Inside President Trump’s Drug Pricing Policy

“American Patients First” is the Trump Administration’s plan to address escalating drug prices. During the recent unveiling of the Trump Administration's blueprint to lower drug prices and reduce out-of-pocket spending, the President had harsh words for all stakeholders in the drug supply chain, including payers, manufacturers, lobbyists, providers, and pharmacy benefits managers (PBMs). However, health care stakeholders want to know what kind of substantive policy and changes are behind this tough talk. For this, we turn to a group of managed care and policy experts to examine the specifics, identify initiatives that could become reality in the near-term, and suggest steps payers and employers should be taking now to get ready. 

When the plan was released on May 11, stocks of major pharmaceutical companies and PBMs rose, an apparent sign that the industry could breath a sigh of relief.

“Based on the President’s rhetoric during his campaign and in the months leading up to the announcement, the industry was concerned that the administration would be much more forceful in its attempts to reign in drug prices,” David Marcus, director of employee benefits at the National Railway Labor Conference, told First Report Managed Care. “The announcement established a rough framework with very little substance.”  

Lynn Nishida, RPh, FAMCP, area vice president at Solid Benefit Guidance, agreed that the plan is “light on specifics and detail on how to materially get there. It’s a start, but there is a lot left to interpretation, development, and theory.”

Others noted that President Trump’s plan illustrates that little can be done in the short-term.

“Much of what is in the plan is future-directed and does not seem to impact the current business model,” Gary Owens, MD, president of Gary Owens Associates, said. 

Furthermore, it proves “how little can be done in the short term to change payment processes that have been in place since the 1970s,” added Norm Smith, a member of the First Report Managed Care Editorial Advisory Board.

More Than Political Rhetoric?

Melissa Andel, MPP, vice president of health policy at Applied Policy, said she believes that if the plan was any more aggressive it might be perceived as little more than political rhetoric. 

“I assume that this is likely the friendliest version of reform that the industry will see,” she explained. “I am somewhat surprised that they seemed to hold punches on PBMs, especially since the president has singled them out in the past. I was also prepared for federal negotiation of prescription drug prices [in the plan since]—it is something that the president touted on the campaign trail.” 

But keeping federal negotiating out of the mix could be a sign that the HHS is putting forth a plan that is more than political posturing.

According to F Randy Vogenberg, PhD, RPh, principal of the Institute for Integrated Healthcare, pharmaceutical manufacturers and PBMs should not breathe too easily. He noted that the jury is out in terms of short-term disruption, which depends upon where the Administration chooses to focus. But over the longterm, he said that “clearly the goal is to be disruptive through administrative changes.”

“I think it would be very unwise to assume the danger has passed,” agreed Arthur Shinn, PharmD, president of Managed Pharmacy Consultants. PBMs might be catching a small break in the shortterm, but they are certainly going to be impacted. “It is just a matter of when. PBMs need to understand that this is a major push for them to accept fiduciary responsibility.” 

PBMs seem to be getting the message, according to Barney Spivack, MD, national medical director of Medicare case & condition management at OptumHealth, who pointed to recent efforts to consolidate. “Government decisions and policy changes have been a big unknown, and thus a significant motivator to rethink how [PBMs] do business.”

A Warning Shot to Self-Regulate

In a section addressing PBM fiduciary responsibility, the Administration asks 11 questions including, “should PBMs be forbidden from receiving any payment or remuneration from manufacturers,” and “should PBM contracts be forbidden from including rebates or fees calculated as a percentage of list prices?” 

Dr Owens made the point that these questions are already being asked by savvy entities who contract with PBMs, which is why many agreements now allow health plans to keep rebates and instead pay an administrative fee. But how rebates and administrative fees are defined and how they flow remains unclear. 

For that reason, President Trump’s plan “is a warning to the industry that they need to address the issue of drug prices before the government does it for them in a more heavy-handed way,” Ms Andel said, adding that Republican administrations typically use this approach. 

PBMs are an easy target, explained Mr Smith. They add very little value to the care of patients, other stakeholders don’t care much for them, and they have been perceived as bullies in their relationships with pharmaceutical companies since day one. 

Charles Karnack, PharmD, BCNSP, assistant professor of clinical pharmacy at Duquesne University in Pittsburgh, does not think this language will have any impact PBMs. The Administration appears to be “kicking the can down the road,” he said, pointing to the poor track record other institutions—such as banks—have with regards to self-regulation. 

Mr Marcus agrees. “Congressional or regulatory action will be needed to impose fiduciary obligations on PBMs,” he said. If this happens, he explained, the logjam could be broken because PBMs would have to disclose the amounts of rebates and fees they receive. 

“The key is to reduce the incentive for establishing high list prices,” Mr Marcus added.

Likely Near-Term Actions

In the absence of a clearly-defined scope, what immediate actions could take effect soon? 

Mr Smith suggested that something might be done that gets voters’ attention before the mid-term elections. Namely, the Administration may “push for regulations that would force PBMs to pass on some of the rebate dollars to the patient.” And while enacting such a regulation will not likely occur before November, the promise of softening out-of-pocket costs for consumers may be the salve President Trump is seeking. 

