Will Trump’s Blueprint Have Pharma Singing the Blues or Is It Just Fake News?

July 12, 2018

Will Pharma be "Singing the Blues" or is it just "Fake News"?

Health affairs and expensive drugs in the US: Our team in the US discusses the high cost of prescription drugs and how President Trump’s Blueprint to Lower Drug Prices will impact health care spending.

Drug pricing in the US has been a topic of increasingly intense discussion in the past few years. Although many government leaders and candidates have spoken about the rising costs of prescription drugs, all proposed changes have either faced significant hurdles or have had little to no impact on drug prices. On May 11, 2018 the White House put forward President Trump’s Blueprint to Lower Drug Prices.

The plan, called “American Patients First,” aims to lower prescription drug prices by increasing competition, improving negotiation, and creating incentives to lower list prices and out-of-pocket (OOP) costs to patients. While the Blueprint introduces many different proposals, here we chose to focus on three areas to discuss the potential impact and likelihood of implementation:

  1. Reducing manufacturer rebates and/or passing rebates to patients
  2. Enhancing Medicare Part D plans’ negotiating power with manufacturers
  3. Increasing price awareness of physicians and patients

1. Reducing manufacturer rebates and/or passing the rebates to patients

Manufacturers employ contracting with insurance companies, Pharmacy Benefit Managers (PBMs), and employer groups to secure optimal formulary positioning for their drugs. For example, a confidential rebate is offered in exchange for having their drug be one of the preferred drugs on formulary.

Even though rebates lower the overall drug expenditure for the payers, most often these discounts do not get directly passed on to the individual patients purchasing that specific drug. Some patients have a benefit design in their health plans where they are responsible for a percentage coinsurance of the drug cost. These patients are typically paying a coinsurance on the Wholesale Acquisition Cost (WAC) of the product. This could be as high as twice the payer’s actual net cost for the medication after their negotiated discounts.

Similarly for patients who have a deductible, they are responsible for the full WAC of the product, even if the payer’s net cost is substantially lower. The net result is that some patients are paying for a larger proportion of their medication’s cost due to what many consider to be an “inflated” list price. In some circumstances, this is far from the medication’s true cost to the payer.

Artificially high prices

Below we delineate two relevant proposals highlighted in Trump’s Blueprint aimed to tackle high OOP costs that are perceived to come from ‘artificially’ high list prices:

1. Requiring at least one third of rebates to be applied at the point of sale. Point-of-sale rebates would have an immediate short-term impact on OOP costs for some patients. Those who pay a coinsurance or have a deductible would see some immediate cost relief. This would be a large proportion of Medicare Part D patients, but will likely impact only a minority of commercially insured patients.

In the long run, however, the impact from this change could be significantly muted. The revenue that payers receive from rebates is currently used to offset premium costs. If a proportion of the rebates are passed directly to patients, payers would likely make that up by either increasing premiums, or by simply increasing the % co-insurance and/or deductible. For example, rather than employ a benefit design where a patient is responsible for 25% of the cost, the revised benefit design could require patients to be responsible for 35% of the price.

Table 1.Example of a potential benefit design change a payer could implement to offset lost rebate dollars. In this example, one third of the rebate is credited to the patient, but the benefit design has been changed so that both the patient’s and payer’s net cost are unchanged.


Original plan design

(25% co-insurance)

New plan design

(35% co-insurance)

Price (WAC) of Drug X



Payer rebate



Patient cost-share



Patient rebate



Payer net cost



In this political environment, we believe that legislative action to implement this sort of change is highly unlikely. However, simply using the ‘bully pulpit’ of the White House and focusing attention on this issue could be enough to see changes in the industry. Already, we have seen Aetna and United Healthcare voluntarily announce policies for a portion of rebates of select medications to be passed on to patients. While this trend is not widespread, if it continues, it would have a significant impact for manufacturers.

First, we would potentially see a new level of net price transparency. If net prices are to be disclosed to patients, they would evidently become publicly available. This is currently tightly guarded information within manufacturers due to competitive reasons.

Second, if % co-insurances do increase as mentioned above, this could create even more cost sensitivity on the side of patients. Lastly, for commercially insured patients, co-pay support programs are very often used to reduce patients’ OOP exposure. If these changes do come to pass, manufacturers would need to potentially allocate a larger proportion of their list price (WAC) to patient support programs. Although on a net basis the investment would be the same. In the above example patients OOP is actually unchanged, just a larger % of the WAC.

1. Capping or completely eliminating rebates that fall under the anti-kickback discount safe harbor. A more drastic change to the industry would be changes to the interpretation of the anti-kickback discount safe harbor laws. Because this is based on an interpretation of the law, the White House has stated that this change could be implemented through executive action. As the current rebate system is a key component of the insurance industry, and particularly the PBM industry, any move to make rebates illegal would almost certainly result in litigation. However, as mentioned above, even the threat of this change could be enough for the industry to voluntarily make changes.

The impact of such a massive change to the US drug pricing & contracting environment is difficult to predict. Manufacturers would still be able to compete on price. However, they would be competing on a list price level with a price that would be applicable across all channels. Under the current system, manufacturers provide targeted rebates to specific payers in return for specific access advantages and even different rebates for different channels (commercial vs. Medicare Part D).

With the abolition of rebates, a lower price could result in an access advantage at some plans, but there would be no guarantee. The net result could be a lower interest on the part of manufacturers to compete on price. Especially since any price action would be visible to competitors and potentially result in a price war.

