Will President Trump directly negotiate Medicare prescription drug pricing?

By Chris Gallagher
February 20, 2017

President Donald Trump

President Donald Trump

Whether prospective voters took Mr. Trump’s pre-election statements “seriously but not literally” or visa-versa, President Trump’s post-election conduct has DC industry advisors guessing rather than predicting. What happens next at 1600 Pennsylvania Avenue is simply unpredictable. And because White House staff must create coherency between campaign promises, like Mexico’s paying for “the wall” and their post-election implementation, even the President’s express assurances are subject to staff walk-back, revision or reversal. A recent relevant example of such uncertainty resulted from candidate Trump’s commitment last Fall to directly negotiate Medicare’s prescription drug pricing. That commitment’s post-election consequences are now roiling DC biopharma, insurance and PBM life science backwaters, creating waves of pricing uncertainty that also are washing-up along the shores of life science’ commercialization and investment partnerships. Why? Even though the savings impact of directly negotiated drug costs is credibly considered “negligible”, any politically driven intrusion into today’s market-oriented biomedical product pricing will further destabilize life science commercialization, which is already disrupted by post-AIA uncertainties.

During the presidential campaign, when polls showed public support for such direct negotiations, Trump proclaimed that his deal-making skill would annually save the US $300 billion, an absurd exaggeration amounting to almost one-half of Medicare’s entire annual budget. Fact-checkers quickly refuted his claim. Trump’s base believed it. Other disparaging, but less specific, post-election remarks about drug pricing have kept its price reduction fires burning, moving Medicare’s existing price containment infrastructure into the disruptive, unpredictable, and choppy waters of future trade agreements. His outlandish claim was taken literally.

Following a recent highly publicized meeting with prescription drug-makers, the President publically pledged assurances of more support for biomedical innovation. He praised his visitors citing  their creation of many US jobs, especially through startups, and promised FDA regulatory reform to strengthen the price containment of heightened competition. But later that day in Facebook remarks attributed to the President, the meeting’s message took a different tone.

Today I met with pharmaceutical executives at the White House. US drug companies have produced extraordinary results for our country, but the pricing has been astronomical for our country. We have to do better. We have to get lower prices; we have to get even better innovation. I expressed to the executives that I want them to move their companies back to the United States — and I want them to manufacture in the United States. Our trade policy will prioritize that foreign countries pay their fair share for U.S.-manufactured drugs, so our drug companies have greater financial resources to accelerate development of new cures — I think that’s so important! Right now it’s very unfair what other countries are doing to us – and in order to MAKE AMERICA GREAT AGAIN — we all need to work together right here in the United States of America.  

Later when asked about direct Medicare direct negotiation, Press Secretary Spicer said the President “is for it” (starting with question at 29:54 – see video below), adding from his notes: “There is a huge burden on American seniors who are so much more reliant on drug prices… in many cases you have people living on a fixed income. And rising health care costs and prescription drugs continue to be a burden on their ability to live out their lives in an enjoyable manner. [Trump’s] commitment is to make sure that he does what he can and I think rather successfully he can use his skills as a businessman to drive them down.”

With all that’s now going on it seems unlikely that legislative changes in the Medicare Modernization Act (MMA ) enabling such negotiations will be enacted. But who knows ? When should we begin to worry about such endpoint price intrusion?

The “Wall” issue is instructive. Whenever it seems to fade from public prominence, President Trump himself revives it. We also know that “wall-pricing” is now attracting deficit hawk concern especially if Trump’s approach is to “build it now” and gain trade reimbursement offsets later.  Medicare price negotiators can hope MMA revisions will be overcome by other pending issues but with ACA budget discussions coming to a head, non-interference and related budgetary benefits could move to Hill front burners very quickly. A PBM trade association official summed up his association’s recommendation that PBM’s start Hill discussions now.

If this were a conventional Presidency, then the group would wait to present a strategic update once health officials had clearly laid out their policies. Instead, the group has decided to push forward more aggressively,” he said, “given the political uncertainty, headline risk, and other unique challenges that come with a President more inclined toward quick, instinctive action than the traditional, deliberative decision-making process.

