The big take-away from the President’s speech today is that “the price of drugs” is an ecosystem problem that requires an ecosystem solution. To us, this is obvious. To the American people, it is not. (There are no “simple” solutions such as “drugs from Canada.”)
* This truth telling isn’t surprising since POTUS is following the lead of three very sharp policy wonks – Secretary Azar, Commissioner Gottlieb, and Administrator Verma. And they’ve been saying this for years. In fact, Alex talked about it during his confirmation hearing. This speech isn’t at all surprising – if you’ve been listening. Azar, Gottlieb and Verma have been repeating this statement for the past few weeks.
* Per PBMs, the president's budget calls for insurers/PBMs who provide Medicare Part D prescription drug plans to give at least one-third of the rebates and price concessions to beneficiaries at the pharmacy.
* “My drugs are too expensive” generally means, “my co-pay/co-insurance is too high.” The President’s plan will lower the “price at the pump.”
* The big policy implication here is that the ACA promised “insurance for all.” But that rhetoric led people to believe this meant their healthcare would be “free.” Not so. And many of these new plans (especially the Silver ones) were designed along the lines of low premium/high co-pay. This is particularly true for the no/low premium plans. This new thinking begins to get at that problem.
* The next policy conversation will be “Do lower co-pays mean higher premiums?” Watch for the payer pundits to ask this question.
* One man’s rebate is another man’s kickback. Will the federal exemption for rebates be revoked? Big battle here that PBMs cannot afford to lose. Watch how the issue of premium subsidies comes back around.
* The President is voicing free-market solutions. (Azar+Gottlieb+Verma = free market thinking.) See here.
* The large and growing gap between the drugs’ list prices and the actual, secret prices PBMs pay is bad for competition. Markets are less efficient without clear price signals. The proposed HHS rule (for passing along a portion of the rebate) “would improve price transparency which may have a positive effect on market competition and efficiency.”
* Again, per “ecosystem,” do higher list prices equal higher rebates? Well – sometimes. How can this best be addressed? The answer begins with transparency. Transparency can give manufacturers an edge. After all, it’s harder to pocket money (rebates/kickbacks) when it’s sitting on the table where everyone can see it.
* The administration may also considering how it pays for drugs administered in doctor's offices, clinics or hospitals through Medicare's Part B program.
The federal government currently pays providers 6% more than the average price of those medicines. Hence, manufactures have the incentive to raise prices and gives providers the incentive to select more expensive medicines. (This is Seema Verma’s philosophy since her days running the Indiana Health Department.)
* The administration is considering moving certain Part B coverage (perhaps orals vs. injectables) into the Part D program, where insurers can (in theory) negotiate better prices and requiring manufacturers to provide more accurate sales data to make sure they don't exclude discounts.
* States are the laboratory of invention. Reducing drug costs in Medicaid is also under consideration. The president's budget calls for giving up to five states greater leeway to test drug coverage and payment models in their Medicaid programs. Allowing states to determine which drugs to cover would in theory allow them negotiate bigger discounts directly with manufacturers.
* Exclusionary Contracting. FDA is focusing on reducing prices by increasing competition via generics biosimilars. Gottlieb has teed up tackling the "games" manufacturers play to keep competitors off the market, such as using loopholes to block rivals or paying them to delay bringing their drugs to market and, particularly for biosimilars, exclusionary contracting.
* The President wants to do away with the “gag rule” that prohibits pharmacists (in some states) from telling their customers there are cheaper (generic) alternatives to what they have been prescribed. To-date, this has been a state issue. It is likely to remain so because of interstate commerce regulations.
* Patents should be used to protect innovation, not to delay generics to market. (aka, “shenanigans.”)
* Secretary Azar said that the FDA was going to write new regs that would require drug companies to list the price of their products in their advertising. Not sure where this is going, but it’s worth watching carefully.
* Per other nations’ bullying our drug manufacturers into unrealistically low prices/allowing other countries to freeload off of American innovation,” it’s a fair point that’s going to be difficult to address. But the fact that the President is teeing it up is a big step in the right direction. For more on this point, see this article from the Wall Street Journal.
* What will we read in the New York Times tomorrow? I predict the mainstream media chattering classes will say this is a “victory for Big Pharma.” They will (begrudgingly) admit that direct federal negotiations are a good idea. (It will not mention that this is contrary to the existing Non-Interference Clause that will require legislation to undo). Media and Democrats in Congress will peg the speech as “caving in to Big Pharma.” If I am wrong I will buy you all lunch.
* Addressing the kickback statute and the Non-Interference Clause will require legislation. Will Dems work with the White House?
* Equally important is to not pay much (if any) attention to whatever hyperbole the President uses. Implementation of the above-discussed initiatives will be done by HHS/FDA/CMS.
In the words of the British pundit Ernest Benn, “Politics is the art of looking for trouble, finding it whether it exists or not, diagnosing it incorrectly, and applying the wrong remedy. “
The good news is that experts are at the wheel.
They’re focusing on free-market solutions.
The ideas require an ecosystem approach.
Nobody said it was going to be easy.