You cannot have your cake and eat it, too. It is a tale as old as time. But apparently, with its latest “Most Favored Nation” executive order on drug pricing, the Trump administration has stumbled upon a solution to this conundrum.
Or so they would have you believe.
The entire phenomenon centers around the hotly contested Affordable Care Act (ACA), or Obamacare. On one hand, the Trump administration is litigating before the Supreme Court in favor of the entire law being struck down as unconstitutional. On the other hand, the administration would like to use an obscure provision within the very same law in order to implement its new drug pricing mandate.
Can you see the problem?
Before we can even discuss the merits of price controls and their implications for our healthcare system, simple logic should have dismissed this latest action when it was first proposed. If you believe a law to be unconstitutional and invalid, how can you then use that law to carry out a particular policy agenda? The numbers simply do not lie. And perhaps this is why this particular executive order stayed under lock and key until September 13th—nearly two months between its signing and when it officially went into effect.
If you still are not sold, that is OK. After all, the Supreme Court could very well uphold the ACA as constitutional. If that happens, it would be easy to assume that President Trump’s executive order would then be in the clear. Fortunately, these assumptions are far from accurate and there is plenty of policy and precedent standing in stark opposition to this executive action.
A “most favored nation” pricing model is an extreme form of international price indexing (IPI), where price caps on certain drugs are put in place based on an average price obtained from a select group of other countries. These arbitrary price controls would have devasting effects on our access to groundbreaking drugs. The U.S. would be basing its drug market off of Europe, where socialized, restricted medicine is the norm. And such an approach exceeds the statutory authority of the executive branch. Under basic constitutional separation-of-powers principles, “sweeping” and “very dramatic”—the president’s own words—changes to major federal programs must be authorized by Congress. To date, Congress has flatly rejected any form of international price controls. Period.
The executive branch hopes to carry out its ambitious plan through an obscure clause in the Affordable Care Act, whereby modest authorization for testing “pilot projects” in underserved populations is authorized. According to President Trump, however, this new order contains “the most far-reaching prescription drug reforms ever issued.” But an unprecedented new program that will disrupt the entire healthcare sector is a far cry from a modest “pilot project.”
Simply put, the authority to execute this administration’s latest drug pricing mandate simply is not there. The same administration is fighting to strike down the very law it is using for this order. Congress has already plainly rejected the international pricing model. And the ACA itself does not grant the statutory authority for such a measure in the first place.
Until recently, this administration had a good record on healthcare—fighting to protect American innovation and promoting measures such as rebate reform and price transparency. Why, then, reverse this approach in favor of dangerous and unconstitutional executive actions?
President Trump is at his best when he is fighting for America, and he must return to supporting our pharmaceutical innovators that will get us through the current health crisis. We must stop “global freeloading” off of American innovation and negotiate more favorable deals with foreign governments. We need them to contribute their fair share toward research and development costs for new treatments and vaccines that are changing the world. These are solutions that will lower drug prices.
The president is a dealmaker, and that is exactly what we need during COVID-19. America must leave the cake outside and return to the head of the table.
President Trump has signed an executive order that aims to tackle U.S. prescription drug spending, but won’t implement it until the public, including private sector drug makers, can comment.
The order pegs the prices of certain drugs covered by Medicare to the lower prices paid in other developed countries, whose governments impose strict price controls.
The order might save the federal government some money — at least temporarily — but at great expense to patients and long-term scientific progress.
History shows that adopting government price-setting inevitably stifles medical innovation and reduces patients’ access to lifesaving drugs. This move is particularly dangerous and baffling in the middle of a pandemic.
Trump is well-intentioned. But when it comes to healthcare policy, it’s not the thought that counts. Americans can only hope the president rescinds this order, which will have harmful long-term effects.
Right now, Medicare pays 80 percent more for drugs than government health insurers in other developed countries, such as the United Kingdom and Japan. So, the administration wants to tie Medicare reimbursements to the significantly lower prices in those countries.
It’s no accident that drugs are cheaper abroad. Many foreign nations have heavily socialized healthcare systems that regulate drug prices. If pharmaceutical companies don’t accept pitifully low reimbursement rates, foreign government officials simply ban firms from selling their medicines at all.
