Pharma Does Not Budge Under Pressure to Slash Drug Prices

While the president has called for drug companies to voluntarily offer price cuts, the industry hasn’t moved to lower costs.

President Trump and Health and Human Services Secretary Alex Azar at an event to discuss prescription-drug prices in the Rose Garden on May 11
AP Photo/Evan Vucci
Erin Durkin
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Erin Durkin
June 13, 2018, 8 p.m.

The president’s bully pulpit alone does not appear to be shaking up the pharmaceutical industry’s drug-pricing practices, and there may be little incentive for drug companies to slash costs before the administration lays out specific policies.

The two-week target date President Trump gave for drug companies to provide “voluntary massive drops in prices” came and went this week without movement from industry stakeholders.

The financial benefits for pharma to deliver results to the White House are unclear, according to experts. Perhaps some companies may move to cut prices to avoid public shaming from the president, said Tricia Neuman, senior vice president of the Kaiser Family Foundation. But the administration seems to be offering little else to spur the industry to change.

“It’s hard to say how drug companies would benefit financially by voluntarily lowering their prices, unless they can make it up with big increases in volume,” Neuman wrote in an email. “Then again, the president hasn’t been shy about praising companies that he likes or using the bully pulpit to shame others. It’s possible the administration is hoping that the drug companies will cut prices on their own to avoid getting called out in a very public way.”

Trump made the announcement on May 30 while signing legislation that aims to quicken the pace at which seriously ill patients receive experimental drugs. “I think we’re going to have some big—some of the big drug companies in two weeks. And they’re going to announce—because of what we did, they’re going to announce voluntary massive drops in prices,” he said.

An investor analyst working for Height Capital Markets called the announcement the “most extreme form of bullying we have seen yet.

“This pits drug company against drug company to avoid the President’s crosshairs, and it discourages them from holding together and facing the drug pricing policy debate as a unified industry,” wrote Andrea Harris, senior vice president of the firm’s health care team, in a note for clients. “At best, companies that don’t comply with the request will face more public shaming; at worst, the industry will face more severe regulatory threats.”

In a hearing Tuesday on the White House’s drug-pricing blueprint, Health and Human Services Secretary Alex Azar upped the rhetoric. “The first couple of drug companies that reduce price, this whole system will flip on its head and have to be redone,” he said. He told lawmakers that pharmaceutical companies are interested in making cuts but feel pressured to keep list prices high so that pharmacy benefit managers and distributors keep their products on their list of prescription drugs.

“If I were a drug-company executive, I wouldn’t want to be beaten by my competitor over that line because the first companies to do this are going to win,” Azar added.

Pressuring companies to cut prices does not seem compatible with the push to foster competition, said Paul Ginsburg, director of the USC-Brookings Schaeffer Initiative for Health Policy. “That doesn’t sound like competition to me, to ask companies to do something that’s not in their interest to do, whether it’s looking for their patriotism or in response to an implicit threat,” Ginsburg said. “I wouldn’t want to see a market where prices were set according to how threatened you felt from government.”

On May 11, when Trump announced his blueprint to lower drug prices, multiple media outlets reported that health care stocks rose. Two weeks following the speech, Bayer hiked the price of two cancer drugs and there were dozens of other increases from other companies, The Washington Post reported.

The same day Trump pressed companies to cut prices, Democratic Sens. Elizabeth Warren and Tina Smith wrote to the top 10 drug-company CEOs asking whether they had voluntarily reduced prices in response to the White House’s plan.

The senators said on Monday that not one has done so. One pharmaceutical company, Novartis, told the senators it has planned price increases for this year.

Companies have not taken immediate action because the most concrete ideas of the White House plan, like removing barriers to generic-drug development, were not new to the industry, Ginsburg said. The other ideas in the blueprint are so vague that people have doubts about their feasibility, he added.

“I think there’s a sense that people aren’t convinced a) that the administration is going to push that hard for them, and b) even if they do, whether they can get them past Congress,” he said.

Industry members are still following what the federal government does very closely and may start weighing in more publicly as actual policy is finalized, said Kelly Brantley, vice president at Avalere Health. She noted steps the government has already taken, such as issuing a letter to all Medicare drug-benefit-plan sponsors letting them know that they must inform beneficiaries when paying for a drug would be cheaper without insurance.

But the government’s approach to address the “high-list, high-rebate” incentives requires a complex plan that hits multiple stakeholders at once, she said.

Brantley added that she believes the White House’s proposal makes policy suggestions that could lead to comprehensive change in the system and lower drug prices.

“But it feels a little bit piecemeal to me, and because we don’t have actual policy parameters in here—there are a series of general questions in a lot of places—that it’s hard to tell how a policy would be constructed that would be nuanced and get at all of those components at the same time,” she said.

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