What Trump’s Plan to Negotiate With Pharma Should Tell Us

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Donald Trump’s proposal to allow the federal Medicare program to negotiate prices with drug companies should be a wake-up call for the pharmaceutical industry.

Trump is leading in the polls for the Republican nomination and is even drawing the support of Tea Party conservatives who, just a year or two ago, never would have supported a candidate endorsing such strong government intervention into a private-sector industry.

Characteristically, Trump didn’t give a lot of detail about his plans. He claimed $300 billion in savings per year (about 10 times more than is realistic). But that doesn’t matter. If the leading GOP presidential candidate—a man who has proved masterful at reading the public mood and playing to it—has signed on to this idea, it proves that change has come.

I know that many veterans of the pharmaceutical industry think they have seen this horror movie before and know how it ends. There have been several past public furors over the price of prescription drugs, and each one gradually faded without major disruption for drugmakers. But this time feels different.

Trump’s proposal is just the latest indicator of the increasing bipartisan support for government action on drug pricing is one reason why things are different this time.

One reason for that is this is the first big drug price controversy since Medicare Part D kicked into effect 10 years ago. That means this issue is not only hammering seniors—the most sympathetic and most-likely-to-vote segment of the population—but it also affects the federal budget.

Republicans in Congress, if you haven’t noticed the past few years, are not eager to run up federal spending. Remember Marco Rubio saying in October that some drug companies are engaging in “pure profiteering” and that high prices could “bankrupt our system”?

Another reason the drug price controversy is different this time is that consumers are more exposed than ever to high drug prices. One out of every four Americans covered by an employer is in a high-deductible health plan, according to Mercer’s latest survey. That up from just 3 percent in 2006. And pretty much everyone buying coverage on the Obamacare exchanges is in a high-deductible health plan.

High deductibles mean all those patients are exposed to the full brunt of high-cost drugs.

So then it’s no wonder that 77 percent of Americans said in an October tracking poll by the Kaiser Family Foundation that the top health priority of the president and Congress should be “making sure that high-cost drugs for chronic conditions … are affordable to those who need them.” Even 73 percent of Republicans agreed with that statement.

Nearly two-thirds of Americans—63 percent—supported “government action to lower prescription drug price.” Such actions also drew support from a majority of Republicans, 56 percent.

If the drug price controversy is different this time, it means the response from pharma needs to be different. At least if the industry wants to avoid draconian limits on its ability to reap rewards from its most innovative research.

One interesting idea floated on this blog recently by Dr. Soeren Mattke, a senior scientist at RAND Corp., was for the industry to voluntarily limit price growth on mature drugs.

“A solution could be for the research-based companies to adopt a voluntary code of conduct that would limit price increases on established products to inflation or to the cost of inputs,” Mattke wrote, adding, “This would be a small step for multi-billion dollar companies, but a giant leap towards becoming a respected partner when decisions about the future of healthcare are being made.”

Here’s another idea: create an industry-wide information service for patients and their doctors that combines the findings of comparative effectiveness studies with price information. Such a service would extend pharma’s medical commitment to deliver the right medicine to the right patient at the right time into the financial realm, delivering the right-cost medicine for each patient’s circumstances.

If drug companies were working hard to make sure heart patients who only need and can only afford a low-cost generic statin get it, or that diabetes patients who only need and can only afford metformin don’t get sold a high-priced diabetes drug, they would have a lot more credibility  charging higher prices for medicines those patients need when their conditions worsen beyond first-line therapies.

Last, pharma companies could ramp up the donations and discounts they give patients—and not just to the poorest customers. Indianapolis-based Rx Help Centers has been having success getting drug companies to give discounts or, via their foundations, donations to moderate-income patients. These patients have commercial insurance—yet still face crippling costs from a high-cost prescription drug.

If drug companies voluntarily removed the sting off their high-cost medicines for both poor and working-class Americans, they’d likely be accomplishing both their missions: promoting health and promoting profits—because they would fix a problem before public outcry makes politicians do it for them.

J.K. Wall is a reporter and editor at the Indianapolis Business Journal, where he has covered health care since 2007.

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9 replies »

  1. How does that stack up against the many negative points @realDonaldTrump ought to get for his tweets linking vaccines to autism?

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  2. We need price, wage and rent controls on these companies. Foreign countries buy a drug for $1.00 and in the US we pay $2,000. for the same drug.

    A long time ago I read an article as to why the cost of a drug from Canada cost far less than the same drug purchased stateside even though made by the same drug company was that Canada did not allow frivolous lawsuits and the USA did. This cost of lawyers had to be added to each pill sold in the USA whereas there was almost no additional charge for the pill from Canada. Think of it as ongoing financial support for lawyers in this country.