Pegging Medicare reimbursements to those artificially suppressed prices would, in effect, impose price controls here. That might have some superficial appeal — after all, who doesn’t like the idea of cheaper drugs — but price control schemes never end well.
Government price-setting invariably restricts patients’ access to novel therapies. Right now, 96 percent of all new cancer medicines invented worldwide between 2011 and 2018 are available in America. That’s because our country has a relatively free-market drug pricing system that gives firms a chance to earn back their research and development costs.
Contrast that with the United Kingdom and Japan, where patients have access to just 71 percent and 50 percent of those cancer drugs, respectively. In these countries, drug companies stand little chance at recouping their R&D costs and earning a profit on many drugs. So, they often stay away.
Even if drug companies do enter those markets, foreign patients often wait months — or years — to receive new drugs. While Americans typically have immediate access to breakthrough cancer therapies, patients in Japan wait 23 months, on average, after a drug’s initial launch before gaining access.
Imagine if the 44 million Americans on Medicare — 15 percent of the U.S. population — had to wait an extra year and a half before they could take a new immunotherapy. That horrific consequence explains why, in this case, most congressional Republicans don’t back the president on his executive order.
The administration’s plan would also decimate medical innovation. It takes several billion dollars and over a decade to create just one new drug. The existing pricing system incentivizes companies to make those research investments — and the results have been nothing short of miraculous. Cancer death rates have plummeted more than 25 percent over the last quarter-century, mostly thanks to new treatments.
In fact, in 2019, American life expectancy increased for the first time in four years. One of the key causes was better cancer treatments.
I applaud Trump’s effort to reduce drug prices. But there are ways to do so without bringing foreign price-setting to our shores.
He already got one way right. In the same ceremony, Trump signed another executive order to target middlemen in the drug supply chain called pharmacy benefit managers. These negotiators set the prices for drugs that end up on insurers’ list of covered treatments and on the shelves of local pharmacies.
The instinct to reform the practices of PBMs was spot on. PBMs receive significant rebates from manufacturers for adding a drug to an insurer’s formulary. But they don’t disclose those rebates or use them to lower patients’ costs at the pharmacy counter.
Requiring them to pass along savings directly at the point of sale will help achieve the president’s desired reduction in drug prices without costing Americans access to lifesaving cures.
Additionally, the administration could stop the unfair trade practice of banning an American medicine unless it’s sold at an artificially low price. That would stop developed countries from benefiting off the backs of American taxpayers, who foot the bill for new drug development.
Government price-setting would snuff out future medical breakthroughs while limiting patients’ access to existing drugs. The savings aren’t worth the cost in American lives. Let’s hope the administration decides to reverse course on its new executive order.
Dear Majority Leader McConnell:
Many Americans share concern for the cost of medicine, particularly our country’s seniorcitizens. And President Trump has rightly called out “foreign freeloaders” whose government monopoly health systems drastically underpay for (American-developed) pharmaceuticals. However, most of the proposals go about addressing this matter not only in the wrong way, but in highly destructive ways.
Conservatives for Property Rights (CPR) is a coalition of organizations representing millions of Americans. CPR emphasizes the central importance of private property in all its forms — physical, personal, and intellectual. The right to private property ranks among the unalienable rights the Founders referenced in the Declaration of Independence, and patents and copyrights are the only rights for which the U.S. Constitution itself provides. As you appreciate, we should not harm our patent-centric research and development sectors by gutting their property rights.
While Speaker Nancy Pelosi’s H.R. 3 is the most radical and destructive of the “drug pricing” legislation, CPR wants to make perfectly clear that the Senate Finance Committee’s Prescription Drug Pricing Reduction Act is also very harmful and destructive. In no way is S.2543 any sort of “compromise” or “middle-ground” alternative. This bill passed committee by a majority of liberal Democratic votes; fewer than half the majority Senators voted for it. Notably, S. 2543 does zero to remedy “foreign freeloading.” CPR regards S. 2543 as unacceptable and urges all Senators to oppose this bill.
Of this measure’s provisions harmful to America’s leadership in pharmaceutical innovation (and thus harmful to American patients), perhaps most egregious is the inflationary penalty price control mechanism. This price control would impose a confiscatory excise tax on earnings when a Medicare medication in Parts B or D exceeds the inflation rate. Such an unpredictable, disruptive government price control would wreak havoc in drug R&D, injecting much uncertainty into and causing significant loss of R&D funding from the pharmaceutical innovation process.
