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Drug companies will love Trump's plan to get rid of drug rebates — the consumers will hate it
Pfizer, one of the largest drug companies in the world, has been making a lot of news on drug pricing recently. After receiving angry tweets from the president on its planned mid-year price hikes, Pfizer CEO Ian Read talked to the president and HHS Secretary Alex Azar and agreed to defer the increases.
Read has continued his charm offensive with the Trump administration, essentially offering an endorsement of the administration's drug pricing blueprint. "I believe that the blueprint will be a positive for patients," Read told CNBC. It also "will be positive for Pfizer."
It is not at all clear why it is good for patients.
So far, the administration's plan seems to be focused on getting rid of the provisions of the law that allow for rebates, essentially a negotiated discount on the list price for a drug. It is obvious that getting rid of discounts is good for drug companies, they then can charge full price and can blame the government for not offering discounts.
That the blueprint helps drug companies isn't surprising since President Trump's pick to run the Department of Health and Human Services, Alex Azar, was an executive at Eli Lilly, the sixth largest pharmaceutical company in the United States.
Read said, "at this moment in time, about 40 percent of the pharmaceutical prices are subsidies to the rest of the health care system. We realized some 58 percent of our list price." Are we really expected to believe that Pfizer would pass along the 40 percent savings to customers? Of course not. He said ending the rebate system would allow drugmakers to keep price hikes in line with health care inflation.
So where does that 40 percent "subsidy" go? Instead of keeping prices down for company health plans and getting passed to customers, it will now go directly to the profit margins of the big drug companies.
Now Secretary Azar is saying that HHS can eliminate drug rebates without any action from Congress, a claim that will certainly draw a legal challenge from the insurance companies that are relying on the discounts the rebates provide to make their plans affordable.
It should not be surprising that the Alex Azar is supporting the positions that he took as a pharmaceutical lobbyist, but it is surprising that he has gotten President Trump and the White House to go along. The president said, "The drug lobby is making an absolute fortune at the expense of American consumers.
No industry spends more money on lobbying than the pharmaceutical health products industry. Last year, these companies spent nearly $280 million on lobbyists. That's more than tobacco, oil, and defense contractors combined." It looks like the drug companies are getting what they paid for.
The president is clearly aware that the problem of high drug prices was created by the drug companies have been "getting away with murder." Despite the tough talk, it is clear that the president is deferring to Secretary Azar, and the idea that the White House is going to tackle drug prices in a meaningful way is going out the window. "They completely folded to pharma on negotiating for lower prices through volume in the Medicare program," Sen. Claire McCaskill (D-Mo.) said. "And that's the pressure of the pharmaceutical industry. I mean, they've got a vice grip on this place."
So what would real drug pricing reform look like? It would be a big first step to let the government negotiate for lower drug prices through Medicaid and Medicare, in the same way that Pharmacy Benefit Managers (PBMs) do now on behalf of companies and insurance companies. By excluding the most expensive drugs from their plans when cheaper alternatives are available, there is real pressure brought to bear on drugmakers to reduce the cost of prescription medications that Medicare and Medicaid patients rely on.
Congress should take action to ensure that the people who benefit from drug pricing reform are patients, not the drug companies who are spending millions in Washington.
Former Rep. Ed Towns (D-N.Y.) is an American politician who served in the United States House of Representatives from 1983 to 2013. A Democrat from New York, Towns was Chairman of the House Oversight and Government Reform Committee from 2009 to 2011 and Towns served on the Energy and Commerce Committee and is a member of the Congressional Black Caucus.