Trump backs negotiating drug prices under Medicare; unless he doesn’t

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The News:

President Donald Trump supports Medicare drug price negotiations, his spokesman said last week, remarks that sent pharmaceutical stocks swinging again as investors tried to assess whether drugmakers will be forced into bidding wars for government business. “He’s for it, yes,” White House spokesman Sean Spicer said at a press briefing in response to a question asking to clarify Trump’s position on the matter, according to Bloomberg.

@realDonaldTrump supports #Medicare drug price negotiations, spooking investors Click To Tweet

Trump has given conflicting signals in the past weeks on whether he would let the government intervene directly in drug prices to reduce healthcare costs. The Medicare program for the elderly is the biggest purchaser of health services in the country, and bidding for its business could have a major impact on Big Pharma’s profits. Unlike most countries in the world, the US doesn’t directly regulate medicine prices, and drugmakers have strongly resisted it.

“The easier way to look at this is to look at what other countries have done: Negotiating costs to keep those down,” Spicer said at the briefing.

The rising costs of healthcare and prescription drugs are a “huge burden” on seniors, he said. Spicer’s comments took investors by surprise because Trump appeared to have backed down from the idea the previous week after a meeting at the White House with top pharmaceutical CEOs.

Although the president said at the time that competition was key to lowering drug prices, which he called “astronomical,” he also added that he was against price fixing.

“My new thing is going to be pharma, because we pay too much,” Trump said in a Fox News interview last week. “We are the largest drug purchaser in the world, and they don’t negotiate.”

The Pharmaceutical Research and Manufacturers of America lobbying group declined to comment on Spicer’s remarks.

Pharmaceuticals stocks had plunged last month when Trump, then president-elect, made a surprise attack against the industry and suggested price negotiating to save the government billions of dollars. Until then, drugmakers had seen the businessman-turned-president as a friend of the industry.

Trump also has made conflicting comments about how and when he plans to replace Obamacare, whose dismantling was one of his campaign’s top priorities. The president has said that the process to come up with a replacement for the Affordable Care Act could stretch into next year, a longer period than he previously indicated.

Republican lawmakers are facing major challenges to undo the massive law, which has brought coverage to 20 million people since it passed in 2010.

Steve’s Take:

Two weeks ago, several Pharma CEOs left a mostly congenial White House meeting with reason to hope the new president had ditched his previously voiced support for direct Medicare negotiation of drug prices.

“I’ll oppose anything that makes it harder for smaller, younger companies to take the risk of bringing their product to a vibrantly competitive market,” Trump said. “That includes price-fixing by the biggest dog in the market, Medicare, which is what’s happening.”

Of course Medicare isn’t price-fixing per se. But Trump went on to advise some sort of price-cutting measures for Medicare.

“We can increase competition and bidding wars big time–we have to–into that program,” Trump said.

Stepen Ubl, head of industry group PhRMA, was one of the Pharma leaders who came away from the meeting with an overwhelmingly positive tone. He said changes to trade agreements and the US corporate tax code, plus fewer regulations, “will translate to up to 350,000 new jobs over the next 10 years as a result of growth in the biopharmaceutical industry.”

That was then.

Following what could have been called a meeting of the mutual admiration society, fast-forward to last Tuesday (February 7, 2017) when Press Secretary Sean Spicer squashed hopes by the Pharma execs that Trump had backed away from Medicare price negotiations. The president is “absolutely” in favor of the price-fighting tactic, he said.

The resulting haze that’s fallen upon the Medicare drug-pricing conundrum took its toll on investors who were understandably bewildered about exactly where the president stands. The Nasdaq Biotechnology Index fell immediately, although less than when Trump expressed support of price negotiation last month.

Like many other policy pronouncements from the Trump White House, little wonder that the conflicting accounts of where Trump actually stands has made it next to impossible to state with any certainty what he actually might do.

Recently confirmed health secretary Tom Price declined to say at a confirmation hearing whether he supported Mr. Trump’s drug-pricing position. And whether freeing the government to negotiate on drug prices would lower costs, however, is anything but clear. And its chances of passing a Republican-led Congress are even smaller yet.

It’s worth noting that Medicare did not cover prescription drugs until 2006, after Congress expanded the program to add a drug benefit, known as Part D. But the measure included something called the “non-interference clause,” which was backed by the pharmaceutical industry and prevented the federal government from negotiating directly with drugmakers.

This prohibition does not mean that pharmaceutical companies can fill in any price they want. Privately run prescription drug programs, which control the benefits for large groups of Medicare beneficiaries, negotiate on the government’s behalf. These programs are run by the same companies–including Express Scripts, CBS and United health–that manage the drug plans for large employers and insurers.