Conservatives for Property Rights strongly opposes the Prescription Drug Pricing Reduction Actand urges Senators to reject this counterproductive legislation.
James Edwards, Executive Director, Conservatives for Property Rights
Seton Motley, President, Less Government
George Landrith, President, Frontiers of Freedom
Dick Patten, President, Campaign for Liberty
Jenny Beth Martin, Honorary Chairman, Tea Party Patriots Action
Jim Martin, Founder/Chairman, 60 Plus Association
Kevin L. Kearns, President, U.S. Business & Industry Council
C. Person Noell III, President, Tradition, Family, Property, Inc.
Tom DeWeese, President, American Policy Center
Tim Andrews, Executive Director, Taxpayers Protection Alliance
Ed Martin, President, Phyllis Schlafly Eagles
Matthew Kandrach, President, Consumer Action for a Strong Economy
Saulius “Saul” Anuzis, President, 60 Plus Association
One of the problems in health care today is that it turns Oscar Wilde’s quip on its head: In the United States, everyone knows the value of health care, but nobody knows the price of anything (because most spending is covered by insurance or by federal programs such as Medicare).
Pricing information is crucial in any system, because when people know what price they’re paying for a good or service, they can make informed decisions. Also, prices tend to come down over time as people demand better service at lower prices.
However, unlike Walmart or Amazon.com, the federal government isn’t especially good at negotiating lower prices. And now, crony health care interests are fighting to eliminate one of Medicare’s few pricing successes.
The issue involves prescription medicines. Since Medicare Part D was put into place to cover prescription drugs, generic and biosimilar medicines have usually been added to the program as soon as the FDA approved them. That’s given seniors access to safe, effective drugs at a much lower cost. In 2018, for example, generic drugs saved consumers almost $300 billion, with $90 billion of that going to Medicare recipients.
Sadly, though, they could have saved much more. In 2016, the Obama administration changed Medicare policy so that many generics would be priced in the same band as name brand drugs. That’s increased prices for seniors by more than $6 billion.
A good chunk of that money flowed to Pharmacy Benefit Managers (PBMs), which negotiate to get the generic meds priced in a higher band, then pocket “rebates” (kickbacks) from the big drug companies that make name brand drugs. Consumers, meanwhile, miss out on potential savings.
Under the Trump administration, the Center for Medicare & Medicaid Services (CMS) is finally taking steps to roll back the price increases. Next year, it wants to stop Medicare Part D plans from moving generic drugs into branded drug tiers. Instead, it plans to create a new tier reserved just for generics and biosimilars.
Many lawmakers support this sensible policy. “I am pleased to find that CMS is considering an ‘alternative’ policy,” Sen. Bill Cassidy of Louisiana wrote to HHS Secretary Alex Azar. “I applaud CMS for considering these cost-effective policies and urge the Agency to make them final for CY2020.”
Cassidy is a doctor and a leader in the fight for a more conservative approach to health care. He also joined fellow Republican Senators Steve Daines and James Lankford and Democrats Sherrod Brown and Robert Menendez in sponsoring an amendment to The Prescription Drug Pricing Reduction Act of 2019 that would have “ensured lower-cost generic drugs are placed on generic tiers and higher-cost brands stay on brand tiers.” They dropped that amendment for internal reasons, because Finance Committee Chairman Charles Grassley told them he’ll make certain the language makes it into the final bill.
Many other lawmakers are also pushing for the reform. “We encourage CMS to move forward with this policy effective CY2020 to lower out-of-pocket costs for millions of Americans, ensuring that they receive the full value of generic and biosimilar competition,” a bipartisan group of House lawmakers wrote to Azar. “Price competition is vital in the Part D program and beneficiaries deserve a choice at the pharmacy counter when possible.”
Seniors can thank these lawmakers, and should keep a sharp eye on Sen. Grassley. He has a chance to move forward in a bipartisan fashion with a plan that would save Medicare recipients money. That ought to be an easy sell in these divided times.
Conservatives are wary about expanding Medicare, of course. But we’re eager to use pricing power to improve the state of American health care. Let’s not allow PBMs to block this important step toward systemic reform.