The Trump administration has shelved a proposal that would have stymied egregious price hikes in the Medicare prescription drug program. It’s a major win for the drug industry, and a defeat for Trump’s goal of reducing drug prices.
How ‘protected classes’ lead to skyrocketing prices
The rule revolved around Medicare’s program for retail prescription drugs bought at pharmacies like CVS or Walgreens, also known as Medicare Part D.
The Part D program has historically worked very well at controlling costs. That’s because insurers compete vigorously on price and value to deliver the Part D benefit to seniors.
But there are two ways in which Part D is failing to control skyrocketing costs. The first is that changes to Part D introduced by Obamacare undermined many of Part D’s cost controls. The second is Part D’s “protected classes” rule, which forces Part D plans to pay for drugs in six categories, regardless of their price or value: antidepressants, antipsychotics, anticonvulsants, immunosuppressants for treatment of transplant rejection, antiretroviral drugs (such as those used to treat HIV), and anti-cancer drugs.
You might think, “why is it bad for Part D to be forced to cover all of these drugs?” The answer is that it eliminates Medicare Part D plans’ ability to negotiate with drug companies on price. Manufacturers know that they can increase their prices by 15 percent a year or more, and plans can’t do anything about it, because they have to pay for the drugs regardless.
HHS’ proposed reform would have addressed the problem
Many administrations have tried and failed to reform this system. In 2014, the Obama administration proposed reforms of the protected class system, but withdrew their proposal under pressure from drugmakers and Republicans.
Last year, U.S. Health and Human Services Secretary Alex Azar proposed an elegant solution to the protected classes problem: removing from protected class status any drug that jacked up its prices above inflation; and/or any drug that was simply a reformulation of an older, off-patent drug. The broad “protected classes” mandate would remain, but the onus would be on drugmakers to stop engaging in exploitative pricing practices.
Trump administration flinches on Part D reform
Yesterday, the Trump administration announced that it was abandoning this reform:
We did not finalize the proposed exceptions that would have allowed Part D sponsors to: 1) exclude a protected class drug from a formulary if the price of the drug increased beyond a certain threshold over a specified look-back period, or 2) exclude a protected class drug from a formulary if the drug represents only a new formulation of an existing single-source drug or biological product, regardless of whether the older formulation remains on the market.
There is no other way to describe this than defeat for Trump’s drug pricing agenda, and victory for drugmakers who want infinite pricing power. It does not bode well for other Trump proposals, far more aggressive than this one, to reduce the cost of prescription drugs.
Will Congress succeed where Trump has failed?
The Trump flinch could give momentum to Democratic efforts to expand the role of Medicare in negotiating drug prices. According to multiple sources, two Senate committees—the Committee on Health, Education, Labor, and Pensions (HELP), and the Senate Finance Committee—are readying bills to address drug pricing that will be introduced this month and next.
Will Congress succeed where Trump has failed? It is possible. Historically, though, Congress has been much more affected by pharma lobbying than has the executive branch. Nonetheless, this Congress has a unique opportunity to build a bipartisan consensus around drug pricing. Let’s hope they take it.
* * *
FOLLOW @Avik on Twitter and YouTube, and The Apothecary on Facebook. Or, sign up to receive a weekly e-mail digest of articles from The Apothecary. Read The Competition Prescription, Avik’s plan to reduce drug prices, at FREOPP.org.
INVESTORS’ NOTE: The biggest publicly-traded pharmaceutical companies include Johnson & Johnson (NYSE:JNJ), Pfizer (NYSE:PFE), Roche (OTCQX:RHHBY), Novartis (NYSE:NVS), AbbVie (NYSE:ABBV), Merck (NYSE:MRK), and Amgen (NASDAQ:AMGN).
