Health care stocks rally on Trump's modest drug reform plan

Kelvin Reese
May 12, 2018

President Trump on Friday unveiled his plan to cut the cost of prescription drugs. "There is very little new in the administration's plan, and little if anything that will make a difference in the near future, as the president has promised", Rachel Sachs, an associate professor of law at Washington University School of Law, said in an email.

Drugmakers generally can charge as much as the market will bear because the U.S. government doesn't regulate medicine prices, unlike most other countries.

Several health policy experts said that while they expect policies to target out-of-pocket costs for certain patients, they did not yet see signs of concrete policy proposals that would lower the high list prices of drugs. For example, the budget called for allowing prescription drug plans to have more flexibility to exclude drugs and strike better deals.

Health and Human Services Secretary Alex Azar, a former pharmaceutical company executive, said numerous actions the government was considering would not require approval by Congress and could take place through executive action within months.

Biotechnology Innovation Organization President and CEO Jim Greenwood said that his group - a representative of companies that have some of the most to lose from deep systemic reform - looked forward to working with the administration, though harbored "concerns that some of the ideas proposed today could, if adopted, hurt patient access to the medicines" and the development of future cures and treatments. And it would require prescription drug plans for Medicare patients to pass on some of the discounts and rebates they receive from pharmaceutical companies. "The drug prices have gone through the roof".

FDA Commissioner Scott Gottlieb - another Trump official with industry ties - says this lack of transparency creates perverse incentives in which drugmakers and other health care companies all benefit from rising prices. Bill Cassidy, R-Louisiana, who's called for a number of the policies on prescription drugs the Trump administration is now planning on implementing.

"The rationale is getting to a more competitive model". "But the problem - one of the problems with moving them over - is it's tricky". Patients in the US pay as much as six times more for drugs than patients in other countries, according to the International Federation of Health Plans.

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The president also spoke of ending trade practices overseas that lead to unfair prices for Americans.

"Our plan will end the dishonest double dealing that allows the middle man to pocket rebates and discounts that should be passed on to consumers and patients", Trump said, referring to distributors who buy drugs from directly from manufacturers and then mark them up dramatically before selling them to pharmacies.

And the system for paying for the drugs dispensed under Medicare's Part B program also has to change, Azar added.

But Trump has since abandoned ideas to lower drug costs he supported during the campaign, including allowing the government's Medicare plan for older Americans to negotiate prices directly with drugmakers, and enabling US consumers to import lower-cost medicines from other countries.

Those changes could help individual seniors. Permitting Medicare Part D plans to pay a different price for a high-cost drug based on its indication could also lower drug prices, according to the plan. It has also been projected to drive premiums up. "They're not really thinking about the price to the system with those proposals". Despite Trump's comments about "eliminating the middlemen", an apparent reference to PBMs, stocks of these companies also rose. "They're thinking of the price to the patient, or - more cynically - they're thinking about the price to the voter". "Physicians see the impact of skyrocketing prices every day as patients are often unable to afford the most medically appropriate medications - even those that have effectively controlled their medical condition for years".

"It all comes back to the question, what are sufficient levels of profit for the pharmaceuticals?" said Blumenthal.

"I think the mood, just generally, across the health sector is 'watch and wait, ' " said Mark Merritt, president of the Pharmaceutical Care Management Association, the lobby for pharmacy benefit managers.

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