Commercial risk will be a critical catalyst of progress – it’s complicated, but is it possible? We think so.

Blog Post

The 4 key policy proposals in Trump's Rx drug speech, explained in charts

May 14, 2018

    Editor's note: This post was updated on May 16, 2018.

    President Trump's Blueprint to Lower Drug Prices, which he outlined in a long-awaited speech on Friday, sets out many ideas for reforming drug markets and reducing drug prices, increasing price transparency and promoting competition.

    But perhaps the most notable aspect is what's missing: enabling Medicare to negotiate drug prices. While experts disagree on the real-world impact of such a change, Trump has repeatedly criticized the policy that prohibits negotiations. Moreover, 92% of Americans favor reversing this prohibition, according to a 2017 Kaiser Family Foundation survey—making it among the most popular proposals to rein in drug prices.

    The Blueprint did touch upon several other policy changes that Americans generally support, albeit in terms that still leave room for interpretation. Without more specifics, it's difficult to assess their viability or determine the implications—but providers should pay attention to four proposals in particular:

    1. Evaluate the inclusion of prices in drug makers' ads to enhance price competition.

    Requiring drug manufacturers to advertise their prices would spotlight high and rising drug prices. Arguably, though, the general public is already well aware of the high cost of drugs. According to the same 2018 Kaiser Family Foundation survey, 80% of Americans say the price of drugs is unreasonable.

    Still, the Blueprint leaves open a big question about price transparency: Which price would be disclosed? Very few patients pay the sticker price of the drug and, according to a 2018 Kaiser Family Foundation survey, despite widespread concern over drug prices, 74% of patients currently taking a prescription drug say affording them is "easy." Most patients have prescription drug plans which negotiate a discounted rate on their behalf, and patients pay either a percentage of the negotiated rate or a fixed copay. Patients' out-of-pocket expenses vary widely depending on their prescription plan and medications.

    If the policy were somehow enacted, then the most likely outcome would be confusion among the public. In addition, because medication adherence is inversely correlated with price, there is a danger that advertising sticker prices might actually discourage patients from taking prescription drugs.

    2. Examine which Medicare Part B drugs could be negotiated for a lower price by Part D plans

    The practice of shifting reimbursement for provider-administered drugs (i.e., Medicare Part B drugs) from a patient's medical benefit to their prescription drug benefit is commonly called "white bagging," and it has been used by some private payers to manage costs. According to a 2017 Oncology Roundtable survey, 43% of cancer programs allow white bagging.

    The theory is that white bagging reduces costs because pharmacy benefits managers (PBMs) can negotiate lower prices than providers and can provide more transparency into drug usage. In practice, the benefits to payers are mixed, and the practice typically increases beneficiaries' out of pocket expenses.

    From the provider perspective, white bagging effectively shuts them out of the drug revenue stream. In the wake of multiple reimbursement cuts and policy reforms, hospital outpatient infusion center finances are already precarious. Medicare "white bagging" could force many centers to close, creating concerns about access.

    The Executive's Guide to Infusion Center Business Strategy

    3. Advance generics to boost price competition.

    The FDA has already taken steps to speed up generic drug approvals, and in fact it approved a record number of new generic drugs in 2017. Nevertheless, the generic drug market continues to be plagued by persistent shortages and seemingly arbitrary price spikes. Many of these problems can be traced back to consolidation of suppliers and production capabilities, which concentrates pricing power and increases the system's vulnerability to disruption.

    The problems are so severe that Intermountain Healthcare, SSM Health, Trinity Health, and Ascension joined together earlier this year to create their own nonprofit generic drug company. Its goal is to ensure a stable, predictable supply of essential generic drugs and serve as a check against monopolistic behavior in the generic drug manufacturing industry.

    Health systems to launch nonprofit drug company. Here are the details.

    4. Advance biosimilars to boost price competition.

    The Affordable Care Act created a new FDA pathway for biosimilar approval, leading to the approval of eight biosimilars in the United States. However, despite lower prices, adoption has been slow.

    One challenge is that many physicians are unfamiliar, or in some cases, uncomfortable with these new drugs. But a far more significant barrier is that many private payers refuse to cover biosimilars and instead reimburse for the more expensive reference products. At the same time, many approved biosimilars have never come to market due to patents and litigation concerns.

    Demand for biosimilars in the U.S. is so low that some are beginning to question whether there is a viable market. The Trump Administration may be able to take steps to streamline biosimilar approvals and ensure public payer coverage, reducing costs to Medicare and Medicaid beneficiaries. But without engaging private payers, adoption may stagnate, and threaten the long-term opportunity for greater cost savings.

    Still, whether or not these particular proposals pass into law, the controversy over prescription drug pricing isn't likely to go away any time soon. One key reason? The vast majority of Americans believe—fairly or unfairly—that pharmaceutical companies make too much money:

    Ultimately, Trump’s speech reflects the majority of American’s sentiment that there is not as much regulation as there should be when it comes to limiting the price of prescription drugs. The remaining question is: will these four proposals work?


    May 29 webcon: Get the latest clinical innovations in oncology

    Learn about new innovations in oncology and how to position your program for success by revamping your investment strategy, finding opportunities to reduce costs, and prioritizing patient preferences.

    Register Now

    Have a Question?


    Ask our experts a question on any topic in health care by visiting our member portal, AskAdvisory.