President Trump has the power to sink pharmaceutical stocks with a single jab about high drug prices.
But in a much-anticipated speech on the topic on Friday, Mr. Trump largely avoided the issues the industry fears the most, such as allowing Medicare to directly negotiate drug prices, or allowing Americans to import drugs. Investors noticed: Stocks of major drug companies rose after his speech, as did those of pharmacy benefit managers, or the “middlemen” that Mr. Trump said were getting “very, very rich.”
As the health care world parsed the president’s newly released “blueprint” to lower drug prices, the overarching insight seemed to be this: The drug industry’s formidable lobbyists had won some key victories, even if they did not escape entirely unscathed. Many proposals were light on detail and will need action by Congress to become real.
Yet Mr. Trump won some praise for having taken a stab at tackling such a complex and vitally important issue to many Americans.
Here is a rundown of the key proposals unveiled on Friday.
Lower drug prices for older people
On the campaign trail, Mr. Trump embraced allowing Medicare to negotiate the price of the drugs it buys for older people, an issue traditionally supported by Democrats but long opposed by Republicans — and the powerful drug industry.
Friday’s proposal falls far short of that goal. But it does include some ideas for giving the government better leverage in negotiating with drug companies. It calls for exploring whether to allow Medicare drug plans to pay different amounts for the same drug, depending on the illness involved. And it would experiment with “value-based purchasing” in federal programs, essentially a money-back guarantee in which a drugmaker promises to refund money if a medication does not work as expected. Drug companies and insurers are increasingly entering into these kind of arrangements, although the evidence is far from clear that they lower costs.
The administration also reiterated earlier proposals: making generic drugs free for some low-income older people on Medicare and allowing people to keep a portion of the rebates that are normally pocketed by the insurers that manage the Medicare drug program.
Persuade other countries to pay more
One key proposal would involve pressuring other countries to raise their prices for prescription medicines. Drug prices in the United States are the highest in the world; many countries with centralized health care systems have successfully negotiated lower prices from pharmaceutical companies.
Mr. Trump, echoing the longstanding position of the drug industry, has said these companies are “free-riding” off the ingenuity of American corporations, and that high drug prices in the United States are subsidizing innovation that benefits the whole world.
“We have great power over the trading partners; you’re seeing that already,” Mr. Trump said on Friday. “America will not be cheated any longer, and especially will not be cheated by foreign countries.”
The Trump administration plans to work with several federal agencies to address what it described as this “unfair disparity.”
But it is unclear whether other countries would be willing to raise their prices, or whether doing so would lead drug companies — which are beholden to shareholders hungry for profit — to lower prices in the United States.
Require drug ads to include the price
Prescription drug commercials are ubiquitous. But what if those ads had to disclose the drug’s price? That is something the Trump administration says it wants to explore.
The idea would certainly grab attention, and fear of a consumer backlash could pressure some drugmakers into dropping their prices.
But the notion poses a lot of issues For one: which price? The list price, which is about what a pharmacy would charge if someone paid for the drug in cash? Or the discounted price that insurers and employers pay? Most consumers have health insurance and pay a much smaller out-of-pocket cost, although that can still add up to thousands of dollars a month.
Other questions include whether such a requirement would survive a First Amendment challenge, and whether posting a high sticker price — which few ultimately pay — could dissuade patients seeking out a necessary drug.
Finally, drug companies are masterful at distracting viewers from the lengthy list of risks and side effects that is already required by the Food and Drug Administration. Some have been known to employ noisy brass sections or buzzing bees to de-emphasize the required information. Would the drug’s price similarly fade into the background?
Ban ‘gag clauses’ for pharmacists
Some contracts between pharmacies and pharmacy benefit managers prohibit pharmacists from telling patients when a drug they need would be cheaper if they paid in cash, rather than using their insurance.
“This is a total rip-off, and we are ending it,” Mr. Trump said in his speech on Friday. The administration’s written proposal is more vague, saying that it “may” prohibit these gag clauses in plans for Part D, the Medicare drug program.
End the patent games
Patent protection for new drugs is vital, the industry insists, to allow drugmakers to recoup the millions of dollars invested in researching and developing lifesaving products.
But over the years, the industry has become known for finding new ways to hold on to that patent protection, and with it the power to charge whatever it wants without generic competition.
One recent flashpoint has been the refusal of some brand-name companies to turn over samples of their drugs to generic drugmakers, effectively preventing competing products from being developed. Republican and Democratic lawmakers have proposed changes that would end this practice but have been unsuccessful.
Trump said on Friday he would rein in this game-playing, saying “our patent system will reward innovation, but it will not be used as a shield to protect unfair monopolies.”
On the horizon
Some of the most theoretical ideas also have the potential to be the most disruptive.
One is to upend the existing rebate system, in which drug companies pay rebates, or discounts, off the list price to insurers and employers. But those rebates are often considered trade secrets, and pharmacy-benefit managers pocket a portion of the rebate for themselves, creating what many have described as perverse incentives that keep drug prices rising.
The Trump administration has said it is examining whether it should consider rebates to be a form of illegal kickback, a change that would likely require congressional action.