On Jan. 29 President Trump promised that newly sworn-in U.S. Health and Human Services secretary Alex Azar was "going to get those prescription drug prices way down." And the next day in his State of the Union Address, Trump said lowering drug prices would be one of his administration's top priorities.
Azar, the former president of Eli Lilly and Co. (LLY) - Get Report and a former U.S. deputy HHS secretary under President George W. Bush, knows what a difficult road lays ahead. He understands that all the moving parts tied to the pricing of drugs in the United States may be more complicated than achieving peace in the Middle East. He also understands how the government works, and he may even understand how different the Trump administration is from the Bush administration.
Though drug pricing and increases are difficult to track, it seems everybody has a tale about being at the pharmacy counter and getting sticker shock. The Financial Times reported last year that Pfizer Inc. (PFE) - Get Report had raised the price on 91 of its medications on average of 20%, with prices rising last June between 5% and 13%. An April 2017 report from Credit Suisse said that increased drug prices led to $8.7 billion to 2016 net income for 28 pharma companies and 100% of earnings growth. The report called pricing "the most important issue for pharma investors today."
Credit Suisse said the pharma companies most reliant upon price increases were Biogen Inc. (BIIB) - Get Report ,Eli Lilly & Co. (LLY) - Get Report and AbbVie Inc. (ABBV) - Get Report .Those least reliant upon price jolts were Regeneron Pharmaceuticals Inc. (REGN) - Get Report, Gilead Sciences Inc. (GILD) - Get Report, Novo Nordisk AS (NVO) - Get Report and BioMarin Pharmaceutical Inc. (BMRN) - Get Report.
The odds are stacked against Azar because the pricing of drugs in the U.S. is byzantine. There are the drug companies, pharmacy benefit managers, health insurance providers, federal government and finally, there are the patients.
Complicating the muddled process are the retail price of drugs, the negotiated price, the rebate costs and discounts, brand name prices, generic prices, copays and out-of-pocket expense.
And if that isn't enough, there is the need to locate or identify the political will to change things.
"I don't think things are going to change," said Jeffrey Loo, a healthcare analyst with CFRA. "He (Trump) is not going to go up against the drug companies."
Trump's history would suggest that Loo is on to something.
When Trump was a candidate, one of the standard parts of his stump speech was a line about dropping drug prices by getting Medicare to negotiate prescription drug benefits. It was mostly a hook for applause and Trump never said how those negotiations would work -- after all it's been against the law since 2006.
After his election in December 2016, Trump told Time Magazine, "I'm going to bring down drug prices. I don't like what has happened with drug prices."
Trump was finally in a position where his administration could do something to make prescription drugs more affordable. In his first press conference as president in January 2017, he set the stage for that action, saying, "frankly drug companies are getting away with murder."
Share prices for pharmaceutical companies dipped after the comment and the ARACA pharmaceutical index slid 2%. Gilead was off 2.3%, Pfizer dropped 2.6%, and Johnson lost 1%. The Nasdaq Biotech Index dumped 3%.
"There is always going to be some market reaction to what he says," Loo said. "But those in the industry know his bark is worse than his bite."
But that was a lesson learned over time. In January 2017, Mylan Pharmaceutical's (MYL) - Get Report CEO Heather Bresch said it was time for the industry to reexamine its pricing model. Allergan Pharmaceutical Company (AGN) - Get Report CEO Brent Sanders vowed that his company would keep its annual price increases to single-digit percentage bumps. Novo Nordisk said it would follow suit, as would AbbVie; those companies were later joined by Biogen, Teva Pharmaceutical Industries (TEVA) - Get Report and Horizon Pharma PLC (HZNP) - Get Report.
A January 2017 White House meeting included executives from Celgene (CELG) - Get Report , Lilly, Merck (MRK) - Get Report and Amgen who covered a wide variety of healthcare topics including the pricing of drugs at the pharmacy counter. The chatter coming out of that meeting was about tearing down regulations and amping up competition. Drug pricing, however, was conspicuously absent from the post-game analysis.
In March, Trump tweeted "I am working on a new system where there will be competition in the Drug Industry. Pricing for the American people will come way down!"
As the weather warmed last summer, a four-page confidential draft of an executive order leaked out of the administration. Called "Reducing The Cost of Medical Products and Enhancing American Biomedical Innovation", it was long on bullet points and short on detail.
In August, Trump again jumped on the drug price issue, publicly attacking Merck CEO Ken Frazier when he left the Presidential Manufacturing Council over Trump's mishandling of the violence in Charlottesville.
Then at an October 2017 cabinet meeting, Trump said that drug prices were through the roof and out of control. That same month, word leaked regarding the possible creation of a bipartisan drug pricing task force.
