Senior Trump Administration health and budget officials are meeting Friday, June 16, to discuss an executive order aimed at restraining prescription drug prices.
The order, which many in the drug industry have been expecting, could come within weeks, according to a report from Bloomberg.
Health and Human Services Secretary Tom Price told senators last week that President Trump has asked for recommendations from the nation's health agencies on reducing drug costs, which Trump vowed to do while on the campaign trail.
Friday's meetings are private, but a number of ideas have already been floated to rein in drug price hikes.
Any restraint on drug prices could affect the bottom lines of the biggest makers of branded drugs, including AbbVie Inc. (ABBV) , Amgen Inc. (AMGN) , Johnson & Johnson (JNJ) , Merck and Co. Inc. (MRK) , Pfizer Inc. (PFE)
Any move that alters the current drug pricing system could also alter the leverage various players in the drug supply chain have relative to each other.
For instance, an independent pharmacy benefit manager like Express Scripts Holding Co. (ESRX) could find itself with less reason for being. Drug distributors to retail chains like Cardinal Health Inc. (CAH) and McKesson Corp. (MCK) may find their profit margins diminished.
Insurers like UnitedHealth Group Inc. (UNH) , Cigna Corp. (CI) , Anthem (ANTM) , Aetna Inc. (AET) and Humana Inc. (HUM) , which have the data on consumers drug purchases and medical outcomes, would benefit if value-based pricing models are implemented. Even drugstore chains line Walgreens Boots Alliance (WBA) and Rite Aid Corp. (RAD) , with similar access to consumer data could parlay that information to their benefit.
Allergan Plc (AGN) , a maker of both branded and generic drugs would also be affected. Allergan Chairman and CEO Brent Saunders addressed the prospects of a presidential order in remarks before the Sanford C. Bernstein & Co. Strategic Decision Conference on May 31. "The U.S. political environment has been an overhang on the entire biopharma sector over the last year or so," he said.
Saunders said he and others in the industry have already been approached by Mick Mulvaney, director of the Office of Management and Budget and others in the administration. "I think they're trying to do this thoughtfully because it is complex," he said. "I wouldn't be surprised if there was an executive order issued, if there were some actions taken, tomorrow, six months from now, a year from now, because I think [President Trump] clearly has got a bias for action and he clearly wants to do something in this area."
One area Washington might promote is value-based pricing for prescription drugs.
Insurers are already trying to alter their relationship with pharmacy benefit managers, which rewards drug makers for the volume of drugs sold. Instead, several insurers are experimenting with value-based pricing that pays drugmakers more when their drugs prove effective at lowering costs of treating patient populations, particularly those with chronic conditions like diabetes, multiple sclerosis, hepatitis C and high cholesterol, which account for a huge percentage of health care costs.
Washington could accelerate the adoption of value-based pricing by implementing it for Medicare, the insurance program for senior citizens.
Such a move would be a shift from the prevailing method of checking drug prices, which is for pharmacy benefit managers to negotiate lower prices from drug manufacturers and pass the savings on to insurers and patients, keeping a cut for themselves. Whether PBMs are passing on enough of the savings or keeping the biggest shares for themselves is a long-running bone of contention that has created
suspicion between them and their insurance company partners and among patients and elected officials worried about high drug prices.
The current PBM model raises suspicion because drug manufacturers compete to be included on insurance company approved lists, dubbed formularies, by offering rebates to the PBMs based on the volume of a drug's sales. Some but not all of that rebate is passed along to insurers. That system encourages drugmakers to push the upfront price as high as possible, its critics say.
Scott Gottlieb, who Trump appointed to run the Food and Drug Administration, has called for replacing the current PBM model and instead has called for negotiation of upfront drug discounts and elimination of the rebate system.
Drug prices have also been a concern for consumers but became a hot-button political issues after a few infamous episodes, including Turing Pharmaceuticals AG decision to raise of the life-saving anti-infective pill Daraprim from $13.50 to $750 after buying the rights to to the medication. Mylan N.V. continues to face political and investor pressure after raising the price of its allergy treatment EpiPen 400% to $600 per two-pack.