President Trump’s plan to lower prescription drug prices hit two major obstacles this week. He killed a proposal on Thursday that would have reduced out-of-pocket costs for older consumers out of concern that it would raise premiums heading into his re-election campaign. And a federal judge threw out a new requirement that drug companies disclose their prices in television ads.
Administration officials rushed to assure the public that the double setback did not reflect failure on one of the president’s signature issues, one that has fueled public outrage and drawn the attention of both parties.
He has hinted that he is focusing in on a more audacious proposal, especially from a Republican president. It would tie some drug prices to those set by European governments, an idea that is tantamount to price controls and opposed by members of his own party. Yet Mr. Trump is said to be particularly taken with the idea because it fits with his “America First” approach.
“The American senior and the American patient have been too long been asked to overpay for drugs to subsidize the socialist systems of Europe,” said Alex M. Azar II, the secretary of health and human services. “It’s time for the American patient to stop propping up the socialism of Europe.”
The administration and leading members of Congress have also been discussing legislative proposals, including negotiating directly with companies to set price caps on some drugs, and placing a limit on out-of-pocket spending by Medicare beneficiaries. The government efforts pack a broad populist appeal, particularly with older Americans, who remain one of the nation’s most reliable voting blocs.
But many of these plans face stiff opposition from the powerful pharmaceutical and insurance lobbies, which have already taken the administration to court on some issues.
Another of Mr. Trump’s goals — ending so-called surprise medical billing, when patients receive medical care, then get unexpected bills from providers who are not in their insurance network — is also on shaky ground. Doctors and hospitals are pushing back fiercely against legislation moving through Congress.
During a question-and-answer session with reporters, Mr. Azar tried to rebuff impressions that the administration’s efforts to tackle drug prices were flailing.
A former Eli Lilly executive, Mr. Azar had been the architect of the proposal abandoned on Thursday that would have eliminated drug rebates that companies pay pharmacy benefit managers, like CVS Caremark or Express Scripts. Some argue that the hidden rebates help to drive up prices because the discounts are not passed on to consumers.
His briefing also seemed a calculated attempt not only to convince the public that Mr. Trump was making progress, but also that he had strong ideas for improving the nation’s health care system over all.
Democrats successfully used Mr. Trump’s attacks on the Affordable Care Act in last year’s midterm elections, and are gearing up to do so again in 2020, focusing on the administration’s decision to join forces in a court case with several states seeking to invalidate it.
Mr. Trump’s decision to withdraw the rebate rule represented a rare loss for the drug industry, which has long cultivated a friendly relationship with Republicans. It had strongly backed the rebate measure, in its attempt to blame pharmacy benefit managers for rising prices.
The stocks of several major drugmakers, such as Merck, Eli Lilly and Pfizer, closed lower on Thursday, while the stocks of large insurers and pharmacy benefit managers were up.
“Now that the administration has abandoned what it was going to do to address the middlemen, pharma is the only one sort of standing there with a target on its back,” said Rob Smith, a director at Capital Alpha Partners. “I don’t think they’ve ever been in a worse situation.”
In a statement, the Pharmaceutical Research and Manufacturers of America, the lead trade group, called the president’s decision to drop the rebate rule disappointing.
Mr. Azar contended that Congress might have better tools to rein in drug prices, and for now, the legislative package that is still being honed in Congress may offer Mr. Trump and Republicans a rallying point on the campaign trail. Mr. Azar and Joe Grogan, the director of the White House Domestic Policy Council, met on Capitol Hill on Tuesday with Republican lawmakers to discuss some of the proposals.
Last Friday, Mr. Trump alluded to an executive order that would require pharmaceutical companies to offer the federal government among the lowest prices in the world. And on Wednesday in announcing a kidney-care initiative, he mentioned drug prices again, saying, “I think we have some very big moments coming up very shortly.”
What Mr. Trump meant was not immediately clear. He may have been referring to a more modest plan already under review, which would apply only to drugs administered in doctors’ offices or hospitals.
But his remarks hewed to a familiar theme: The president has long railed against what he describes as “global freeloading” — the fact that other countries negotiate far lower prices for drugs than what pharmaceutical companies charge in the United States.
Debate Over the Rebate Rule
Mr. Azar has been the leading champion of trying to eliminate rebates as a centerpiece of the administration’s plans to offer relief to consumers from rising drug costs. He was still promoting it as recently as June, to showcase how the market for drugs is broken.
But fiscal conservatives at the White House had long balked at the potential cost, and others had worried about angering Medicare beneficiaries in an election year.
Though it would have lowered out-of-pocket costs for older Americans with expensive drugs, the rule was expected to raise drug-plan premiums for all Medicare beneficiaries. In May, the nonpartisan Congressional Budget Office concluded that the rule, if adopted, would cost taxpayers $177 billion within 10 years.
The initiative was intended to eliminate after-the-fact rebates that drugmakers pay to the private companies that operate Medicare’s Part D drug plans, and instead required that any discounts be passed to consumers at the pharmacy counter.
Medicare beneficiaries with high drug costs often pay close to the list price, or a percentage of it, during certain phases of their coverage. They were required to do so even though, in many cases, the companies operating the plans were collecting rebates on the same drug.
The rule had been opposed by the insurers and pharmacy benefit managers, who contended that they wielded the rebates to pressure drug companies to keep prices low, and used the savings to keep Medicare premiums low.
But the drug industry has been campaigning for years that it is unfair for insurers to keep the rebates when consumers are paying the list price through high deductibles.
“At the end of the day, while we support the concept of getting rid of rebates and I am passionate about the problems and the distortions in system caused by this opaque rebate system, we are not going to put seniors at risk of their premiums going up,” Mr. Azar said.
He then tossed the ball to Congress, saying it could take up the rebate issue.
International Pricing Options
A pilot program announced last year has struck fear among drugmakers, who, like some Republicans in Congress, have described it as akin to foreign price controls. That project, unveiled in October, would tie the price of some drugs administered in medical offices like many cancer treatments to an international index of prices. The test program, under final review at the Office of Management and Budget, would last five years.
Senator Chuck Grassley of Iowa, the powerful Republican chairman of the Senate Finance Committee, denounced the idea last month, saying it could discourage research investments for new treatments. Conservative groups like Freedom Works and Americans for Tax Reform have been campaigning against the idea, too.
Even if Mr. Trump signs a broader executive order tying federal spending to overseas drug prices, it is not clear how much impact it would have. Most Americans are covered by commercial health insurance, which negotiates with drugmakers themselves. In many other countries with nationalized health care, the government is the negotiator.
The federal government buys drugs for small populations, like veterans and federal prisoners. Medicare’s prescription drug program farms out its purchasing to private companies and is barred from negotiating directly.
Trump’s Health Care Mission
Mr. Azar pleaded with reporters to “focus your energies” on a measure that will let employers provide money to workers to buy health insurance on their own, rather than enrolling in an employer-sponsored health plan.
And he pointed to an executive order Mr. Trump signed last month, intended to require insurance companies, doctors and hospitals to provide more transparent prices for medical care.
He also sought to play down the importance of the federal health law known as Obamacare.
“One of my frustrations is that the Affordable Care Act dominates so much of the discussion,” Mr. Azar said. “I’ve got to deliver affordable health care for 350 million Americans.”
He added, however, that the administration would provide “an ironclad protection for those who have pre-existing conditions” — the most popular of the health law’s consumer protections — no matter what happens with the court case.