-pocket.

If carried out, the plan is likely to upend the market for prescription drugs. Drugs paid for through Medicare accounted for 30 percent of the nation’s retail drug spending in 2017, according to the Kaiser Family Foundation.

But whether the rule will ultimately be adopted is still unclear.

Insurers and pharmacy benefit managers like Express Scripts and CVS oppose the administration plan, saying it will undercut their ability to bargain with drugmakers for lower prices.

Drugmakers have applauded the administration’s action.

How does it affect Medicare prescription plans?

Let’s answer this question with a question: Do you take an expensive medication for a chronic condition?

If you need expensive drugs, your outof-pocket costs are likely to go down. Under the current system, your deductible and any coinsurance — a requirement that you pay a percentage of a drug’s cost yourself — is based on something close to a drug’s list price.

Under the new plan, those amounts would be based on a lower net price, or the cost after discounts had been deducted. The proposal estimates that seniors’ monthly out-of-pocket drug costs would decline, on average, $1.70 to $2.74 a prescription in 2020.

That average, however, obscures the significant savings some people will see if they have extremely high drug costs: Some could save about 30 percent on their out-of-pocket costs, the administration estimated.

Not everyone will benefit. Pharmacy benefit managers secure rebates only when there is competition between manufacturers who sell similar brand-name drugs, like two kinds of blood pressure medications.

But many costly drugs — cancer treatments, for example — have little or no competition and carry either no rebates or small ones. Patients needing these drugs would not see extra savings.

If you don’t take expensive drugs, your monthly costs are likely to rise because premiums will go up. Insurers would no longer be able to apply rebate money from the drugs to lower premiums.

The typical Medicare beneficiary will see costs rise $2.70 to $5.64 a month, estimates indicate.

Will this help with the Medicare coverage gap?

Seniors enter the Medicare coverage gap — requiring them to pay for a bigger share of their drug costs — once spending for their medications exceeds $3,820 in a year.

With lower net prices under the new plan, many seniors would not reach that threshold until later in the year, and some would not reach it at all.

Fewer people would also reach the “catastrophic phase,” once out-of-pocket drug spending exceeds $5,100, at which point the federal government picks up much of the bill. Seniors must still pay 5 percent of a drug’s cost, but that too would be based on the lower net price.

Drugmakers are expected to benefit because they must help pay for the costs of drugs once seniors enter the doughnut hole. If fewer people reach the doughnut hole, the companies pay less. And if fewer people enter the catastrophic phase, the government would save money, too.

Will this cost more or save money?

The Trump administration says a lot will depend on how companies react. If the plan takes effect next year, it could cost the government an extra $2.8 billion to $13.5 billion that same year.

But longer-term projections indicate the plan could wind up saving the government nearly a hundred billion dollars, if drug spending and drug pricing methods change.

“It’s clear from the proposal that the administration is genuinely unsure about how pharmaceutical companies and insurers and PBMs will respond to this proposal,” said Rachel Sachs, an associate professor of law at Washington University in St Louis.

How would this affect those with employer insurance?

The short answer is it wouldn’t — at least directly. The only way rebates could be eliminated entirely for all insurance plans, including those provided by an employer, would be for Congress to pass legislation — something Health and Human Services Secretary Alex Azar asked Congress to do the day after the proposal was unveiled.

Many companies are already introducing plans that allow employees to share in some, if not all, of the discounts when they go to the pharmacy counter.

About a quarter of large employers expect to have a program like that this year, according to the National Business Group on Health, which represents large employers, and the largest pharmacy benefit managers are already working with large companies to pass on savings.

THE NEW YORK TIMES Insurers and pharmacy benefit managers oppose the administration plan, saying it will undercut their ability to bargain with drugmakers for lower prices.