Industry Voices—How pharma should respond to Trump's drug pricing initiative

Woman paying for a prescription at a pharmacy
The Trump administration wants consumers to have more insight into the price of drugs. (Getty/Tom Merton)
Rita Numerof
Rita Numerof

In recent weeks, the Trump Administration has made a push in the battle over the cost of pharmaceuticals across multiple fronts.

Seema Verma, administrator at the Centers for Medicare & Medicaid Services, put all Medicare Part D plan sponsors on notice when she sent a letter May 17 regarding “gag clauses” in contracts with pharmacy benefit mangers (PBMs) that prevent patients from learning the cheapest way to purchase a drug.

Verma noted that such clauses were “unacceptable and contrary to our efforts to promote drug price transparency and lower drug prices.”

The action closely followed President Donald Trump’s May 11th speech on drug pricing, in which he highlighted initiatives under four themes: facilitating competition, improving negotiation with drug companies on behalf of government-sponsored plans, encouraging lower list prices, and reducing consumers’ out-of-pocket costs.

RELATED: CMS warns insurers to knock off 'gag clauses,' but is it enough to lower drug costs?

After the speech, drug company stocks actually rose, suggesting that investors viewed the plan as something short of the worst-case scenario. Still, pharmaceutical executives breathing a sigh of relief shouldn’t assume the pressure is off.

While some of the initiatives outlined may not come to pass and others speak to areas for future evaluation, the plan shows a focus on using market-driven mechanisms to constrain cost growth and maximize the value that the government and consumers receive for spending on pharmaceuticals.

A key theme across the initiatives was creating more transparency around drug prices and greater accountability for price increases. For example, the administration has published historical list price trends for drugs prescribed to Medicare and Medicaid beneficiaries. This data may not be highly valuable to the average consumer, but it does enable researchers, journalists, and other parties to easily identify and call attention to large price increases.

RELATED: Trump targets Medicare, PBMs in plan to lower drug prices

More detail on specific implementation plans will be needed, such as for efforts to ensure that consumers “know what their prescription drugs will really cost before they get to the pharmacy or get the drug” and additional detail on cost and alternatives in explanations of benefits.

But the message is clearthe administration wants consumers to have more insight into the price of drugs, and enlist them in keeping drug companies accountable.

A key result is that pharma companies can expect that more information about prices will quickly lead to more questions about value. Why is one drug more expensive than an alternative, and is it really worth it? 

These questions mean that pharmaceutical companies must be ready to demonstrate the clinical and economic value of their drugs to a broad range of stakeholdersnot just to payers and providers, but also to patients. 

RELATED: EpiPens, blood-pressure medication rank among highest drug price increases, CMS database shows

michael abrams
Michael Abrams

Beyond transparency, there are also signals of movement toward new ways of paying for drugs that shift incentives toward value and paying for outcomes.

From a directive to test ways of encouraging value based care and holding manufacturers accountable for outcomes to evaluation of indication-based payments, we expect to see more changes in the future.

Most of the current initiatives and plans can’t be expected to have an immediate impact on government spending for drugs or patient out-of-pocket costs. Market mechanisms don’t get switched on overnight, and patients need to learn to act as consumers in healthcare decisions.

RELATED: High readmission rates unlikely to deter bundled payment participation

New approaches are needed not just for pharma, but across the healthcare sectora focus on accountability for cost and quality, effectively providing care across the continuum, and improving health rather than treating sickness.

However, many of the proposed changesespecially the additional transparencycan help us move toward a market-based model.

Rita E. Numerof, Ph.D., is president and Michael N. Abrams is managing partner of Numerof & Associates, a firm that helps businesses across the healthcare sector define and implement strategies for winning in dynamic markets.