  3. It is a normal and helpful economic reflex to create monopsonies and oligopsonies (large purchasers) when facing monopolies. This doesn’t mean government necessarily, but it could mean an association of patients or docs….buying drugs for patients. E.g. the voluntary hospital association VHA, was a purchasing group for non-profit hospitals, helping reduce the cost of supplies, etc. It could be the law, too, that pharmacy transaction prices have to be publicly posted so that shaming could occur. I don’t think you have to do much more than having large purchasers to get what you want. Afterall, you want great new drugs to make a windfall for their creators–for a short time–don’t you? Sovaldi is going to be cheap in a few more months….competitors are zooming in!

  4. Consumer Reports has a product/service that combines a comparative effectiveness review with price data for almost all the major categories of Rx drugs. It’s called Consumer Reports Best Buy Drugs. It’s a grant-funded public education project. All the content is free, and is on Consumer Reports web site. Full disclosure: I was managing editor for this project from 2004 to 2008 and still do some work for the them. CRBBD remains one of the nation’s leading experiments in translating comparative effectiveness data for consumers. Not sure deeper discounts at the pharmacy level, for low and middle income people, is a potent solution. The prevailing wisdom is that a combination of policy reforms is needed to reengineer the pharmaceutical marketplace in the U.S.–and decidedly not just price negotiation under Medicare. The Institute for Clinical and Economic Review (ICER) is also doing terrific analytic work in this area.

  5. The writing is on the wall for pharma as it is for the rest of healthcare. The 60-year-old healthcare bubble is bursting. Pharma was most skilled at riding it, especially at the end, but they too must contend with a public sector whose largesse can no longer conceal its bankruptcy, and a private economy living hand-to-mouth. I don’t doubt the industry will make very public gestures to show that it is willing to “do its part,” but any such voluntary curtailing of prices won’t really be voluntary as it is, in fact, imposed by “the market.” Those who pay for drugs–Medicare and private insurers–are broke or facing extinction, and drug prices will be reflecting that reality.

  6. I don’t trust voluntary change from Big PhRMA- They are either too greedy or too stupid to act voluntarily . So lower medication costs will be forced on them by our next President. Big PhRMA has other worries ahead such as their partial culpability in, excessive medicines, (polypharmacy) medication errors and/or “medicine” overdoses (see recent US heroin pandemic) often resulting in death. Under a more aggressive US Department of Justice it will be recognized that fines and bad publicity are not working. So I am afraid we will be seeing jail sentences ahead for some Big PhRMA executives. Long overdue!

    Dr. Rick Lippin
    Southampton, Pa

  7. I’d add the Sovaldi headlines and good old Daraprim to the list of why things feel different this time. $1,000 per pill and Shkreli’s unapologetic idiocy provide some juicy narratives for people to hang their hats on.

    I think this is a bigger philosophical issue, though. We’ve traditionally been so philosophically opposed to price controls, QULYs, and price negotiation that anything smacking of such just won’t fly in ‘Merica like it does in Europe.

    I do think that this shift is coming long-term (see the Bernie phenomenon, backed by the Millennial generation for details) – and when the country is more philosophically open to more “socialistic” approaches, Pharma will be on the menu.

    In this, I agree thoroughly with the author, though my thought is that Pharma needs to also take a long-term approach. This is less about fending off a potential election year push to allow Medicare to negotiate – and instead about a long-term shift in image so that when left-shifting millennials eventually do come into power and elect a Bernie-like candidate and congress, Pharma is sitting at the table rather than on the menu.

    The industry has a bad rap – and when you look at OUS prices compared to US ones, the profusion of drug ads, and pharma/device profit margins, it is going to be hard to mount a terribly credible defense of the industry to the general public (although maybe just continuing to loudly blame insurers will work).

    I agree with the author that image-improving steps are important – just not sufficient. The industry needs to do these things and much more (price transparency? Equivalent prices in the US and Europe? Stop Lifecycle management and inappropriate marketing). Not just to stop Trump or Bernie from letting Medicare negotiate, but to come in line with the overall macro shift in attitudes and philosophies.

  8. Medicaid and the VA get better prices so the same should be available via Medicare. This is a no-brainer, but come to think of it brains were never part of the formula, were they? Part D was an unfunded gift to the pharmaceutical industry. It’s no accident that the most costly air time is advertising the latest in designer drugs. Trump may be a bull in a china shop but it takes a con man to recognize a con — and it’s about time for Americans to discover the many ways they are conned. This is an easy target. One has to wonder why our elected representatives haven’t noticed.