Two New Trump Administration Policies Target Drug Prices

The administration of President Donald Trump has released two contentious drug policies, one that could cut profit margins for pharmaceutical companies and another that would allow them to make smaller payments to their partners.

Both moves culminate four years of presidential threats to companies in the drug supply chain to reduce prices or bow to regulations. The move could leave the incoming Biden administration with massive policies to either enact, change, or somehow dismantle.

One policy replaces legal shields for current rebates from drug manufacturers to pharmacy middlemen with protections for new, fixed arrangements that untie the payment amount from the price of the drug. The policy also allows for discounts to go directly to customers at the pharmacy counter. Middlemen, also known as pharmacy benefit managers, help insurers organize their drug coverage lists and determine which products get preferential treatment.

The other rule ties federal reimbursement for drugs administered in doctors’ offices to lower prices paid in other countries. Drugs administered by doctors, often for serious illnesses like cancer, are usually expensive.

Lawsuits are almost guaranteed for both rules, leaving their paths to implementation unclear. Judges stopped other Trump drug policies in their tracks, including one rule mandating drug companies include price information in advertisements.

The S&P 500 pharmaceuticals index barely budged on the announcement, up just 0.08% at 3:11 p.m. in New York trading on a day when Pfizer Inc. announced its vaccine is the first to be filed with the Food and Drug Administration for emergency authorization.

The final rebate rule favors pharmaceutical companies whose leaders say ditching current rebates will let them lower drug prices. There’s no guarantee that would happen, however.

The rebate rule applies to drugs sold in Medicare Part D, the outpatient drug program for seniors, but the head of the U.S. Department of Health and Human Services said last year the change could ricochet into private plans.

The foreign drug price rule would be implemented over several years with half the country participating at first through a federal demonstration project.

Rocky Road Ahead

The foreign pricing rule could slash profit margins for drugmakers and physicians. Both rules severely alter business arrangements for pharmacy middlemen.

The pharmaceutical industry is “very opposed” to foreign price matching, Theresa Carnegie, a health policy lawyer at Mintz Levin Cohn Ferris Glovsky and Popeo, said.

“They are highly willing to use lawsuits,” she said, noting the foreign drug price rule might be more reviled by influential groups than the rebate rule. Physician groups are also likely to sue over the foreign drug price policy because it affects their practices too, she said.

Groups representing pharmacy middlemen have already promised to sue over the rule ditching traditional drug rebates.

“The administration cannot demonstrate that brand drug manufacturers will voluntarily lower their prices,” the Pharmaceutical Care Management Association, which represents drug intermediaries, known as pharmacy benefit managers, said in a statement.

Pharmaceutical companies say those rebates force them to keep prices high because middlemen demand large payments. Middlemen argue the rule will increase premiums. They also contend the rule will increase taxpayer costs — a rebuttal supported by a Congressional Budget Office review that found the policy would cost taxpayers $177 billion over a decade.