The high price of pharmaceuticals is something politicians love to attack but do nothing about it.
The U.S. spent $1,162 per person in 2015 on pharmaceuticals, according to the Organization for Economic Cooperation and Development, compared with $756 in Canada and $497 in the United Kingdom, where governments control prices.
During his 2016 campaign, Donald Trump accused drug companies of “getting away with murder.” But his “American Patients First” plan downgrades that to a misdemeanor, while citing other miscreants.
In the convoluted world of pharmaceuticals, newly developed drugs are priced arbitrarily high as are older formulations purchased by big pharma from smaller companies. Big pharma maintains the list prices only serve as starting points when negotiating discounts — rebates — with pharmaceutical-benefit managers, who act as middlemen for insurers and employers.
PBMs keep a percentage of the rebates, which increase in value with a drug’s inflated price. They maintain 90 percent of the savings is passed along to customers.
“Everyone involved in the broken system — the drugmakers, insurance companies, distributors, pharmacy benefit managers and many others — contribute to the problem,” Trump said.
His plan, which had the imprint of Secretary of Health and Human Services Alex Azar, formerly president of Eli Lilly’s U.S. division, didn’t faze big pharma.
Stock prices rose. The Wall Street Journal headline encapsulated the response: “Trump’s Plan to Cut Drug Prices Leaves Industry Relieved. President criticizes pharmaceutical lobby ‘abuse’; strategy is a shift away from campaign pledge of more aggressive action.”
“We’re very much eliminating the middlemen,” Trump said about PBMs. “The middlemen became very, very rich. … They won’t be so rich anymore.”
But the PBMs — notably industry leaders Express Scripts Holding, CVS Health and OptumRX — aren’t going anywhere under his proposal. Their stock prices also increased.
However, they may lack friends in Iowa.
Last month, pharmacists told the Iowa House Government Oversight Committee that PBMs charge state and local governments far more for prescriptions than they pay local pharmacies to fill them.
Wapello County, which contracts with CVS Caremark, claimed the PBM paid local pharmacies as little as $2.69 for prescriptions for jail inmates, while billing the county $124.
CVS executive Rich Ponesse disputed the claim, saying his company adjusts payment rates regularly. Rep. John Forbes, D-Urbandale, a pharmacist, called that “(BS),” according to the Des Moines Register.
In a letter to state officials last fall, Kimberly Foltz, chief executive officer of UnitedHealthcare’s Iowa branch, complained about the state’s Medicaid payment shortfall. She proposed allowing direct negotiations with pharmacies to fill prescriptions, contending costs would be cut 90 percent.
Trump also criticized foreign nations for price controls — “global freeloading” — supposedly robbing U.S. drug companies of research and development funds. He urged them to raise prices.
Yet after the reduction in corporate federal taxes from 35 percent to 21 percent, five pharmaceutical companies alone announced $45 billion in stock buybacks rather than plowing that money back into research and development or reducing domestic prices.
Trump also rejected the possibility of importing less expensive drugs from Canada, which Sen. Charles Grassley, R-Iowa, had championed with others as a remedy under certain circumstances to counter drastic U.S. drug increases.
Candidate Trump vowed in January 2016 to use Medicare’s clout to negotiate lower drug prices to supposedly save $300 billion a year. President Barack Obama wouldn’t pursue it, he said. “Why? Because of the drug companies.”
But Trump isn’t pushing to change the law prohibiting Medicare from negotiating prices for its Part D pharmaceutical component, which serves 60 million Americans and accounts for 30 percent of prescription drug spending.
The Veterans Health Administration can negotiate. It also uses a formulary — a list of prescription drugs it will cover, while Medicare and Medicaid must cover almost all drugs approved by the Food and Drug Administration, even if a less expensive, more effective alternative is available.
A 2015 report by Canada’s Carleton University and Public Citizen, a U.S. public advocacy group, found the VHA pays 80 percent less for brand name drugs than Medicare.
Trump did broach giving Medicare “new tools to negotiate lower prices,” including allowing Medicare to change formularies or benefit designs in response to increases in generic-drug prices.
The most encouraging proposal would have the FDA speed up approval of low-cost generic drugs. While drugmakers receive 20-year patents against “copycats,” they frequently tweak formulations to extend patents, use “pay-to-delay” schemes with possible competitors or undertake efforts to keep generics from being tested against the original medicine before getting FDA approval for safety.
Trump’s campaign pronouncements held some promise he might follow in the footsteps of fellow New Yorker Theodore Roosevelt who used his presidential “bully pulpit” to take on greedy corporations. Unfortunately, his plan to rein in Big Pharma and its fellow travelers largely rings hollow.