Trump drug speech to propose more competition to lower costs

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(Bloomberg) – President Donald Trump will propose a sweeping effort to bring down U.S. drug prices Friday, according to senior administration officials, in a plan to make good on a campaign promise.

The blueprint, called American Patients First, is meant to increase competition and lower patients’ out-of-pocket costs. It would lift rules that prevent government programs from getting better drug discounts, push other developed nations with tighter price controls to pay more, create incentives to lower list prices and try to prevent drugmakers from gaming the system to extend their monopolies.

An outline of the plan was described Thursday by senior administration officials who spoke on the condition of anonymity to discuss it ahead of Trump’s speech, which is scheduled for 2 p.m. at the White House.

“One of my greatest priorities is to reduce the price of prescription drugs,” Trump said in a statement distributed by the officials.

For the industry and investors, many of the proposals will come as no surprise. Some were part of a February budget request to Congress, while others have been publicly hinted at by senior administration officials in past weeks.

The plan described by the administration officials doesn’t go as far as Trump’s threat before he took office in January 2017 to have the government negotiate some prices directly. At the time, Trump’s comments -- and a remark that the industry was “getting away with murder” -- sent drugmakers’ stock prices plunging.

“We expect more rhetoric than reform,” Height Securities analysts wrote in a note on Friday. “The President’s bark will be worse than his bite as he blames all parties within the drug supply distribution chain” for high prices.

The Nasdaq Biotechnology Index gained as much as 1.5%, against a decline in the Nasdaq Composite Index. The 193-company biotech gauge is a barometer of market sentiment about the industry and pricing issues.

Drug Plans

Some of the bolder steps would require Congress to act, but the Health and Human Services Department will take some actions immediately, according to the plan outline.

“This is going to be comprehensive, hard-hitting and across the board,” Health and Human Services Secretary Alex Azar said Friday on CNBC.

Azar told Bloomberg TV the 50 actions the president will call for will be “a very disruptive changing of the entire system concept that we’re going to be laying out there saying we need to have a national discussion about the incentives in this drug payment system.”

Azar has previously said he plans to go beyond the budget proposals, and he and other industry officials have singled out the drug plans that negotiate drug prices on behalf of companies and insurers. Known as pharmacy-benefit managers, the firms include Express Scripts Holding Co., CVS Health Corp. and UnitedHealth Group Inc.’s Optum unit.

In a speech last week, Food and Drug Administration Commissioner Scott Gottlieb proposed re-examining legal protections for rebates drugmakers give insurers and pharmacy-benefit managers. The remarks sent PBM stocks downward. Azar told Bloomberg TV this idea needs to be part of the discussion the president’s speech will spark.

Azar also said the plan will include ways to help the government, through pharmacy-benefit managers, get better deals on certain expensive drugs that Medicare currently pays for without PBM involvement to negotiate lower prices.

David Maris, an analyst at Wells Fargo & Co., said last week that many in the industry and investors “do not see the trouble brewing.”

“The U.S. is on a longer-term arc toward price controls and lower margins,” Maris wrote.

Targeting Rebates

Offering rebates to insurers and drug-plan administrators can help drugmakers get better access to patients. Some rebates are passed to consumers, but in other cases insurers and pharmacy-benefit managers keep or redistribute them. The drug industry has said that some of the blame for high prescription costs rests with pharmacy-benefit managers keeping the rebates.

Other ideas previously proposed by the administration include:

Limiting Medicare payments for drugs administered in hospitals or doctors offices if price increases are above the inflation rate Ensuring a minimum portion of the savings pharmacy-benefit managers negotiate for Medicare are passed on to patients. Providing seniors in Medicare free generic drugs. Shrinking an incentive for doctors in Medicare to prescribe higher-cost drugs. Redistribute savings generated by a prescription drug discount program for hospitals that treat a large number of poor patients.

FDA chief Gottlieb has also made speeding generic-drug approvals a priority to give patients more low-cost options. He also wants to limit the ability of brand-name and generic firms to block competition.

Pharma has also pointed a finger at insurers for increasingly forcing patients to shoulder more of the cost of drugs through rising co-pays and deductibles. Insurers and pharmacy benefit managers say high prices set by drugmakers are the root of the problem.

Meanwhile, the money keeps flowing to Washington. The pharmaceutical industry set a lobbying record in the first three months of 2018. The Pharmaceutical Research and Manufacturers of America spent $9.96 million on federal lobbying in those three months, increasing its spending by nearly $2 million over the same period in 2017.

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