President Donald Trump has just fired another shot across the bow of the global biopharma industry. And the industry quickly fired back in what promises to be a lively battle over drug prices.
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Trump’s HHS proposed Thursday afternoon to drop the current way that Medicare covers drugs under Part B — calculating the average sales price and adding 6% to the providers who manage the drug supply — and switch to a new system that pegs US prices against the much lower rates that have been established by single-payer systems abroad.
With just days to go ahead of the mid-term election, Trump proposed a pilot program covering half of the Part B spend, with the government moving to an average basket price calculated from single payers abroad at a 20% discount per year over 5 years.
Trump is out to kill a whole flock of birds with one stone.
First, he’s accused other countries of freeloading on the US, negotiating artificially lower drug prices covered by a well-documented US premium. If manufacturers are held liable for their foreign pricing, often set after some hard bargaining that can include a refusal to cover it at all, they’d be less likely to offer a deep discount abroad. That could pressure other countries to pay more.
Second, he’s promising to significantly reduce heavy Medicare spending, lopping billions of dollars off of drug costs.
And third he’s moving to a new system that would begin to force companies to cut prices after repeatedly accusing them of “getting away with murder” on drug prices in the US.
Instead of a controversial attempt to allow cheaper drugs to be imported into the US, Trump is saying he wants to keep the drugs and import the price. In this industry, that’s radical.
Ironically, the proposal that Trump came up with follows a sea change in the industry’s attitudes toward pricing in the US, which controls the fate of its profitability. Starting with Pfizer, Trump has forced the majors to at least pause their steady march to higher prices. For many, the prospect of leaving their portfolio prices in place would put tremendous pressure on their promises to investors who control their stock prices. And that would leave many to do something they have never done: efficiently develop new blockbusters in their R&D groups.
You can also expect plenty of kickback from the provider side of the equation, who won’t like the new vendor system that would institute a new system with flat fees for managing drug supplies. For years physicians and the groups who represent them slap back at changes that could impact their income by vowing to quit Medicare and leave poor patients on their own.
Faced with a proposal that could start to shift the US to a new approach dictated by the single-payer pricing system — the industry’s nightmare — PhRMA and BIO came out against the proposal with all guns blazing.
The administration is imposing foreign price controls from countries with socialized health care systems that deny their citizens access and discourage innovation. These proposals are to the detriment of American patients. The United States has a competitive marketplace that controls costs and provides patients with access to innovative medicines far earlier than in countries with price controls, and it’s why we lead the world in drug discovery and development. Americans have access to cancer medicines on average about two years earlier than in developed countries like in the United Kingdom, Germany and France.
The proposed Medicare Part B model would jeopardize access to medicines for seniors and patients with disabilities living with devastating conditions such as cancer, rheumatoid arthritis and other autoimmune diseases. The administration’s proposal will also hinder patient access by severely altering the market-based Medicare Part B program by reducing physician reimbursement and inserting middlemen between patients and their physicians.
BIO’s Jim Greenwood had this to say:
Contrary to the president’s repeated promises to end ‘foreign free-loading,’ this proposal embraces it and exacerbates its harmful effects. By adopting foreign price controls on the very small number of innovative medicines that make it to market, this proposal will severely chill investment in new cures and therapies for America’s seniors.
To make matters worse, the proposal continues a troubling trend towards undermining the Medicare Part B drug program. This program supports the sickest, most vulnerable Medicare patients and accounts for only a small fraction of all Medicare spending. BIO will strongly oppose short-sighted and harmful changes to a program that is so vital to the health and well-being of our seniors.
Interestingly, the Trump proposal isn’t being advanced as a rule-change, just a proposal for discussion aimed at attracting attention to an issue that plays well with his base of supporters. Republican lawmakers may not support it, but with their fates intertwined with the sensitive president, criticism will be muted.
Democrats on the other hand may well leap at the chance to tackle drug prices with the president.