Those who favor letting the federal government negotiate directly on drug prices argue that other countries, including Canada and Britain, already have that leverage with many multinational drug corporations. There, government-run health programs are the only negotiator and hold immense power in setting drug prices. Supporters say that if the United States government were allowed to negotiate drug prices for all 41 million Medicare beneficiaries enrolled in drug coverage, it would lead to lower prices across the healthcare market.

Some people worry, understandably, that if the US government were to significantly lower drug prices for Medicare beneficiaries, Pharma companies would respond by raising prices for the millions of people insured through large employers or private insurers. Others argue that if the prices negotiated by Medicare were public, the transparency could level the playing field and lower prices across the board, points out The New York Times.

Of course, whether Trump really supports the notion of the government negotiating prices is anyone’s guess. Despite Spicer’s very direct remarks, “he’s for it, yes,” the conclusion of Spicer’s response leaves open the possibility that Trump envisions a different kind of strategy on drug prices. Specifically, it’s possible the president imagines he will personally sit down with drug company executives, and arm wrestle them into cutting the prices of their products–in much the same manner he has promised to tackle companies that threatened to move operations overseas.

While polls suggest most Americans support government negotiation on drug prices, getting a proposal through Congress would be politically difficult, says the Huffington Post. Even many Democrats would oppose the effort, simply because, like Republicans, they depend heavily on campaign contributions from the drug industry–and fear the consequences of negative advertising the industry lobby could shower upon them.

Trump has recently admitted that only as president can anyone learn exactly how difficult it is to get things done that were promised on the campaign trail. As far as the Medicare negotiation issue is concerned, it’s also quite possible that the president and his advisers have not yet worked out a clear position on how to reduce the price of prescription drugs. In other words, last week’s statement from Spicer could signify absolutely nothing.

Trump has also made conflicting comments about how and when he plans to replace Obamacare, whose dismantling was one of his campaign’s top priorities. The president on February 5, 2017 said that the process of fashioning a replacement for the Affordable Care Act could flow into 2018, a longer period than he previously indicated. Republican lawmakers are facing huge challenges to dismantle the massive law which has brought coverage to 20 million people since it passed in 2010.

As mentioned above, President Trump is gradually learning what he can and can’t do, and if doable, which paths are available to him and how long each might take to implement. Case in point, a federal appeals panel just maintained the freeze on his controversial immigration order, meaning previously barred refugees and citizens from seven majority-Muslim countries can continue entering the United States.

In a unanimous 29-page opinion, three judges from the U.S. Court of Appeals for the 9th Circuit flatly rejected the government’s argument that suspension of the order should be lifted immediately for national security reasons, and they forcefully asserted their ability to serve as a check on the president’s power.

The judges wrote that any suggestion that they could not “runs contrary to the fundamental structure of our constitutional democracy.”

Okay, that lesson was short and to the point.

Returning to Medicare, in December Mr. Trump pledged in an interview with Time magazine to bring down drug prices and last month, he promised to “create new bidding procedures” but did not offer specific details.

Will such a proposal ever clear Congress?

It seems unlikely, says The New York Times, given that Republicans control both the House of Representatives and the Senate.

“It’s been a nonstarter with Republicans, and it’s a traditionally Democratic talking point,” said Alana Dovner, a research analyst at Beacon Policy Advisers, which advises investors on developments in Washington. “Something as dramatic as allowing Medicare to negotiate drug prices—that would be such a radical change, and so opposite to traditional Republican healthcare policies, that it just seems unfathomable at this point.”

Secretary Price opposed a democratic-led measure in 2007, calling it a “solution in search of a problem.” Ms. Dovner and others said that even Democrats were unlikely to support a measure that would allow Medicare to stop covering drugs and protected areas like cancer. A limited effort to do that in 2014 failed a mid-bipartisan criticism.

“You are by definition saying yes to some drugs and no to others,” said Dan Mendelson, president of Avalere Health, a consulting firm that works for drug companies, hospitals, insurers and others. He called that position politically dangerous, saying it would be denounced as “government practice of medicine.”

Bottom line:

Many drug companies could suffer greatly if Medicare is permitted to directly negotiate drug prices, and some envision big annual price cuts. In the face of such calamity, and a president who has called their prices “astronomical,” Pharma is offering a possibly winning experiment that requires little near-term pain.

Some companies have independently undertaken it positive pricing steps. In recent months, Allergan PLC, AbbVie Inc., and Novo Nordisk A/S have promised modest annual price increases of less than 10% on their products.

Steve's Take: #Pharma companies holding price increases under 10% would help all parties Click To Tweet

A 10% increase is still four times the consensus US inflation expectations for 2017, according to Bloomberg. Even so, that’s not a particularly big bite out of Pharma profits. But it’s the type of yielding and compromise that could permit an image-minded president to give himself a high five on the matter and possibly put a checkmark next to one gigantic campaign promise.

Time will tell.