Trump's Drug Pricing Move Isn't a Drug Pricing Move

We’ve come a long way from President Donald Trump telling the pharmaceutical industry it was getting away with murder.

His administration’s Center for Medicaid and Medicaid Services (CMS) on Thursday proposed deep cuts to reimbursement rates for the 340B drug-discount program, which mandates big price cuts for “safety-net” hospitals that treat a lot of poor patients.

The Trump administration is selling the move as delivering on a commitment to lower drug prices. It doesn’t.

The change won’t directly affect drugmakers. It will instead hit about half of U.S. hospitals. And it will weaken a program the pharma industry dislikes.

The 340B program has issues; it can create market distortions and is costly. But this particular reform won’t help many consumers with high drug prices. And it leaves the pharma industry’s unfettered pricing power intact.

It also reinforces the perception the Trump administration isn’t the populist bogeyman the sector once feared.

The 340B program grew from nearly $6 billion in 2010 to more than $13 billion in 2015 and is projected to keep growing for the foreseeable future, according to Berkeley Research Group. The CMS’ proposed change to the program would threaten that growth by cutting the hospital reimbursement rate for drugs from a medicine’s average sales price plus 6% to that price minus 22.5%. That will make the program far less lucrative for health care providers.

Hospitals are likely to cry bloody murder over this proposal and argue it will lead to service cuts. You likely won’t hear a peep from drugmakers, though. These are very low-margin sales, and pharma firms have complained for years about what they say is abuse of the program and the extension of 340B discounts to patients and hospitals they don’t think should be eligible. If the CMS change means more sales go to higher-margin areas of the market, then pharma will profit.

This move suggests any future 340B and CMS reforms may be pharma-friendly. And any approach that favors drugmakers over hospitals that serve the poor says a lot about the administration’s priorities.

The president’s last public attack on drug prices was months ago. Pricing has apparently faded as a policy priority since the campaign.

His administration’s actions make that even more clear. Changes to 340B were just one reported aspect of a draft executive order on drug pricing that reads more like a pharma wish list than a plan to restrain price growth.

The FDA is focused somewhat on drug pricing these days, but its moves are targeted at older drugs rather than costly new medicines. It may even be loosening approval standards in a way that could bring more pricey drugs to market.

Actually lowering drug prices requires difficult compromises. Direct price controls or larger mandated discounts for government programs that buy drugs would do it. But those are tough sells politically, and could reduce pharma incentives to spend billions producing new medicines. Giving the government the ability to refuse to pay for drugs due to their cost could do it, too, but would also be broadly unpopular.

Cosmetic moves that stave off unpleasant phone calls from deep-pocketed pharma lobbyists are obviously a whole lot easier. It seems we shouldn’t expect anything more.

— Read NBGH: Beware Of Hospital Cost-Shifting on ThinkAdvisor.