Dr Vogenberg said to look for regulation changes that relax ACA requirements tied to taxes and rebates that the Trump Administration maintains are driving drug prices higher in the private market. He explained that changes will not likely occur in isolation. HHS, CMS, and the FDA are “conjoined in such a way as to have multiple ways to impact the market synergistically toward disruption.”

Dr Shinn said the trio overseeing HHS, CMS, and FDA—Alex Azar, Seema Verma, MPH, and Scott Gottleib, MD—should not be underestimated. 

“They have very deep knowledge of the pharmaceutical industry, and they know how PBMs operate,” he said. “They have the inside knowledge and capability to make [meaningful drug price change] occur.”

More Negotiating Leverage

Democrats have long pushed for providing CMS with the wherewithal to negotiate prices with drug makers. At certain times President Trump has said he agrees with them, but his plan does not include giving Medicare full negotiating power. Whether such empowerment would lead to lower prices has long been debated. Skeptics say that if the pharmaceutical industry is forced to lower Medicare prices, it would likely raise prices in the private sector. Moreover, a single formulary for Medicare patients would block access to certain drugs. Plus, naysayers maintain that PBMs are better negotiators than the federal government.  

“CMS has neither the budget nor staff to implement negotiations,” Mr Smith explained. Plus, he noted that excluding products—thereby creating competition to be listed on a formulary—violates provisions in the Omnibus Budget Reconciliation Act of 1990. Thus, Congressional action would be required.  

President Trump’s plan instead calls for looser rules about how many Part D drugs in treatment categories must be offered by Medicare (one, rather than the current two). “This could make pharmaceutical manufacturers offer better pricing upfront in exchange for preferred use,” Ms Nishida said.

Dr Karnack expressed hope that relaxing the rules “is a first step to allow Medicare to negotiate, since it will likely increase competition.” Dr Owens said he does not see the move as a gateway to allowing CMS full negotiating power. Rather, “it gives plans the ability to better manage [Medicare] formularies similar to how they manage commercial formularies.” Dr Vogenberg pointed out that CMS is probably better off having its Part D vendors manage their own negotiations.

Mr Marcus agreed that full, direct negotiation is not in play. But he said that he likes the proposal to “give Medicare more control over its formulary and the ability to implement expanded utilization and management.” 

Ms Nishida said that “while President Trump isn't proposing to centralize Medicare and Medicaid pricing power, he is supporting changes that could give insurers more negotiating leverage.” 

Encouraging states to participate in Medicaid pilot programs where they would create their own formulary and negotiate with manufacturers is one such change. Letting Medicare plan sponsors negotiate based on indication (so-called “indication-specific pricing”) is another. Still, she acknowledged that it will be important to keep an eye on where the savings are going. 

“Savings may occur but the challenge is determining how they flow through and who benefits,” Ms Nishida said. “In the end, there may be savings, but not necessarily for members because of how savings are shared back.”

The most unusual parts of the Trump plan deals with what it calls “foreign free riding.” It plans to use trade agreements as leverage to force other countries to pay more for medications, which it believes would lead to lower prices in the United States. Experts generally believe that the effect of such a move would not be seen anytime soon, if at all, since there is no guarantee that pharmaceutical companies would lower prices in response. In fact, the consensus is that drug makers would see higher prices abroad as a gift that increases shareholder value, rather than a reason to lower drug prices domestically. 

Advice for Payers and Employers

In late May the President further proclaimed: “I think we are going to have some of the big drug companies in 2 weeks… they’re going to announce voluntary massive drops in prices.”

Realistically, drug prices likely will not drop that quickly—or massively. Still, what should payers and employers be doing to position themselves to take advantage of hoped-for relief? 

“Payers should consider applying their PBMs’ full range of management rules and programs to the covered population to ensure that the right drugs are prescribed at the right time in the right amount through the right channel,” Mr Marcus said. 

According to Dr Shinn, the best way to prepare is to keep an eye on regulatory changes and invest in value-based payment models.

“Look for ways to make vendors more accountable for the drug spend. Hold your PBM’s feet to the fire to negotiate value pricing,” he said. "Don’t be dissuaded by their size or strength. They will do what you ask if you push them to do so.” He cited the issue of pricing transparency. “PBMs were initially reluctant, but when payers demanded it they relented.” 

Ms Nishida suggested reviewing internal process to make sure they align with regulation changes proposed in President Trump’s plan. 

“Make sure you are not preventing pharmacists from informing patients of the cash price of a prescription drug and confirm that your contracts with dispensing pharmacies require that members always pay the lower amount,” she said. Members should always be charged the lower of the negotiated price or applicable cost share. Finally, “pharmacy agreements should require network pharmacies to inform the member at the point-of-sale of the lowest-priced, generically equivalent version of a covered
drug being dispensed, as well as any associated differential in price in accordance with federal regulations.”

Consolidation that is already underway will continue to position payers and other stakeholders well, but these stakeholders need to keep the patient in mind. 

“Every stakeholder needs to remember to put the patient first,” Mr Smith concluded. “It puts you ‘on the side of the angels,’ making your position much easier to defend.”