The new budget proposal by the Trump White House attempts to attack the problem of high drug costs, but the battle tactics do not appear to be a winning strategy.
President Trump promised in several rallying speeches as well as in the State of the Union address to lower drug prices for people across the country. However, what is the benefit of lowering drug prices if the costs paid by Americans will balloon elsewhere?
In the White House budget framework sent to Congress earlier this week, the Trump Administration sought to pass through to Medicare recipients the large rebates given to pharmacy benefit managers (PBMs) and Medicare Advantage plans. The rebates, often 15% or more of the price of the drug, are given by manufacturers in exchange for coverage by the Medicare Advantage or Part D plan. There is an unmet need in this country for greater pharmaceutical cost transparency. Today, health plans, insurers, and PBMs depend on millions of dollars in rebates as a distinct revenue stream. Getting those rebate savings into the hands of the consumer is important. Yet, the reaction by payers will be as dependable as medical costs going up—they will make up for the rebate revenue shortfall by raising Medicare premiums. In other words, the balloon squeezed on one side will pop out at the other side. And the Medicare beneficiary will have to pay somehow for the revenue shortfall.
Health plans say that the rebate revenues help fund other services and medical needs, and may actually help put a lid on premium increases. That would be very difficult to prove or disprove. The inference is that the money is used for some purpose, and should it go away, funds would have to be sought elsewhere—most likely not the federal government. There is only one place to turn—the beneficiaries.
Yes, drug prices are very high, but controlling them will require a lot more than managing rebates. Better price transparency is needed throughout the system, including how the manufacturers of innovative pharmaceuticals decide on starting wholesale price at launch and interim price increases. That can only be achieved in two ways: (1) with strict regulations, such as used in other advanced countries, or (2) by exerting more control over demand, which could have damaging effects on drug industry innovation.
Medicaid plans commonly used closed formularies, which although they accept steep rebates from the pharmaceutical industry, they generally are the beneficiary of steep drug price discounts as well. Many expensive drugs are simply not covered, and the result can be frustration from patients; sometimes, they cannot receive the medication prescribed by their doctor. Remember though, patients in Medicaid have very limited (if any) cost sharing.
It seems that there is little in-depth understanding behind such an initiative by the White House, and one has to assume that it is merely done to satisfy the populist promise to lower drug costs. It is a superficial idea that does not address any unintended consequences.
If the President is serious about utilizing these tactics, he won't win this battle much less the war. Perhaps, that is precisely the intention--a show for his base.