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Trump, Medicare and the drug pricing ‘sledgehammer’

Whether Trump's proposal to base what Medicare pays for certain drugs on an international index is actually implemented is expected to come down to lobbying.

President Trump arrives to talk about drug prices during a visit to the Department of Health and Human Services in Washington last month.
President Trump arrives to talk about drug prices during a visit to the Department of Health and Human Services in Washington last month.Read moreSusan Walsh/AP Photo

As the races for the midterm elections heated up last month, President Trump opened a new front in the often-fraught arena of Medicare politics and drug prices.

He did it not only by invoking a tool so feared that it was banned in a portion of Bush-era Medicare reform back in 2003 – government negotiating power in buying medications – but also by taking a page from Obamacare to enact it: a provision in the 2010 health law that allows the government to experiment with new payment models. 

"The big arc here is that the history of Medicare has been one of surprises, reversals, and changing sides," said Larry Jacobs, a politics and governance expert at the University of Minnesota who has written extensively about health policy. Drug manufacturers, he said, have  longstanding concern that the more the government got involved in health care, the more it would want to exert control over the industry.

The proposal outlined in Trump's October speech, he said, "is literally what the pharmaceutical industry has been terrified of. They never thought it would come from a Republican president."

The proposal – which is open for a public comment period until Dec. 31 – applies to drugs that are administered in doctors' offices and hospital outpatient settings under Medicare Part B. Over the next five years, Medicare would buy drugs based on an international price index, so that the United States would pay amounts more in line with what other countries — such as Canada, Finland, and the United Kingdom — are charged for those same medications.

Between 2011 and 2016, Medicare Part B drug spending rose from $17.6 billion to $28 billion. And according to a report by the Department of Health and Human Services, the U.S. spends 1.8 times more, on average, for these physician-administered drugs than what 16 other developed countries do. By using the index, the Department of Heath and Human Services says it wants to bring U.S. prices down to 1.26 times that amount.

This pilot project would take place in selected parts of the U.S., and HHS estimates that over the next five years, it would save taxpayers $17.2 billion, while it would save Medicare patients $3.4 billion on their insurance co-pays.

Pegging Medicare prices to the international market is "just a sledgehammer to prices," said Jacobs, and it could have ramifications beyond the government health insurance program. "If the Trump administration does roll this out, we could quite possibly see the commercial market adopting it," Jacobs said.

Trump doesn't need Congress to make this program happen. The proposal would be carried out through the Center for Medicare and Medicaid Innovation, which was created by the Affordable Care Act. Jacobs says it's one of several ironies embodied in the proposal: a conservative American president following a European price-control model and "using the much-reviled Obamacare to do this."

But the question of whether the model will happen, or how strong it'll be in the end, is likely to come down to lobbying. Two major pharma groups staked out their positions as soon as Trump made his announcement.

The Pharmaceutical Research and Manufacturers Association said the proposal would discourage innovation and jeopardize patient access to drugs. The Biotechnology Innovation Organization said it had urged market-based reforms to lower drug costs, and that it "was deeply unfortunate the Trump administration has proposed pursuing a radically different approach."

AARP, meanwhile, supports Medicare negotiating power. "We do think that if Medicare begins to negotiate, overall drug prices will be forced to come down, even for individuals who aren't on Medicare, because that will be the standard for the pricing of these medications," said Ray Landis, AARP's Pennsylvania advocacy manager.

The timing of the pilot launch — slated for the spring of 2020 — could play well for Republicans facing another election in the not-too-distant future. During the midterms, Jacobs notes, Democrats had a "field day" with their support for protecting coverage of pre-existing conditions. Heading into the 2020 race, he said, "Republicans would be glad to have an issue where they could say, 'No, no, we're actually on the side of seniors here.'"