Medicare Enrollees Shouldn’t Expect Any Benefit From Trump’s Drug Pricing Rules

Late last week, President Trump announced two new rules that he said would save Medicare enrollees billions of dollars in drug costs. They are unlikely to save a nickel.

While there is a lot less to these new rules than President Trump claims, the real question is what steps President-elect Joe Biden and a divided Congress will take to lower the costs of prescription drugs.

The Trump Administration’s first rule would tie what Medicare pays for some medications to the prices paid by a group of developed countries. In one form or another, versions of linking US prices to a foreign benchmark have been backed by both Democrats and Republicans. But the Trump version is strongly opposed by the pharmaceutical industry.

There are two things to note about this plan, which is due to take effect on January 1. The first is that it applies only to 50 Medicare Part B drugs. These are a relatively small number of medications that must be administered in a doctor’s office or other health setting. Part B medications are often injectable drugs—everything from flu shots to many cancer-fighting drugs.

Drug makers will sue

Crucially, the new rule would not apply to the far more common Medicare Part D drugs, which usually are administered in pill form. Thus, the benefit of Trump’s plan would be extremely limited. The Kaiser Family Foundation estimates all Part B drugs represent only about 7 percent of total drug spending. Because Trump would limit the new requirement to the most-costly 50 drugs, only about 5 percent of drug spending would be affected. However, establishing the principle of benchmarking pharmaceutical prices could be an important step.

The Trump plan faces another problem: drug makers will sue to block the rule. And because the White House appears to have cut corners to approve it before Trump leaves office, the drug firms are likely to win.

Drug rebates

The second rule wades into the enormously complex world of drug rebates. Today, drug makers provide discounts in the form of rebates to Part D insurers and pharmacy benefit managers, or PBMs (middlemen who distribute wholesale drugs to consumers). Because those rebates usually are set as a percentage of the list price, insurers and the middlemen benefit when manufacturers raise those prices. But Medicare enrollees may pay more out-of-pocket.  

The new rule would require makers of brand-name medications to pass on the rebates to Medicare enrollees. Insurers say the new rule would raise premiums. The Congressional Budget Office estimates it would increase taxpayer costs by $177 billion over 10 years, though Trump says the rule could lower costs for consumers by one-third. The rule would not take effect Jan. 1, 2022. But long before that, it too is likely to face lawsuits.

Biden’s own ideas

It is unlikely that either of these rules, as written, will last very long into a Biden Administration. Biden reportedly is no fan of the rebate rule. But he has his own ideas for lowering drug costs that are far more ambitious than Trump’s.

Biden would have Medicare negotiate prices directly with drug companies. In a variant of Trump’s Part B proposal, he’d create an independent board to set prices for new specialty drugs, such as biologics. The board would recommend US prices based on the average in other developed countries, a practice known as external reference pricing. For a new drug with no international price, the board would recommend a US price.

In addition, existing brand, biotech, and “abusively priced” generic drugs would be allowed price increases of no more than overall inflation. Drug makers that exceed those caps could lose their ability to sell to Medicare or would pay a tax penalty. Finally, consumers could purchase drugs from other countries, as long as the meds are pre-approved by the US government.

A legislative challenge

By being very aggressive, Biden may be able to make some of these changes administratively, as Trump tried to do. But many would require congressional approval, which might be a challenge if Republicans control the Senate. That will depend on the outcome of two Jan. 5 runoff elections in Georgia.

By tying some US drug prices to international prices, Trump may make it somewhat easier for Biden to adopt his own version of a foreign benchmark model. And, given broad bipartisan interest in slowing the growth of drug prices, Biden could make some headway.

But Medicare recipients likely will have to wait to see what a Biden Administration can pull off. They are unlikely to see any benefits from Trump’s two new rules.