Lower Drug Prices: New Proposals Carry Lots of Promises
Posted February 9, 2018 7:20 p.m. EST
When it comes to high drug prices, President Donald Trump and members of Congress have been long on promises but short on action.
But that appears to be changing: The White House on Friday released a report recommending significant changes that would affect drug costs and the president’s budget proposal Monday is expected to include some plans to expand drug coverage under Medicare. In addition, a spending bill passed by Congress on Friday included a provision that would accelerate closing a payment gap in Medicare for prescription drugs.
The wide-ranging White House report by the Council of Economic Advisers touched on everything from overseas drug pricing to the lack of competition among industry middlemen, laying out a menu of ideas. The report echoed many of the drug industry’s complaints; other countries pay unfairly low prices for medicines and cutting profits will stifle breakthroughs.
Trump’s budget proposal is expected to be more specific, including several measures aimed at lowering out-of-pocket spending for people on Medicare (65 and older).
One idea addresses an issue that many consider fundamentally unjust: Consumers are increasingly being asked to pay a greater portion of their drug costs, but they don’t get discounts that drug manufacturers offer to health insurers.
The proposal, first floated by federal officials in November, would give at least a portion of that discount to people in Medicare drug plans at the pharmacy counter. The move could lower out-of-pocket costs for people with high drug bills, but would increase the cost of these Medicare plans, offered by private insurers, for everyone. The idea seems to have the support of the Trump administration, including the new health secretary, Alex M. Azar II, a former Eli Lilly executive.
The proposal, which does not need congressional approval, represents the latest clash between powerful health care industries that are engaged in a war for the moral high ground over rising drug prices. The pharmaceutical industry, backed by influential members of the Trump administration, has been lobbying hard for the change, betting that it would act as an escape valve for patients’ anger over drug costs while preserving drugmakers’ freedom to set any price they want.
By contrast, the insurance companies and pharmacy benefit managers, which oversee drug plans, are loathe to part with what amounts to billions of dollars in rebate windfalls, arguing that it will lead to higher prices.
The change could present a tidy solution for Trump, who has come under fire for doing little to follow through on his pledge to lower drug prices, even as he has installed several former drug industry executives in prominent government roles. But it would cost the government money — up to $82.1 billion over the next decade, according to its own estimates.
During his address to Congress last month, Trump reiterated that lowering drug prices was “one of my greatest priorities,” and promised: “Prices will come down.”
In a press briefing, Azar signaled his support of passing on rebates to customers. As a government lawyer during the George W. Bush administration, Azar oversaw the launch of the Medicare drug program.
Insurers’ rising use of manufacturer rebates has been a long-standing concern of federal officials, including those in the Obama administration who issued a report on the matter one day before Trump took office.
Any decision by the federal government is likely to reverberate through the country’s health care system, given that many people with employer-provided health insurance are exposed to the same inflated prices. Already, some private insurers are beginning to offer such rebates to customers.
“There’s a very basic question here about the role of insurance and health care,” said Peter B. Bach, director of the Center for Health Policy and Outcomes at Memorial Sloan Kettering Cancer Center, who supports the change. “We are still uncertain in the United States how much the sick should carry their own weight economically, versus the many should chip in financially to protect those who are sick. That’s what this debate is about.”
Patients like Antoinette Lopez are the ones caught in the crossfire.
Lopez, 70, takes Enbrel for rheumatoid arthritis, and she’s watched in frustration as her out-of-pocket costs have risen along with the drug’s list price. In 2015, she paid $4,547 for 10 months of Enbrel. This year, she expects to pay $5,941 for the same period.
But the insurer that oversees her drug plan, Humana, is pocketing hundreds of dollars every time she fills her prescription from Amgen, which makes Enbrel. Lopez will never see that money — the rebates are instead applied across the board to keep premiums low for all of the people enrolled in Humana’s Medicare plan.
“It’s gouging,” said Lopez, a retired nurse administrator from Athens, Georgia, who blames insurers and drugmakers. “It’s despicable.”
Humana did not respond to requests for comment, and Amgen said it was “pleased” with the federal proposal.
If Medicare adopts the plan, federal officials estimate that consumers would save, on average, between $45 and $132 a month. But everyone would pay higher premiums, which Medicare estimates would increase anywhere from $14 to $44 a month.
Mark Merritt, chief executive of the Pharmaceutical Care Management Association, the trade group for pharmacy benefit managers, dislikes the proposal and believes the Medicare coverage is a “sound program.”
“You don’t want to destabilize the program or inadvertently make things worse,” he said. But even as Medicare’s drug coverage gets high marks, those who rely on expensive medications are exposed to spiraling drug prices.
Higher prices have led insurers to push more of the cost onto consumers, by imposing high deductibles or requiring that people pay a percentage of a sale price at the pharmacy, not what the insurer pays for the drug after discounts. The administration is expected Monday to propose placing a cap on out-of-pocket spending in Medicare drug plans, because without one some people pay tens of thousands of dollars a year.
There is a yawning gap between the list price of a drug, which is close to what the consumer typically pays, and the net price, which insurers pay, that is getting larger.
This has led to a huge increase in the amount of the rebates collected by insurers and pharmacy benefit managers.
While insurers contend that most of the rebate money is used to lower premiums, the middlemen also pocket a percentage of those rebates, meaning their profits grow as the list price rises.
“We’ve built this incredibly complex, hard-to-understand machine,” said Adam J. Fein, president of Pembroke Consulting, a research firm. “Everyone in the system benefits from this pricing strategy, but it’s not necessarily sensible or sending the right price signals to the consumer.”
The pharmaceutical industry says the growing share of rebates is evidence they are working to keep drug costs low. “We are lowering the prices through greater and greater rebates and discounts, and they’re not giving those to patients,” said Robert Zirkelbach, a spokesman for the Pharmaceutical Research and Manufacturers of America, an industry group.
Mark Hamelburg, senior vice president of federal programs for America’s Health Insurance Plans, the trade group, said the new proposal is little more than a smoke screen by the pharmaceutical industry. “It’s all part of that general effort to change the focus away from the true problem,” he said. Many who oppose the idea point out that it won’t help everyone because not every drug comes with a large rebate. Many new cancer treatments, as well as products that treat rare diseases, are not discounted at all.
Many of those offering Part D plans say they do not want to raise premiums for everyone to lower the costs for a few. “Mandating rebates be applied at the point of sale would increase costs for the vast majority of seniors in Part D, taxpayers and the government, while benefiting drug manufacturers,” Carolyn Castel, a spokeswoman for CVS Health, one of the largest pharmacy managers, said in an email.
Some large employers have begun experimenting with offering employees rebates at the pharmacy counter. Despite its opposition to the Medicare proposal, CVS is offering such rebates to commercial clients, like large employers, and has offered the rebates to its employees since 2013.
Lopez, meanwhile, said she would appreciate some help. Amgen raised the list price of Enbrel 9.7 percent in January. “I think anything that would make the total costs of high drug costs go down, even if the premiums went up a little bit, would offset it,” she said.
But the solution seems like “some sort of Band-Aid, or temporary, feel-good fix,” she said.