The Art of the Deal: Coming
to Rx Prices Soon

screen-shot-2016-12-28-at-2-21-40-pmDuring the campaign, President-elect Trump said “(w)hen it comes time to negotiate the cost of drugs, we are going to negotiate like crazy.”

While the President-elect’s pronouncements can’t always be taken at face value, this one should be.

In its December 7, 2016 prescription drug report to Congress, HHS reported Medicare (Parts B and D) and Medicaid Rx expenditures equaled $165.5 billion in 2014. Total 2014 retail and non-retail Rx spending was $424 billion.

HHS also reported that Rx spending “has been rising more quickly than overall health care spending . . . [and in] recent years, growth in prescription drug spending has accelerated considerably”.

If the reported annual rate of growth in 2014 (12%) holds for 2015 and 2016, Medicare/Medicaid’s Rx spending and total Rx costs in 2016 will exceed $200 billion and $500 billion, respectively.

As fiscal pressures to control healthcare costs build, Rx prices may be the ripest big ticket item on the table.

As the Trump Administration looks for bipartisan support for an ACA replacement, Rx prices could also provide some glue.

Last week, 20 Senators (18 Dem., 2 Ind.) sent a letter to the President-elect encouraging him to seek legislation lifting Medicare Part D’s ban against HHS negotiating drug prices.

If there’s the same level of Democratic support in the House, Democratic votes could more than more than make up for Republicans who reject negotiating authority as price controls.

It’s doubtful the President-elect thinks negotiating Rx prices means imposing price controls. He’d likely call it smart business.

There isn’t a private company in the world that would forego the negotiating strength its market clout gives the federal government.

Given the scale of the government’s pharmaceutical purchases, it would take an Assistant HHS Secretary a nanosecond (in DC time) to negotiate significant reductions in the cost of drugs.

A few presidential tweets could tee this up.

During its 2009 negotiations with the Obama Administration, pharmaceutical companies agreed to some limits on drug costs, and the Administration agreed not to seek authority to negotiate drug prices as part of the ACA.

The Administration said these concessions totaled $80 billion over 10 years.

In the negotiations, Big Pharma was represented by Billy Tauzin. If one of Washington’s most seasoned hands cut this deal with the Obama Administration, Trump likely believes big money remains on the table.

We shouldn’t kid ourselves–this change would reduce the pace of Rx innovation and could dampen employment in this sector of the economy.

As the President-elect looks for some near-term opportunities to control healthcare costs, however, it looks like he has Rx drug pricing in his sights.

Gary Mendoza is CEO of Health eWay, healthcare’s mobile first platform. He served as California’s HMO regulator in the mid-90s and was the Republican candidate for Insurance Commissioner in 2002.

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7 replies »

    • “Let Trump take the money bribes out of policy”

      Such large budgets all concentrated in a tiny space leads to a lot of feeding sharks. A reduction in size would lead to sharks looking for better prey.

      But then there is an additional view “legislation lifting Medicare Part D’s ban against HHS negotiating drug prices.” I can see many objections to that approach including further politicizing the sale of pharmaceuticals. Part D helped to push prices in an upwards direction leaving the taxpayer an even larger bill since ~3/4 of Part D is funded by the taxpayer.

  1. This has long seemed like a simple (if partial) solution to the rx drug price/cost problem. It’s not, for many reasons. Barry mentions a few issues that arise. And John raises the perennial political obstacle: the power pharma and the PBM industry wield.

    That said, Trump could actually be a potent change agent on this issue, given his philosophy and approach….if he decides to make it a priority. Harnessing strong public/consumer support (across political spectrum), he and incoming HHS Sec Price could push for legislation that permits CMS more latitude to use data and its market position to negotiate price caps, or to experiment with formulary stratification by metrics of comparative effectiveness and comparative costs—perhaps starting with drugs that cost in excess of $20,000/year. The efforts could build off the reference pricing and pay-for-results/outcomes experiments now underway.

    I concur with the author’s thesis that if he takes it seriously and doesn’t get scared off, Trump could deliver on this one, or at least put a downpayment on the response that’s needed to pharma’s egregious profit-taking over decades.

  2. I don’t buy it. Too easy and too many powerful constituents to piss off. He’ll negotiate a deal that gives him a political win (carrier, softbank etc.) and looks good on paper, but gives pharma something it wants in return: freedom to innovate and the ability to maximize profits on new drugs.

  3. Medicare’s negotiating power wouldn’t be worth much if it’s not prepared to simply refuse to pay for certain drugs if they’re deemed too expensive. In order to do that, it would presumably need some logical basis, like QALY metrics for example, to make such a decision or judgment.

    The three biggest PBM’s, Express-Scripts, CVS-Caremark and Optum Rx, each have more covered lives for whom they manage pharmacy benefits and they’re already doing this and have been for years. They have formularies, tiers with different copays, some drugs have quantity limits, require prior approval or step therapy and some aren’t covered at all.

    I’m skeptical that CMS would be up to duplicating this approach and even if it is, I’m not sure it would do it as effectively as the PBM’s are already doing it.

      • The VA has an extremely limited formulary which most Americans probably wouldn’t accept. As for drug pricing, the drug industry views veterans as a sympathetic group and it’s willing to provide discounts that it wouldn’t provide more broadly. There are only 8-9 million veterans that participate in the VA healthcare system our of about 22 million veterans in the country. Most veterans are not eligible for VA care because of limited capacity. .

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