White House Report on Drug Prices Is a Detailed Road Map

The Trump administration, with its rhetoric and, more importantly, its actions, has been making an aggressive effort to lower the prices of prescription drugs. A very detailed report produced in February by the White House’s Council of Economic Advisers (CEA) lays out a menu of ideas, a few already implemented or in motion, for driving drug prices down further.1 Those ideas germinated from two main goals: 1) reduce overpricing by promoting competition and reforming public reimbursement policies, and 2) cut the cost and raise the rewards for innovation through domestic reforms and limiting underpricing of drugs, particularly through “free riding” abroad.

“My view is that they have come to the table with some very thoughtful ideas,” says Dan Mendelson, President of Avalere Health, a D.C.-based health care consulting firm. “The administration has some very good people who understand the pharmaceutical industry and that is a big advantage.” Mendelson singled out Scott Gottlieb, MD, Commissioner of the Food and Drug Administration, and Alex Azar, Secretary of the Department of Health and Human Services. Dr. Gottlieb worked at Avalere in a previous incarnation, and Azar was a client of Avalere’s when he was at Eli Lilly.

In early March, Dr. Gottlieb criticized the drug distribution payment system dominated by hidden rebates when he told a meeting sponsored by America’s Health Insurance Plans, the trade group for health insurers, that “a rigged payment system” was partly responsible for high drug prices. In those comments, he was echoing a line in the CEA report which said: “The overall Part D benefit structure creates perverse incentives for plan sponsors and pharmacy benefit managers (PBMs) to generate formularies that favor high-price, high-rebate drugs that speed patients through the early phases of the benefit structure where plans are most liable for costs.”1

The Centers for Medicare and Medicaid Services (CMS) is currently considering whether to force Medicare Part D plans to pass rebates to plan members when they pay for prescriptions at the pharmacy counter. The PBM industry hotly opposes that idea. The health insurance industry is slowly warming to the concept, with UnitedHealthcare announcing in March it would provide pharmacy rebates for a percentage of its client base. Drug manufacturers are the leading advocates for rebates to consumers.

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Stephen Barlas