Trump named Azar as his nominee for HHS in November, and the pharma industry breathed a sigh of relief that Trump's banter would be tempered by Azar's knowledge of how the industry works. After all, Eli Lilly had tripled the price of its top-selling insulin medication on Azar's watch.
Associate Law Professor Rachel Sachs of Washington University in St. Louis, who lectures on drug regulation and health law, says Azar has his marching orders. "He has said drug pricing is one of his key priorities," she said. "And he knows very well how complicated it is."
Sachs pointed to the Food and Drug Administration stating it wants to accelerate the approval of generic drugs to create more competition, as well as recent changes for certain Medicare patients that should bring down the price of some drugs.
"But in the near term, the drug companies don't have anything to fear," she said.
Trump's most recent pronouncement on the price of drugs was tucked neatly into his State of the Union Address. "One of my greatest priorities is to reduce the price of prescription drugs. In many other countries, these drugs cost far less than what we pay in the United States and it's very, very unfair. That is why I have directed my administration to make fixing the injustice of high drug prices one of my top priorities for the year. And prices will come down substantially, watch."
Response to those words were quick and loud.
Representative Elijah Cummings D-Md. said in a statement after the State of the Union, "Tonight, the President promised that his top priority this year will be lowering prescription drug prices. I await his actions on this crucial necessity as I did when he made this promise last year."
In an interview later, however, Cummings was more plain spoken, "I was stunned by the complete and utter disconnect between his words and reality," pointing out that while Trump has talked about drug prices being too high, he has not taken any action to reduce them.
David Mitchell, president of Patients for Affordable Drugs, told TheStreet, "I believe he understands that drug corporations are getting away with murder and people are being hurt. Mitchell said. "But the pricing discussions in the administration appear to have been captured by big pharma. Yet, I am an optimist. Perhaps that comes with having incurable cancer -- I have to be. We stand ready to work with the administration if it takes meaningful action to lower prices. But we say: No more words. Action. The clock is ticking."
While some scoffed at the talk of lowering drug pricing in the State of the Union, others used Trump's words as an opportunity to spin. In a statement to Bloomberg, the Pharmaceutical Research and Manufacturers of America (PhRMA), an industry trade group, said, "As we consider reforms, it is important to focus on costs across our complex health care system, including those being retained by the biopharmaceutical supply chain and the impact of hospital mark-ups on medicine prices."
It's worth noting that PhRMA spent more than $7 million in 2017 on a public relations campaign portraying Big Pharma as hard-working researchers bringing medical miracle drugs to the world after the presidential campaign made drug pricing an issue and drug companies were seen as gouging the sick. PhRMA also increased its spending on lobbying from $20 million in 2016 to $25.4 million last year, according to its own spending reports.
In essence, Trump has been much talk and little action when it comes to bringing down the price of drugs in the U.S. But to be fair, that's true of many areas. While the administration had a big win with its tax cut (which pharma benefits from handsomely), for the most part lowering drug prices can stand side-by-side with repealing and replacing the ACA, getting a budget passed and solving the immigration issue as problems waiting for solutions.
Dr. Len Nichols, the director of the Center for Health Policy and Ethics at George Mason University, said in an email that he doesn't believe that lowering drug prices is at the top of Trump's to-do list. "This is not a priority item for Trump anymore and he's more than a little distracted by (Special Counsel Robert) Mueller, foreign policy, DACA, and the debt ceiling/govt. shutdown at the moment, and likely will be distracted by all of the above through the mid-terms."
For an administration hungry for wins, lowering drug prices has a nice populist hook and data to back it up. According to a Kaiser Family Foundation survey, 77% of Americans believe drug prices are too high. AARP reports 81% of seniors say the same thing. The Commonwealth Fund reported last year that 45 million adults in the U.S. skipped filling a prescription because the costs were too high.
But here are some numbers on the other side of the ledger. According to Open Secrets.org, the data arm of the Center for Responsive Politics, $277.7 million was spent on healthcare lobbying in 2017, up $30 million from the year before. And those numbers do not include political donations made by healthcare companies to elected officials.
With all of that money flowing and the political divide on every issue, Sachs says that the fight over drug prices is migrating to state governments where bills targeting lower price practices are becoming more common. And she cautions against a lot of the heated rhetoric directed at pharmaceutical companies springing up over drug pricing. "It's worth remembering that these companies are doing some fantastic things in medicine," she said.
John Hanley, a managing director and head of healthcare finance at Zigler, said the discussion about whether Trump is serious about lowering drug prices may be missing the most basic part of the debate. "When you start talking about political will and politics, there is still so much of 'us versus them' going on in everything. There is too much of a gap."