It’s the Health Care Ecosystem

Anyone who was paying attention to President Donald Trump’s May 11 press conference on drug pricing or has read the White House blueprint understands that drug pricing is an ecosystem that includes manufacturers and multiple intermediaries. Games are being played, and patients are (generally) the losers.

The president and his team are voicing free-market solutions. (Azar+Gottlieb+Verma = free market thinking.) The big takeaway from the speech is that “the price of drugs” is an ecosystem problem that requires an ecosystem solution. It’s the ecosystem.

Shame on those who (for self-interest and political purposes) perpetuate the myth that drug prices are a one-dimensional issue. And shame on those who choose to ignore the many solid recommendations made by the president and his health care team. 

It’s appropriate that we’re finally focusing on the very questionable practices of prescription benefit managers. PBMs receive large rebates (aka “kickbacks”), and rather than passing along the savings to patients, they pocket hundreds of millions of dollars. Trump and Health and Human Services Secretary Alex Azar made it very clear they will demand that these rebates be used to “lower the price at the pump” — lower copays for patients when they get their drugs at the pharmacy. When people say, “My drugs are too expensive,” what they mean is “my copay” or “my deductible” is too expensive.”

This truth telling isn’t surprising since POTUS is following the lead of three very sharp policy wonks — Azar, Food and Drug Administration Commissioner Scott Gottlieb, and Centers for Medicare and Medicaid Services Administrator Seema Verma. And they’ve been saying this for years. In fact, Azar talked about it during his confirmation hearing.

The president’s budget calls for insurers/PBMs who provide Medicare Part D prescription drug plans to give at least one-third of the rebates and price concessions to beneficiaries at the pharmacy. The big policy implication here is the major flaw in the Affordable Care Act.

The ACA promised “insurance for all.” Such rhetoric led people to believe their health care would be “free.” Not so. Many of the ACA plans (especially the bronze and silver ones) are low premium/high copay. Millions of Americans have learned the hard way that “having insurance” and “having access to health care” isn’t the same thing. New thinking from the president’s health care team begins to get at this foundational policy problem.

The next policy conversation will be “Do lower copays mean higher premiums?” Watch for the payer pundits to ask this question. Ultimately, one man’s rebate is another man’s kickback. Will the federal exemption for rebates be revoked? Big battle here that PBMs cannot afford to lose. Watch how the issue of premium subsidies comes back around.

The large and growing gap between drugs’ list prices and the actual, secret prices PBMs pay is bad for competition. Markets are less efficient without clear price signals. The proposed HHS rule (for passing along a portion of the rebate) would improve price transparency and have a positive effect on both competition and efficiency. After all, it’s harder to pocket money (rebates/kickbacks) when it’s sitting on the table where everyone can see it.

The administration may also be considering how it pays for drugs administered in doctor’s offices, clinics or hospitals through Medicare’s Part B program. The federal government currently pays providers 6 percent more than the average price of those medicines. Hence, manufacturers have the incentive to raise prices, and it gives providers the incentive to select more expensive medicines. This has been Verma’s philosophy since her days running the Indiana Health Department.

One of the blueprint’s more aggressive suggestions is considering moving certain Part B coverage (perhaps orals vs. injectables or by specific therapeutic categories) into the Part D program, where insurers can (in theory) negotiate better prices and require manufacturers to provide more accurate sales data to make sure they don’t exclude discounts. While the Part B program would certainly benefit from the infusion of competition, we should also recognize the value of the existing transparency of its Average Sales Price model.

Crucially, the blueprint recognizes that states are the laboratory of invention. Since reducing drug costs in Medicaid is also under consideration, the president’s budget calls for giving up to five states greater leeway to test drug coverage and payment models in their Medicaid programs. Allowing states to determine which drugs to cover would in theory allow them to negotiate bigger discounts directly with manufacturers.

The FDA is focusing on reducing prices by increasing competition via generic biosimilars. Gottlieb has teed up tackling the “shenanigans” manufacturers play to keep competitors off the market, such as using loopholes to block rivals or paying them to delay bringing their drugs to market and, particularly for biosimilars, exclusionary contracting. The commissioner’s “name and shame” initiative — publicly calling out those companies that refuse to supply their products for generic initiatives — is the first in what is sure to be a series of strategic salvoes on behalf of lower drug costs.

Per other nations’ “bullying our drug manufacturers into unrealistically low prices/allowing other countries to freeload off of American innovation,” it’s a fair point that’s going to be difficult to address. But the fact that the president is teeing it up is a big step in the right direction.

The mainstream media chattering classes and the leadership of the Democratic party in Congress have positioned the White House blueprint as a “victory for Big Pharma.” That’s putting politics in front of the public health. Equally important is to not pay much (if any) attention to whatever hyperbole the president uses. Implementation of the above-discussed initiatives will be done by HHS/FDA/CMS.

In the words of British pundit Ernest Benn, “Politics is the art of looking for trouble, finding it whether it exists or not, diagnosing it incorrectly, and applying the wrong remedy.”

The good news is that experts are at the wheel. They’re focusing on free-market solutions. The ideas require an ecosystem approach. Nobody said it was going to be easy.


Peter J. Pitts, a former FDA associate commissioner, is president of the Center for Medicine in the Public Interest.

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