The Art of the Deal: Coming Soon to Rx Prices

from THCB at on December 28, 2016 at 02:13PM


During the campaign, President-elect Trump said “(w)hen it comes time to negotiate the cost of drugs, we are going to negotiate like crazy.”

While the President-elect’s pronouncements can’t always be taken at face value, this one should be.

In its December 7, 2016 prescription drug report to Congress, HHS reported Medicare (Parts B and D) and Medicaid Rx expenditures equaled $165.5 billion in 2014. Total 2014 retail and non-retail Rx spending was $424 billion.

HHS also reported that Rx spending “has been rising more quickly than overall health care spending . . . [and in] recent years, growth in prescription drug spending has accelerated considerably”.

If the reported annual rate of growth in 2014 (12%) holds for 2015 and 2016, Medicare/Medicaid’s Rx spending and total Rx costs in 2016 will exceed $200 billion and $500 billion, respectively.

As fiscal pressures to control healthcare costs build, Rx prices may be the ripest big ticket item on the table.

As the Trump Administration looks for bipartisan support for an ACA replacement, Rx prices could also provide some glue.

Last week, 20 Senators (18 Dem., 2 Ind.) sent a letter to the President-elect encouraging him to seek legislation lifting Medicare Part D’s ban against HHS negotiating drug prices.

If there’s the same level of Democratic support in the House, Democratic votes could more than more than make up for Republicans who reject negotiating authority as price controls.

It’s doubtful the President-elect thinks negotiating Rx prices means imposing price controls. He’d likely call it smart business.

There isn’t a private company in the world that would forego the negotiating strength its market clout gives the federal government.

Given the scale of the government’s pharmaceutical purchases, it would take an Assistant HHS Secretary a nanosecond (in DC time) to negotiate significant reductions in the cost of drugs.

A few presidential tweets could tee this up.

During its 2009 negotiations with the Obama Administration, pharmaceutical companies agreed to some limits on drug costs, and the Administration agreed not to seek authority to negotiate drug prices as part of the ACA.

The Administration said these concessions totaled $80 billion over 10 years.

In the negotiations, Big Pharma was represented by Billy Tauzin. If one of Washington’s most seasoned hands cut this deal with the Obama Administration, Trump likely believes big money remains on the table.

We shouldn’t kid ourselves–this change would reduce the pace of Rx innovation and could dampen employment in this sector of the economy.

As the President-elect looks for some near-term opportunities to control healthcare costs, however, it looks like he has Rx drug pricing in his sights.

Gary Mendoza is CEO of Health eWay, healthcare’s mobile first platform. He served as California’s HMO regulator in the mid-90s and was the Republican candidate for Insurance Commissioner in 2002.