Americans have long complained that pharmaceutical corporations classify American patients by this rate much less elsewhere. A quartet of President Trump’s executive orders, released today, will replace that.
“We put patients above lobbyists, the elderly have special interests, and we give priority to the United States,” Trump said.
The biggest order is for what Medicare will pay pharmaceutical corporations for drugs administered in medical offices, such as those requiring an intravenous infusion.
First, a little context. Today, Medicare Part B – our one-time payment program for elderly visits to doctor’s offices – has an irregular form of payment for these drugs, called “ASP plus 6,” which means “average value promotion plus 6%.” Doctors get a 6% commission – technically, now a 4.3% commission – on any medication they administer to a patient in their office.
Just as a genuine real estate broker is encouraged to sell him a larger home, so he can get a higher commission, doctors are now encouraged to prescribe him the most expensive drug, even if a more effective and less expensive option is available.
The lifestyle of this perverse incentive is a secret of education in the biotech and pharmaceutical industries. Manufacturers know that if they expand a drug that wants to be infused intravenously and is used primarily through Medicare patients, they can assess what they need and force taxpayers and the elderly to foot the bill.
In an effort to reform medicare’s Part B defective drug formula in 2018, President Trump proposed comparing Medicare reimbursement rates for physician-administered drugs with a foreign value index: the average amount paid through an organization of industrialized countries.
Unse longer expected, the drug lobby and its allies attacked the proposed rule, saying it was “socialist” to cut federal subsidies to pharmaceutical companies. The administration has estimated that the plan could only lower Medicare Part B spending by $17 billion over five years. While this amount accounts for less than 1% of all U.S. pharmaceutical spending, the drug lobby has histrinated that the rule would threaten its business model.
This is not to say that the proposed foreign value index is perfect. As I noted in Forbes at the time, the index “excludes more market-oriented fitness systems in Europe and includes more single payment systems like Canada and the UK.” A market-based reference for countries with personal fitness insurance, of those with single-payer systems, would be more philosophically consistent with the Trump administration’s technique for fitness reform, while also being effective at reducing medicare drug costs.
The debate, so far, theoretical, as the progress of the IPI stopped in the White House.
Trump reportedly expressed frustration at the lack of progress on his drug price reform agenda, a component due to internal disagreements among his aides. And this brings us to today’s news, in which the President issued four decrees – in fact, direct commands and componenetes to his subordinates – to put into effect drugs worthy of reform.
“U.S. policy is that the Medicare program will pay no more for expensive or biological Part B drugs than the maximum price of the favored nation,” Trump said in a draft of the executive order he received from a source close to the White House. This price, he says, “will mean the lowest price, after adjusting the volume and differences in national gross domestic product, for a [medicine] in a member country, with a gross domestic product comparable and consistent with the capita, of the Organization for the Economy. Co-consistency and development.”
The order instructs Health and Social Services Secretary Alex Azar to come forward with a plan to see if such a rule would lower prices and outcomes. The order will take effect on August 24 unless the pharmaceutical industry proposes a “better plan” that Congress can pass.
It is a turbocharged edition of the foreign value index. Instead of Medicare paying pharmaceutical corporations the average value of an organization of industrialized countries, Medicare would pay the lowest amount among relatively wealthy countries.
(According to the GLOBAL HEALTH Innovation Index FREOPP, Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Israel, Japan, Netherlands, New Zealand, Norway, Sweden, Switzerland and the United Kingdom are OECD countries with a GDP consistent with the capita of more than 60% of that of the United States).
Moving from an organization of average value to the lowest value makes sense. In any general market, the largest customer of a product is able to negotiate the lowest wholesale value for that product. In overall spending on Medicare drugs, taxpayers are forced to pay the highest amount even if they are generally the largest global market for prescription drugs. More importantly, the most favored country technique will do its utmost to reduce the non-public spending of the elderly and the maximum to reduce spending on fees and, therefore, the deficit.
The new NMF rule continues to use unmarried countries as part of its reference, such as Australia, Canada, Finland, New Zealand, Sweden and the United Kingdom. But this is not to achieve the desired goal of cutting the prices of seniors and taxpayers, as I pointed out above. A reference composed only of non-married and unmarried countries would save as much as that.
That said, the Trump administration is making a valid case to take into account the costs of single-payer countries. Contrary to the statements of the drug lobby, single paying countries classify their costs for manufacturers.
If, for example, the United Kingdom paid $0 for gilead sovaldi’s hepatitis C treatment, Gilead would have the full right to withdraw from the UK market. The British government knows this and is looking to locate – you can even say “negotiate” – a figure that helps keep Gilead on the table while minimizing the tax burden on taxpayers.