2. Enhancing Medicare Part D plans’ negotiating power with manufacturers

Currently, CMS regulatory guidance mandates that Medicare Part D plans (PDPs) cover at least two chemically distinct drugs per class. Additionally, federal law requires PDPs to cover all or substantially all drugs in the following six protected classes: HIV/AIDS treatments, antidepressants, anti-psychotics, anticonvulsants, immunosuppressants, and anti-cancer drugs. While these PDP formulary coverage policies aim to ensure sufficient coverage and choice for Medicare beneficiaries, they can limit the payers’ ability to negotiate rebates with manufacturers.

Trump’s Blueprint proposes to amend the protected class policy to provide more flexibility for payers to manage costs. While the Blueprint does not provide clarity on what “more flexibility” could mean, possible changes include:

  1. non-coverage
  2. changing the clinical appropriateness standard used by plan sponsors to determine formulary inclusion.

To implement such a change to the protected classes, Congress would need to amend the current statute or CMS would need to issue new regulatory guidance. In addition to this proposal included in the Blueprint, the administration’s FY2019 budget proposes to relax the PDP coverage requirement from the current two-drug per class minimum to one- drug per class. A change in the two-drug per class requirement could be directly implemented by CMS through issue of new regulatory guidance.

While a statutory amendment might appear to be more challenging to achieve, introduction of new CMS regulatory guidance could also face significant hurdles, especially for the protected classes. For instance, in 2014 CMS proposed the removal of antidepressants, anti-psychotics, and immune-suppressants from the protected classes and projected potential savings of $720 million over 5 years.

However, this change faced unsurmountable opposition from lawmakers (bipartisan) and industry groups, citing hampered drug access to seniors, and was abandoned. A change to either the two-drug per class policy or the protected-class policy has the potential to increase payers’ negotiating power. It could also introduce downward price pressure by increasing the risk of non-coverage. While these policies could theoretically lead to lower net prices, there are additional humanitarian and public perception implications that government officials will have to consider.

Even in the cases of oncologics and antiretrovirals, which have significantly higher per-prescription costs than other protected classes, it is questionable if plans would enforce such policies due to the potential public pushback. Even though a revision of the protected-class policy may seem to be a logical place to increase Part D sponsors’ negotiation power, and subsequently lower drug prices, the overall impact could be minor.

3. Increasing price awareness of physicians and patients

Trump’s Blueprint also includes a bevy of proposals to increase public awareness of pharmaceutical prices aimed at helping patients and physicians make more informed decisions.

1. Public listing of Medicare Part B, Part D, and Medicaid drug prices and price increase history on the CMS Drug Spending Dashboard.
As of May 2018, CMS has already implemented this change by releasing an updated drug price dashboard. The website contains gross prices and Medicare and Medicaid spend on a few thousand drugs as well as aggregated information on rebates provided by manufacturers. However, it is unclear how much of an impact government listing of prices and price increases on a website might have. The AARP for a number of years has published a list of more commonly used drugs and their price increases. An additional website with this information could spotlight manufacturers even more for price increases, but our opinion is that it will likely have little direct impact.

2. Expansion of the Explanation of Benefits (EOB) provided by PDPs to include price history and lower cost alternatives.
Expansion of the EOB documents is likely straightforward to do under the authority of CMS. However, it is unclear what inclusion of “lower cost alternatives” would entail. Medicare plans are already required to substitute brand name drugs for generic drugs where possible to minimize patient OOP costs. Like the public listing of prices on the CMS dashboard, this proposal is likely to be immediately actionable.

Including price increase information in Part D patients’ EOB could potentially have a greater impact than the dashboard, as the information will be more readily available to patients. Some patients are likely to respond to communication on price increases by at least having a conversation with their physician about whether there is a lower-cost alternative. We do not believe, however, that CMS suggestions of specific, lower-cost alternatives are likely to be a viable proposal. Apart from generic substitution, there is no simple algorithm for switching patients to another therapy without considering their specific health situation, comorbidities, other medications, etc. We would expect significant pushback from the medical community of any proposals for CMS to suggest patients take a different medication than the one prescribed by their physician.

3. Evaluation of including list prices in direct-to-consumer advertising.
It is unclear whether the FDA has the authority to require drug companies to include prices in advertisements. And whether such a requirement would run into legal issues with respect to free speech rights.

However, manufacturers are already required to include information on potential side effects in their marketing, so requiring information on price could potentially be legal as well. However, a crucial challenge here is: which “price” would they be required to communicate? Would that be a price per monthly supply? Per year? Per course of therapy? What about drugs that have varied dosing schedules, or prices depending on patient weight or other patient characteristics? What would patients be expected to do with that information as they wouldn’t readily have the tools to compare prices across alternatives?

On the other hand, one possible impact could be that patients would potentially be less likely to “ask their doctor about” a drug they saw in an advertisement if they believed the medication was very expensive. However, overall, we believe the challenges in implementing this policy might turn out to be just too difficult.

Overall, it is unclear how much impact the changes proposed in the Blueprint could have on drug prices and patient OOP costs. While some of the proposals in the Blueprint are likely to face significant hurdles to implementation, drawing attention to the current system may spur players to make changes on their own. We just recently observed how this increased spotlight can spur change. Pfizer recently reversed course on mid-year price increases for 40 drugs after a Trump tweet and a call from the White House. It will be interesting to observe whether other manufacturers alter their usual pricing strategies.


  • CMS = The Centers for Medicare & Medicaid Services
  • EOB = Explanation of Benefits
  • FDA = The Food and Drug Administration
  • PBM = Pharmacy Benefit Manager
  • PDP = Part D plan
  • OOP = Out-of-pocket
  • WAC = Wholesale Acquisition Cost

American Patients First, The Trump Administration Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs, 2018