Donald Trump’s campaign rhetoric on drug pricing had Novartis AG so shaken that it paid $1.2 million to his lawyer Michael Cohen — better known for paying off porn stars than health-care expertise — in the hopes that he could provide access to the president.
Novartis need not have been so worried. Trump’s much-touted drug crusade — detailed in a Friday speech and proposal — won’t do much to change the status quo.
The Trump Discount
Pharma and biotech have underperformed the broader market since Donald Trump's election, though the news that his drug-pricing plan is benign provided a boost
Early leaks about the speech hinted that it would address the problem of the exorbitantly high and ever-rising list prices that pharmaceutical companies charge. It barely touched on the issue, which happens to be a core driver of America’s drug cost issues. In fact, the president’s plan has scant initiatives that actually target drugmakers. One of the few surprises in the speech — that the Food and Drug Administration will look into requiring that pharmaceutical companies reveal the list price of medicines in ads — will be more embarrassing than impactful.
Instead, he spent more time singling out drug “middlemen” — by which he clearly meant pharmacy benefit managers, although for whatever reason, he didn’t call them out by name — as well as other countries with low drug prices. Trump said middlemen have “gotten rich” and that they “won’t be so rich any more.” But this plan won’t deliver on that tough talk.
Pharmacy benefit managers, or PBMs, negotiate drug discounts for insurers and employers, and profit when drugmakers give bigger rebates in order to secure favorable coverage of their medicines. The result is a perverse system where pharmaceutical companies frequently raise prices to provide bigger discounts. According to drug-channel expert Adam Fein, drugmakers sent back $153 billion in rebates and discounts last year. Drugmakers love to gripe about this system, but it’s been amazingly profitable for them. They get to deflect criticism onto PBMs while still making money off of price hikes, and keep the true price of their medicines hidden.
Trump vowed in his speech to go after the middlemen, but there are almost no concrete or immediate proposals aimed at PBMs. The plan suggests considering fiduciary status for PBMs, which would obligate them to act solely in their clients’ interest, and unspecified additional reforms to the discount system. PBMs may actually benefit from some suggested reforms to Medicare’s drug benefit. It’s no wonder that PBM giant Express Scripts Holdings Co.’s stock rose 2.6 percent after initially dropping during the speech.
Back and Forth
Drugmakers give huge discounts to PBMs and insurers as they fight for market share
Source: Drug Channels/IQVIA
Trump also blamed other countries for high U.S. drug prices. The rest of the world generally negotiates or legislates lower drug prices, which leaves the U.S. to fund much of the world’s pharma research. “It’s unfair, it’s ridiculous and it’s not going to happen any longer,” Trump said.
But unless the administration has a secret extra plan that it has yet to reveal, it’s going to keep happening. The Trump blueprint suggests “working with the administration to assess the problem of foreign free-riding” and investigating foreign IP theft. In other words, they still need to figure out how to actually do anything about the issue. And even in the unlikely event that he’s successful, pharma firms aren’t likely to turn around and gratefully lower U.S. prices. It’s a policy proposal perfectly suited to the president’s nationalist political impulses, and unsuited to actually impacting drug costs.
Some of Trump’s Medicare-focused proposals could have some effect. The administration wants to make it easier for privately run drug plans to negotiate discounts for Medicare beneficiaries (this is the part that could benefit PBMs).
One of the more impactful potential policies involves changing how pricey medicines administered to Medicare patients in hospitals or doctor’s offices are classified and reimbursed. But if enacted, these will likely have only a modest effect.
The biggest impact of the President's drug pricing plan may be on companies that sell medicines through Medicare Part B
Still, the more important thing about the Medicare proposal is what’s missing. Trump avoided a proposal he once endorsed: allowing the government to directly negotiate drug prices instead of leaving it to a private patchwork of companies. That’s a tough political task, because it would have to be paired with limits on beneficiary drug choice to truly make a difference. But it’s the only thing short of outright price controls likely to seriously reduce prices in the program.
As for drug prices as a whole, one proposal that could actually change the way things work for the better — Food and Drug Administration chief Scott Gottlieb’s idea to end an exemption to anti-kickback statutes that allows the system to exist — will be “revisited” according to the Trump blueprint. Such a move would force price competition into the open, and potentially lead to lower list prices. But the language used suggests the administration doesn't the stomach to do something so disruptive yet.
President Trump's drug price plan actually boosted drug stocks
Intraday times are displayed in ET.
It’s a universal truth that talking about lowering drug prices is far easier than actually doing it. But even by a generous standard, this is a paltry effort. Put it this way, when health-care stocks rise on what’s meant to be a “sweeping” effort to lower costs, it’s a good bet you’ve come up short.
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