Trump plan for drug prices won't include direct negotiations

Clay Curtis
May 11, 2018

The administration is not expected to act on a key Trump campaign pledge to use the massive buying power of the federal government's Medicare program to directly negotiate lower drug prices for seniors.

An outline of the plan was described Thursday by senior administration officials who spoke on the condition of anonymity to discuss it ahead of Trump's speech, which is scheduled for 2 the White House.

For the industry and investors, numerous proposals will come as no surprise.

President Trump gestures during his speech at an NRA convention in Dallas.

Friday's speech may provide some clarity for investors, but the prospect of healthcare and drug pricing being a hot topic heading into the mid-term US congressional elections in November may lead worries about the sector to persist.

Trump's prolific tweets sank drugmaker stocks in January 2017 when he accused the companies of "getting away with murder" with their pricing.

"We expect more rhetoric than reform", Height Securities analysts wrote in a note on Friday. Health and Human Services Secretary Alex Azar said last week that Trump's plan will be based on the 2019 budget proposal, but go "further, much further" in attacking high list prices and out-of-pocket costs. The 193-company biotech gauge is a barometer of market sentiment about the industry and pricing issues.

Parts of the plan were previously released in the president's budget proposal and would require action by Congress.

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Dan Mendelson, a health care consultant, said: "If they don't address the cost that patients see at the pharmacy counter it's not going to be seen as responsive".

Asked if the plan would include direct negotiations by Medicare, the official said, "No, we are talking about something different".

On Thursday, administration officials also vowed to address foreign governments that rely on US medicines but pay drastically lower prices due to government controls.

Pharmaceutical companies often launch their drugs with high initial prices.

Food and Drug Administration Commissioner Scott Gottlieb kicked things off a year ago by expediting reviews of applications to get new generic drugs to market. Azar told Bloomberg TV this idea needs to be part of the discussion the president's speech will spark.

David Maris, an analyst at Wells Fargo & Co., said last week that many in the industry and investors "do not see the trouble brewing". But the administration has spent the past few weeks dropping clues about the policy directions it favors - including a slew of technical proposals that do little to threaten the pharmaceutical industry that would seem to be at greatest risk from any plan to lower drug prices. FDA Commissioner Scott Gottlieb - another Trump appointee with industry connections - hinted at a plan to "dismantle" the convoluted system of discounts and rebates between drugmakers and health care middlemen. Some rebates are passed to consumers, but in other cases insurers and pharmacy-benefit managers keep or redistribute them.

Q: Is he for Medicare negotiating drug prices or not?

But after railing against drug prices for months, Trump's unwillingness to push Medicare price negotiations leaves pricing power in the hands of the industry.

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