US administration squares off with pharmaceutical companies over proposed drug pricing reforms

A day after President Donald Trump unveiled a proposal to reset how much Medicare pays for certain drugs based on lower overseas rates, the US administration on Friday pushed back on criticism from drugmakers that warned the plan would import "socialised" price controls. "Change is coming," remarked Health and Human Services (HHS) Secretary Alex Azar, adding "you can be a part of the solution in bringing market-based, competitive ways of compensating for drugs and lowering patient out-of-pocket costs, or you can put your head in the sand and pretend change is not coming and you'll get whatever comes at you." 

A recent analysis by HHS found that Medicare pays 80 percent more than other advanced industrial nations for some of the most costly physician-administered medicines. However, Azar stated that under the proposed changes, that percentage would fall to 26 percent over the next five years and would also save the US around $17 billion. 

Height Capital Markets analyst Andrea Harris said the plan, which would establish an international pricing index to serve as a reference to set prices paid for drugs through Medicare Part B, could most impact drug manufacturers with significant market share in the Part B programme, including Regeneron Pharmaceuticals, Amgen, Roche, Johnson & Johnson and Bristol-Myers Squibb. "Investors should expect headline risk to drug manufacturers leveraged to Part B as the model takes shape" over the course of 2019, Harris said. 

Veda Partners analyst Spencer Perlman noted that a number of questions about the plan remain, although he expects it is unlikely to be implemented. Still, the move "represents government price setting," the analyst remarked, warning that "pharma and the administration are on a collision course." Meanwhile, Leerink Partners analyst Ana Gupte stated "while this current proposal is narrowly focused on Part B drug prices, we believe further changes beyond Part B…are still likely," including the "possible elimination of drug manufacturer rebates and price transparency." 

The news comes after Trump stated in May that drugmakers would voluntarily implement "massive" price cuts on drugs. The President also released a blueprint outlining initiatives to reduce drug prices by bolstering competition, and recently hinted that the administration would detail plans to lower drug costs in the country. Meanwhile, HHS announced a rule change earlier this month that would force drugmakers to disclose the list prices of certain drugs in direct-to-consumer advertisements. 

For related analysis, see ViewPoints: Trump leads latest assault against Part B bellwethers.

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