The Trump administration is taking on drug prices — but not drug companies

Merck Chairman Ken Frazier, left, whispered to President Trump during a meeting with pharmaceutical industry leaders in January. (Jabin Botsford/The Washington Post)

President Trump swept into office threatening to bring the hammer down on high drug prices, accusing pharmaceutical companies of “getting away with murder.”

Over the past few weeks, his administration has tweaked how Medicare reimburses hospitals for certain drugs and sought feedback on a radical idea to pass prescription drug rebates directly to seniors. All of this could ultimately lower out-of-pocket drug prices for some. But there’s one part of the health-care system so far being spared any real pain: the drug companies themselves.

“The most interesting thing about all this is it’s all under the umbrella of drug pricing, but frankly … it looks as if they’re hitting everybody except the drug industry. Which is fairly amazing,” said Ronny Gal, a senior research analyst at Sanford C. Bernstein, an investment firm.

In early November, the Centers for Medicare and Medicaid Services finalized a rule that drastically cuts how much Medicare reimburses hospitals for drugs purchased through a 25-year-old discount program. The future of that program has been the subject of congressional hearings, found by government investigations to be vulnerable to abuse and is the subject of an ongoing fight between hospitals and drug companies.

Last week, the agency proposed a more than 700-page rule targeted at out-of-pocket drug costs. Among the provisions, CMS sought feedback on the idea of providing rebates negotiated between drug companies and their health plans directly to seniors buying drugs under Medicare’s part D prescription drug program. That would increase premiums, but decrease the prices individuals face when filling prescriptions.

“Lowering drug prices is a top priority for the president and CMS. We are committed to finding innovative ways to increase competition and lower out of pocket costs for our beneficiaries,” Seema Verma, the administrator of CMS, said in an email response to questions about the rules.

The policies would affect what people or the government pay for drugs, but wouldn’t touch their prices directly. The proposed rule triggered swift reaction from groups that represent hospitals and pharmacy benefit managers, the companies that negotiate drug price rebates.


[Expensive specialty drugs are forcing seniors to make hard choices]

Hospitals sued to stop the payment cuts in federal district court. They argue that slashing the reimbursements would harm safety net hospitals and jeopardize patient care programs that depend on the drug discount program, called 340B.

“From its beginning, the 340B Drug Pricing Program has been critical in helping hospitals stretch scarce federal resources to enhance comprehensive patient services and access to care,” Rick Pollack, president of the American Hospital Association, said in announcing the lawsuit.

The Pharmaceutical Care Management Association, which represents pharmacy benefit managers, cited federal government data to argue that providing rebates to patients at the pharmacy counter would drive up consumers’ premiums by $28 billion and “create a windfall for drugmakers” on the order of $29 billion over a decade.

CMS, however, said in its proposed rule that the current system incentivizes drug plans to prefer high-priced drugs with large rebates over cheaper drugs with smaller rebates — and added a change could better align the interests of patients with those of the drug plan.

PhRMA, the pharmaceutical industry lobby, welcomed the hospital payment cut as a first step toward reform. Spokeswoman Nicole Longo applauded the government’s push to explore the repercussions of providing rebates directly to consumers, but said the organization would be carefully reviewing the rule to provide specific feedback.

“Both of the rules that we’ve seen take direct aim at what patients who are ill are actually paying, out-of-pocket, so it’s a very good first step,” said Rena Conti, a health economist at the University of Chicago. “It doesn’t go back to lowering prices. But to the extent that we get intermediaries — which include physicians and hospitals, but also pharmacies and insurers — out of the business out of making money off the high price of drugs, the system will be hopefully be more efficient and more transparent.”

In early November, the administration made a small, but critical change in medical billing codes — a move that was seen as a boon for the drug industry.

CMS said in its rule that copycat “biosimilar” versions of already approved biologic drugs would each get different billing codes, instead of being grouped together in one code, as they have been. The agency said that would encourage innovation and competition, “and may lead to additional cost savings over the long-term.” But health policy experts said the change would reduce the need for price competition.

“This is another demonstration that despite rhetoric, action in DC continues to favor the drug industry,” Gal wrote in a note to investors.

The Trump administration’s connections to the pharmaceutical industry have triggered scrutiny. Trump’s nominee to head Health and Human Services, Alex Azar, is a former pharmaceutical executive. Another former industry insider, Scott Gottlieb, heads the Food and Drug Administration. The FDA has also been tackling drug prices, mainly by trying to encourage more competition — an approach that has generally been supported by industry. However, Gottlieb has spoken out against the tactics that brand-name drug companies use to discourage and slow competitors.

Several health policy specialists noted that although the new policies spare pharmaceutical companies any direct intervention, they are aimed at fixing real market distortions and are grounded in evidence. They may also reflect the levers the government can easily pull without legislative action.

“Most of these measures individually have a policy logic behind them,” said Jack Hoadley, a research professor emeritus at Georgetown University’s School of Public Policy.

Peter Bach, director of the Center for Health Policy and Outcomes at Memorial Sloan Kettering Cancer Center, said that it was encouraging to see the government work toward fixing policies that create problematic incentives, even if it was working at the margins of the core problem: that high drug prices often don’t reflect their value.

But it also avoids risking the fierce pharmaceutical industry backlash that last year helped sink a pilot project aimed at trying to change a reimbursement system that rewards doctors financially for administering high-priced injection drugs.

“We always say among ourselves, pharma always wins. That’s not a bad organizing principle for understanding what’s happening here,” Bach said. “Escaping completely unharmed is a win in some of these things.”

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