Bill Coyle, Pratap Khedkar and Gustavo Poblete co-authored this post with Howard Deutsch.
When President Trump announced at the Department of Health and Human Services that the federal government would be taking “revolutionary” action on drug prices, he had harsh words for the “global freeloading” by foreign nations that demand low prices while saddling Americans with the high prices that fund pharmaceutical industry R&D. And he came with a plan: Medicare Part B prices will be lowered by indexing to drug prices in other wealthy nations.On its face, the explanation for the president’s action is strange. If we believe that pharma R&D is important and that other nations aren’t paying their fair share for prescription drugs, how exactly will bringing price controls into the U.S. solve the problem? Does the president expect that once Medicare pays less, other countries will line up to pay more?
We only needed to wait a day to learn that the rhetoric criticizing other countries may have been nothing more than a smokescreen for a purely anti-pharma move: HHS Secretary Alex Azar’s lengthier remarks at the Brookings Institution the following day gave the administration’s game away. Nowhere was “global freeloading” mentioned, nor was there any other criticism of how little other nations pay for prescription drugs. But Azar did take a few swipes at the pharma industry. Some of the most memorable insults slung include, “The only thing standing in the way [of Medicare Part B reform] is the one special interest that has benefited from this program far out of proportion to any other actor, for the last 15 years: the pharmaceutical industry,” and, “Indeed, yesterday the drug industry labeled me un-American and a socialist for suggesting any other system is possible.” (Of course, the drug industry did no such thing.)
In considering both the details of the drug pricing proposal and Azar’s blunt language, the pharmaceutical industry needs to be prepared for difficult government relations across the U.S. political spectrum. The hope that the Trump administration would be assuaged by the widespread drug price freezes has proven hollow. And apparently, some pharma companies have tired of the wait now that American Patients First, the government’s blueprint to lower drug prices, is unlikely to be finalized by year’s end as pledged earlier this year.
How the industry chooses to respond—and when—is important. As we sort through what this means for pharma, here are some of the biggest questions that we have in the early days of this government-imposed thunderclap:
- How will medical benefit pricing, contracting and distribution work under the Trump administration’s proposal, given its massive disruption to the prevailing ASP-based reimbursement both inside and outside of the pilot geographies?
- Where will the industry retain the pricing flexibility needed to support R&D investment following this and potentially future policy changes?
- How can both drug development and commercialization become more efficient?
- How can pharma better demonstrate and communicate its case for the value that the industry brings?
Even though the Medicare drug price proposal won’t go into effect until 2020, the pharmaceutical industry has to start planning now for these big changes. The way we see it, in moving forward, pharma needs to decide whether the proposal is the beginning or the end, and act accordingly. Azar has threatened that many such actions are in the pipeline, so should pharma prepare to fight or instead take the beating and move on? In the grand scheme of things, losing $17 billion over five years isn’t terrible, but that’s assuming that the bleeding stops there. It certainly seems like Trump and Azar have placed their target squarely on pharma’s back, so it might be wise to start planning a defense.