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Trump targets PBMs, TV ads, foreign 'freeloaders' in drug price strategy

President Donald Trump took aim at pharmacy benefit managers, consumer drug advertisements and what he called "foreign freeloaders" in his strategy to lower the costs of prescription medicines in the U.S., though the plan was panned by Democrats and Wall Street as likely to have little impact.

"We will have tougher negotiation, more competition and much lower prices at the pharmacy counter," Trump said from the White House Rose Garden on May 11.

He said his administration also would be "reducing regulatory burdens so drugs can be gotten to the market quicker and cheaper."

Trump vowed that those actions would "start to take effect very soon."

"We're going to see those prices go down. It will be a beautiful thing to watch," he said.

Left out of the plan, however, was Trump's promise to seek authority for the government's Medicare insurance program to negotiate directly with drugmakers on prices.

PBMs in the bull's-eye

Particularly in the Trump administration's bull's-eye are pharmacy benefit managers, or PBMs — often called middlemen — which negotiate discounts and rebates with biopharmaceutical manufacturers on behalf of insurance plans, including the plans in the Medicare Part D prescription drug program, which covers medicines for American seniors and the disabled.

"We're very much eliminating the middlemen," Trump said. "They're rich. They won't be so rich anymore."

Trump's strategy, which includes more than 50 actions the administration is committing to achieve, calls for considering fiduciary status for PBMs and revisiting the safe harbor under the anti-kickback statute — an action Food and Drug Administration Commissioner Scott Gottlieb revealed last week would be included in the plan.

Most current PBM contracts may allow them to retain a percentage of the rebate collected and other administrative or service fees.

Those discounts are based on the drug list prices set by manufacturers. Generally, the higher the list prices, the bigger the rebates and discounts.

But the administration is questioning whether PBM rebates and fees based on the percentage of a drugmaker's list price create an incentive to favor higher list prices — and the potential for higher rebates — rather than lower prices.

"Right now, every incentive in the system is to increase and have high list drug prices, because everybody in the system except the patient and taxpayer, is wetting their beak along the way," Health and Human Services Secretary Alex Azar told reporters at the White House during an afternoon briefing following Trump's speech. "List price goes up, list price higher, everybody makes more money along the way. The math just works that way."

Azar said those incentives need to be flipped backward "so that it financially makes less sense to increase prices."

"We are calling into question today the entire structure of using rebates as the method of negotiating discounts in the pharmacy channel, because right now, every incentive is for the drug company to have a very high list price and to negotiate rebates down, often in a very nontransparent way," Azar said. "What if instead we said no rebates, flat price, fixed price in the contracts, take away this whole gross-to-net spread?"

He said the administration also was taking a look at the dual compensation for PBMs.

"They get compensated by the customers, the insurance companies, but they also get compensated by the drug companies they are supposed to be negotiating against," he said.

"Should we move to a fiduciary model where the pharmacy benefit manager works for the insurance company or the individual and only is compensated by the insurance company or individual, forbid remuneration from the pharmaceutical company so it is all completely on one side, a complete alignment of interests?"

Azar said the administration also seeks to get rid of so-called "gag rules," in which pharmacies that are under contracts with PBMs cannot inform customers whether they could get their medicines cheaper by paying cash rather than going through their insurance.

"We think that is unconscionable and in Part D we are going to block that," he said.

Patients also should be able to find out exactly what their out-of-pocket costs will be when their doctor prescribes a drug and also be able to compare that price with a competing product.

"You ought to have that information," Azar said.

In addition, patients should be able to find out if they could pay less by receiving a self-injectable drug versus one infused at a doctor's office, he said.

RBC Capital Markets analyst George Hill, however, said he did not hear or see anything in Trump's blueprint that presented an immediate threat to the PBMs or the drug supply chain, "and the more actionable near-term proposals are actually more likely to strengthen the PBMs in Medicare Part D."

Television advertisements

Trump also has called on the FDA to evaluate whether it can force drugmakers to include their list prices in direct-to-consumer advertising.

"We believe that it is an important part of fair balance, that if you're telling a patient, activating a patient to have a discussion with a doctor about a drug, telling them all the good things that drug can do, it is material and relevant to know if it is a $50,000 drug or a $100 drug, because often the patient is going to bear a lot of that cost," Azar told reporters.

He said he was going to immediately have the FDA examine whether it can impose such requirements.

Ending 'freeloading'

Trump said he also was taking actions to "end the global freeloading once and for all," with foreign nations not paying their fair share on research and development of medicines, while their consumers pay much less than Americans.

He said he had directed U.S. Trade Representative Robert Lighthizer to "make fixing this injustice a top priority with every trading partner."

"We have great power over the trading partners," Trump said. "America will not be cheated any longer, and especially will not be cheated by foreign countries."

His plan, however, provided no details about how he would accomplish such a feat.

Democrats also criticized any action against foreign nations.

"The idea that asking Germany to charge their citizens more for drugs will help Americans is a cop-out and the height of absurdity that nobody believes," Senate Minority Leader Chuck Schumer, D-N.Y., said in a May 11 statement.

Schumer said Trump's plan "hardly puts patients first," calling the strategy "little more than window dressing."