Any way you slice it, added commercialization uncertainty resulting from even negligible savings will be seen by the private sector as a foot-in-the-door for more government price controlling. Accordingly if or when such congressional discussions start, early stage life science research and investment voices will need to be heard. An excerpt from a recent Kaiser Family Foundation analysis of the issue may be a useful starting point.   

Proponents believe that giving the HHS Secretary the authority to negotiate drug prices on behalf of millions of Medicare beneficiaries would provide the leverage needed to lower drug costs, particularly for high-priced drugs for which there is no competition and where private plans may be less able to negotiate lower prices. Opponents believe the Secretary would not be able to get a better deal than private plans already do and that plans have greater leverage with drug companies because of their whole line of business, but, if the Secretary were able to negotiate lower prices, pharmaceutical companies would reduce their investment in pharmaceutical research and development.

Participants in early stage life science development including research universities and medical centers must watch this issue closely and be ready to join MMA’ s more conspicuous defenders if and when MMA’s ban on Medicare direct negotiations suddenly appears. For more on why competition works better to contain drug pricing please see  “Trump Moves Towards Life Science Support”.

The Author

Chris Gallagher

Chris Gallagher is President of IP Strategic.com and a perennial selection to The Best Lawyers in America. Having spent years as one of the most influential and highly regarded advocates in the New Hampshire Legislature and state administrative agencies, Chris is now focused primarily on federal policies in Washington, DC. Chris has been involved in nearly every substantial New Hampshire economic regulatory initiative over the last 25 years. He has served as general counsel for the New Hampshire Bankers Association and has represented New Hampshire utilities, hospitals, insurers, aggregate manufacturers and numerous other entities. This experience provides him with a uniquely respected voice on Capitol Hill, enabling him to communicate effectively with members whose federal decision-making must reflect and respect the complexities of their home-state constituents.

A frequent speaker and commentator in local and national media on policy issues, regarding financial services, privacy, business and government, Chris has testified on financial services issues before U.S. House and Senate Committees and has been a panelist in Capitol Hill briefings on intellectual property issues. He can be reached at chris@ipstrategic.com

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 2 Comments comments.

  1. erich spangenberg February 21, 2017 5:43 am

    With all due respect to the CBO survey (it is clearly not a study) you refer to, how would one explain what happened with the EpiPen over the last twelve months? While not “direct” negotiations, it was fairly direct. The generic launched and the price fell because that is what the “market” demanded? Or is it what EpiPen’s largest customer demanded? Is EpiPen the exception?

    Interesting choice of words–“any politically driven intrusion into today’s market-oriented biomedical product pricing.” I think if you read up on how we got to the Medicare “no negotiation” position that W Bush and Rove delivered in 2003, you would find it was very political and certainly not “market-oriented.”

    The FDA (agree that thalidomide was horrible, but time to move on and learn the next lesson), Congress (lots of money flowing here) and, to a lesser, but nonetheless occasionally important manner, the USPTO, play a role in making sure there is very little “market driven” about biomedical product pricing.

    Trump’s words may have been less than precise, but his global point is an excellent one. Get government out of biomedical pricing–including false price supports using taxpayer dollars. Pharma has had enough corporate welfare at taxpayer expense and it is time to end it.

  2. Simon Elliott February 21, 2017 5:05 pm

    Its wrong to focus entirely on drug companies because so much of the price is determined by third parties. e.g.
    -PBM are responsible for much drug supply and distribution and negotiations on prices.
    – Health insurers
    – Pharmacists, hospitals, doctors

    FDA regulation also determines supply and demand and can have a big influence on prices.

    IIRC, EpiPen pricing included several factors often not discussed.
    1. EpiPen is (apparently) easier to use than alternatives, and has been improved over the years. It is certainly easier than a syringe and a vial of epinephrine.
    2. A competitor’s product was rejected by the FDA
    3. The company had a big advertizing campaign so that alternative were not considered or accepted. e.g. A state government demands that epipen be stocked in schools, rather than “epinephrine autoinjectors.”