President Trump Discusses Latest Proposal to Bring Down Drug Costs

President Donald Trump in a short speech Thursday, Oct. 25, discussed a plan that would allow Medicare to determine the price it would pay for certain medicines based on prices paid by other countries.

Speaking at the Department of Health and Human Services, the president took aim at what he called "global freeloading that forces American consumers to subsidize lower prices in foreign countries through higher prices in our country." He later added, "It's wrong, it's unfair."

Trump also proposed a plan under which doctors would receive a flat-fee reimbursement for administering drugs.

Biopharmaceutical industry trade group Pharmaceutical Research and Manufacturers of America, or PhRMA, voiced immediate opposition.

"The administration is imposing foreign price controls from countries with socialized health care systems that deny their citizens access and discourage innovation," PhRMA president and CEO Stephen J. Ubl said in a statement, adding that the proposals "are to the detriment of American patients." The U.S. "has a competitive marketplace that controls costs and provides patients with access to innovative medicines far earlier than in countries with price controls," Ubl said.

The NYSE Arca Pharmaceutical index was up 1.8% on Thursday afternoon following the speech. The Nasdaq Biotechnology Index was up 2.4%.

Ahead of the speech, HHS on Thursday morning released a study focusing on prices of drugs that are generally administered by physicians. Such drugs are covered and paid for under Medicare Part B.

The study found that "the prices paid for Medicare Part B drugs with the greatest expenditures in the U.S. exceeded the prices paid in countries with similar economic conditions." The higher U.S. prices mean Medicare pays nearly twice as much as it would for the same or similar medicines in other countries, according to the study.

On Thursday afternoon, HHS, through the Centers for Medicare & Medicaid Services, unveiled a new "international pricing index" payment model aimed at lowering prescription drug costs. Under the model, Medicare's payments for certain physician-administered medicines would move to a level more closely aligned with prices in other nations.

The shift would cover most drugs in Medicare Part B and would be phased in over a five-year period.

The new model is described in an advance notice of proposed rulemaking. CMS is seeking public input on the payment model through Dec. 24 and is considering issuing a proposed rule in the spring, with a potential start date for the payment model in spring 2020.

Ubl in PhRMA's statement said the proposed Part B model "would jeopardize access to medicines for seniors and patients with disabilities living with devastating conditions such as cancer, rheumatoid arthritis and other autoimmune diseases." In addition, he said the proposal would "hinder patient access by severely altering the market-based Medicare Part B program by reducing physician reimbursement and inserting middlemen between patients and their physicians."

Evercore ISI analysts Ross Muken and Michael Newshel in a Thursday note said the proposal "is limited to a small subset of overall drug spend (roughly $10B of the $30B in total Part B drug costs, in our est.) and will take many years to phase in if it weathers the likely stakeholder pushback and potential legal challenges, but this does demonstrate the administration's willingness to be more aggressive and pick fights with the drug industry."

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