In this way, the prices that Gilead accepts from the various European countries are a kind of market price, in the same way that a seller of any product that involves major bulk purchasers is generating a market price.
It is true, however, that Medicare can only generate more market-oriented value by focusing on countries with the most market-oriented fitness care systems. As Trump officials draft their new rule, they will be well served to keep that in mind.
In early 2019, the Trump administration proposed replacing the way discount paints prescription drugs under the Medicare Part D program, which is helping seniors buy the drugs over the counter at the retail pharmacy (discounts are bills that pharmaceutical corporations make to advantage managers, or PBM, to inspire more patients to use their medications. In Medicare Part D, the amount of rebates is about $30 billion a year.
The proposed reform would require Medicare Part D PBMs to deliver their rebates directly to patients who use these drugs in order to meet the potential of the prescription drug market and lower prices for the elderly.
Unfortunately, in July 2019, after a strong crackdown on PBMs and others, the administration withdrew the rule.
The President appears to have reconsidered. Today, the second of his four executive orders revives the rebate rule, directing Sec. Azar to “complete the rule making process he commenced” to pass rebates back to patients.
According to Politico’s Adam Cancryn and Sarah Owermohle, the White House is about to get a “power-return” from PBM, which is preparing for “a primary publicity crusade against any rebate effortArray… in several swing states before November.”
The other two prescriptions aim to cut the burden of safe medications such as insulin for diabetics and epinephrine for other people with certain serious allergies.
A prescription allows states to create systems for the import of cheap drugs from other countries, “provided that such importation no longer poses a threat to public protection and has an effect on lowering prices for American patients,” and authorizes, in particular, “the re importation of insulin produced after the secretary [HHS] concludes that it is intended for emergency medical care.”
Importing medicines from other countries can only help some patients, on the sidelines, access less expensive treatments. But many other people don’t realize that drug costs in Canada are the highest time in the world, only those in the United States, and pharmaceutical corporations have become complicated enough in managing their stocks to prevent drugs from crossing borders. However, the prescription may only provide an escape valve for those who are suffering to buy the medications they need.
The fourth and final order is for insulin and epinephrine costs in federally authorized fitness centers, or FQHC. HQCFs are the number one federally funded care clinics serving low and rural populations. 28 million patients stop at the FQHC every year. FQHC participates in a prescription drug procurement program called 340B, where suppliers can purchase drugs at very low rates.
The challenge is that many providers, especially hospitals, take credit for the 340B program to buy cheap drugs and then administer them to patients at higher prices, pocketing the difference as profit. President Trump’s fourth order ends this practice at the FQHC, ensuring that the fees charged to low-income uninsured patients correspond “to the rate at which the FQHC purchased the drug.”
In addition to the drug lobby, there are a number of conservative agencies that have criticized Trump’s efforts to reduce the burden of prescription drugs for patients and taxpayers. His argument is that the existing formula is a “free market” and that Trump’s moves would undermine market forces.
It’s ridiculous.
First, branded drugs in the United States are protected through monopolies imposed and imposed by the government, occasionally – but not – through the patent system. Monopolies, whatever their merits, are not markets. And pharmaceutical corporations have become competent in convincing the U.S. Patent and Trademark Office to grant them patents for insignificant, non-innovative adjustments to their drugs, expanding their monopolies and allowing them to continue to raise their prices.
Second, the U.S. physical health care formula allows pharmaceutical corporations to classify what they want without problems. Tax exclusion for employer-sponsored insurance prevents patients from taking the policy and the care that most productively serves them. Insurance mandates require safe drug policies, regardless of their cost. And government formulas like Medicare Part B today pass blank checks to pharmaceutical corporations to classify what they think they can, without causing reputational damage.
The Conservatives are talking about a clever game about government spending cuts and payment reform. But in practice, many other people are selective in applying this philosophy: they oppose care for low-income patients, while ardently protecting tens of billions of subsidies to multinational pharmaceutical companies.
President Trump has many faults, but he deserves credit for tearing up this stale ideological loaf. His executive orders could save tens of billions in taxpayer funds, and help millions of low- and middle-income Americans better afford their medicines.
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I am political editor of Forbes and president of a non-partisan tank, the Equal Opportunity Research Foundation (FREOPP.org), which focuses on economic expansion
I am a political editor at Forbes and president of a non-partisan think tank, the Equal Opportunity Research Foundation (FREOPP.org), which focuses on expanding economic opportunities for those who have less. I’m on Twitter in @Avik. My paintings were also published in the Wall Street Journal, The New York Times, The Washington Post, USA Today, The Atlantic and other publications. I’m on the news; you can find a collection of my TV clips on the YouTube.com/aviksaroy.