In his 2018 state of the union address, President Trump said, “I have directed my administration to make fixing the injustice of high drug prices one of my top priorities for the year.” Drug prices in the United States are the highest in the world and are a top public concern.

Yet, the president’s budget, released today, includes relatively few proposals to tackle prescription drug prices, and those few proposed are insufficient to make needed medications affordable. The Office of Management and Budget projects (Summary Table S-6) that the proposed changes would save the federal government only $5.7 billion over the next decade (2019 to 2028). To put this into context, that is less than 0.5 percent of what Medicare alone is projected to spend on prescription drugs over a decade (2016 to 2025).

Yet, the president’s budget, released today, includes relatively few proposals to tackle prescription drug prices, and those few proposed are insufficient to make needed medications affordable.

Specifically, President Trump’s 2019 budget, when compared to President Obama’s last budget, contains fewer proposals, and with less impact overall. The Obama proposals, if enacted, would have saved $190 billion over the next decade, according to the Congressional Budget Office (CBO)—thirty-two times greater than the $5.7 billion in savings of the Trump proposals.

Moreover, only about 14 percent of the Trump budget’s overall drug-related savings (excluding new spending) would come from incentivizing low-priced drugs or reducing drug pricing ($7.9 billion out of $55.2 billion in gross savings). Over 85 percent would result from changing payments to intermediaries, such as hospitals and doctors, and modifying Medicare Part D insurance coverage.

The budget would reinvest most of these savings back into two Part D proposals, but each of those proposals raises some concerns. One change would establish a new out-of-pocket maximum for the Part D program—but another proposal changes the counting rules which would delay when that out-of-pocket maximum kicks in. The second would require that Part D plans share discounts with enrollees—but doing so would likely not increase discounts, but rather simply shift costs to enrollees and taxpayers through higher premiums.

Undoubtedly, savings can be squeezed from the “middlemen” in the health system who profit off of the complicated distribution chain between a drug producer and consumer. The pharmaceutical industry last year ran ads to direct attention to this waste versus the drug prices that it charges. But, as the late Uwe Reinhardt famously said, “It’s the prices, stupid.” Until the government demands lower prices on the behalf of Americans, the injustice that President Trump has himself acknowledged will continue.

 Prescription Drug Proposals in the 2019 and 2017 Budgets
Trump 2019 Budget 10-Year Savings Obama 2017 Budget 10-Year Savings
INCENTIVIZE LOW-PRICED DRUGS (GENERICS AND BIOSIMILARS)
Eliminate generic copays for low-income beneficiaries $210 million Encourage generic use by Medicare low-income beneficiaries $18 billion
Change exclusivity for first generics $2 billion Prohibit patent settlements between generic and brand-name drug companies $3 billion
Modify pathway and reimbursement for biosimilars in Part B $4 billion
DIRECTLY LOWER DRUG PRICES PAID BY GOVERNMENT
Allow Part D plans to negotiate prices for Part B drugs ** Allow Medicare to negotiate prices for biologics and high-cost drugs *
Increase Part D plan formulary flexibility $6 billion Medicaid rebate for Medicare low-income beneficiaries $134 billion
Reduce wholesale acquisition-cost-based payments ** Close the Medicare “donut hole” early (enacted on 2-8-18) $12 billion
Test allowing state Medicaid programs to negotiate drug prices $85 million Create federal-state Medicaid negotiating pool for high-cost drugs *
Clarify definitions in Medicaid rebate to prevent inappropriately low rebates $319 million Fix Medicaid rebate formula for new drug formulations and exempt abuse deterrent formulations (enacted on 2-8-18) $7 billion
Exclude authorized generics from Medicaid brand-name rebate calculations $200 million
Exclude brand-name and authorized generic prices from Medicaid federal upper limit $1 billion
LOWER DRUG PAYMENTS TO INTERMEDIARIES
Establish an inflation limit for Part B drug reimbursement ** Lower Part B drug reimbursement $7 billion
Reform hospital 340B payments ** Increase Part D plans’ risk for catastrophic drug costs $800 million
Streamline FEHBP pharmacy benefit contracting *
CHANGE INSURANCE COVERAGE OF DRUGS
Require Part D plans to provide rebates to enrollees at point of sale $42 billion cost Increase TRICARE pharmacy copayments $3 billion
Establish a Part D out-of-pocket maximum $7 billion cost Prevent abuse of prescription drugs in Part D $200 million
Exclude discounts from calculating the start of Part D’s catastrophic benefit $47 billion
Provide retroactive Part D coverage for low-income beneficiaries $300 million
INCREASE TRANSPARENCY
Improve reporting of average sales prices ** Require evidence development for Medicare coverage of high cost drugs *
Establish transparency and reporting requirements in drug pricing *
TOTAL $6 billion $190 billion

Note: * Negligible (rounds to less than $50 million), ** Not yet estimated
Source: U.S. Office of Management and Budget

 

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