Here is Trump’s alternative to Medicare drug negotiation after breaking populist promise

The Trump administration could stomach a “schizophrenic” drug price plan -- but populist? No way.

U.S. Health and Human Services Secretary Alex Azar (R) delivers remarks about drug prices with President Donald Trump in the Rose Garden at the White House May 11, 2018 in Washington, DC. (CREDIT: Chip Somodevilla/Getty Images)
U.S. Health and Human Services Secretary Alex Azar (R) delivers remarks about drug prices with President Donald Trump in the Rose Garden at the White House May 11, 2018 in Washington, DC. (CREDIT: Chip Somodevilla/Getty Images)

Health and Human Services (HHS) Secretary Alex Azar is doing damage control, pushing back against criticism that President Donald Trump broke a key campaign pledge to have the federal government directly negotiate Medicare drug prices.

On Friday, Trump gave an underwhelming speech that spared drug companies and also released an ‘American Patients First’ blueprint that prompted more questions than answers — 135 questions to be exact. And on Monday, Azar defended him, selling a proposal that isn’t direct government negotiation, but allows private companies to negotiate drugs it doesn’t already.

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But by expanding the private sector’s role in drug price negotiations, Trump’s team manages to contradict itself again. They’re not “eliminating the middlemen,” as Trump suggested on Friday, but expanding their powers.

“What we came up with is the smart, effective approach to tougher negotiation, and a more aggressive approach than has ever been tried before in our programs,” said Azar during a speech at the HHS headquarters on Monday.

Azar’s effort to control the message didn’t work, and various news headlines from Friday still hold. That said, Azar did suggest an alternative, saying the best promise of constraining high-cost drugs is to reshuffle the Medicare Program, “rather than trite, gimmicky, political proposals” the president once endorsed on the campaign trail.

While reshuffling may produce some savings, the blueprint ultimately fails to take direct aim at a system where drug manufacturers can set high prices and then continue to raise those prices one year after the next.

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“While there are some proposals in the blueprint around transparency and putting drug prices in advertisements, for example, it’s not entirely clear that the shaming effect of more information and greater transparency is going to play a really dramatic role in bringing about substantially lower drug prices in the U.S.,” said Juliette Cubanski, associate director of the program on Medicare policy at the Kaiser Family Foundation.

And the greater the range between the high, artificial list (that drug manufacturers set) and the negotiated, net price (that most patients actually pay), the more likely it is that a patient could get nailed by high costs. As Bloomberg News’ Drew Armstrong pointed out, this matters especially for the uninsured and people with high-deductible plans.

First, by way of background, there are two Medicare insurance programs that are critical to understand: Part B and Part D, where the former covers some complex drugs administered in doctor’s offices and the latter covers drugs that patients can pick up at the pharmacy. Medicare pays for Part B covered drugs based on the average sales price (ASP) of the medicine, plus a fixed percentage, whereas the private sector can negotiate lower prices for Part D covered drugs. Azar thinks the Part B program as is compels doctors to use expensive drugs and discourages competition.

“The President has called on us to merge Medicare Part B into Part D, where negotiation has been so successful on so many drugs,” said Azar. “This is how we follow through on his promise to do smart bidding and tough negotiating for our seniors.”

Azar said he could move some drugs from Part B to D with the “power of the pen,” effectively creating a pilot program without congressional approval. The move is likely to face heavy resistance from the health industry, just as an Obama-era proposal that hit Part B did in 2016.

“The idea has promise,” Cubanski told ThinkProgress, but only if there’s room for negotiation.

If a drug is unique then a manufacturer is in the position to set any price it wants. And so, the pharmacy benefit manager (PBM) or “middleman,” on behalf of Medicare Part D, doesn’t have the ability to negotiate down from the list price.

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“There may not be a lot of competition for some of these products,” Cubanski told ThinkProgress. This is perhaps why the secretary is soliciting comment on which Part B covered drugs should be moved, she added.

“One of the issues, especially for cancer drugs, is that oncologists often have to use many of them on a patient. They don’t have the luxury of saying these two are equivalent, we’ll use one instead of the other,” said Ian Spatz, a senior adviser at Manatt Health.

As Azar explained the specifics of the Part B to D proposal on Monday, he took swipes at the middlemen responsible for negotiating better prices.

“Pharmacy benefit managers are also getting paid by both sides of a transaction: the insurance companies, who pay a fee as their customers, and the drug companies they’re supposed to be negotiating against, who give them a cut of the rebates they receive and other fees,” he said. “We believe that the entire system of pharmacy benefit managers negotiating rebates needs to be re-examined.”

This approach — vilifying PBMs while also saying they are best equipped to negotiate the deal — is schizophrenic, said conservative health economist with Northwestern University, Craig Garthwaite, on Twitter:

The Trump administration could stomach “schizophrenic” — but populist? Not a chance.

“The only way that direct negotiation saves money is by doing something this administration does not believe in: denying access to certain medicines for all Medicare beneficiaries, or setting prices for drugs by government fiat,” said Azar.

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Azar doesn’t back direct government negotiations on the basis that by doing so it denies certain medicines — but private plans also do this. PBMs and insurers deny drugs to Medicare beneficiaries when they create new formularies, or a list of covered prescription drugs within a health plan, every year.

It’s a trade-off, but it’s one this administration can stomach.