The proposal would require insurers to reduce retail drug prices to reflect the discounts they receive from drug manufacturers. These discounts often take the form of rebates paid to insurers and middlemen known as pharmacy-benefit managers.
WASHINGTON —
In his effort to bring down prescription-drug prices, President Donald Trump is testing the limits of a law that prohibits the government from interfering in negotiations between drug manufacturers and insurance companies that provide drug coverage to more than 42 million people on Medicare.
The prohibition was adopted 15 years ago when a Republican Congress added drug benefits to Medicare, and since then Republicans have repeatedly invoked it to quash Democratic demands for the government to rein in drug costs.
But with prices of new drugs often topping $10,000 a year, Trump has unveiled a blueprint to lower drug prices, and some of his ideas envision a larger role for the government.
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He wants to require insurers to reduce retail drug prices to reflect the discounts they receive from drug manufacturers. These discounts often take the form of rebates paid to insurers and middlemen known as pharmacy-benefit managers.
Trump takes further aim at those rebates by suggesting Medicare should “restrict or reduce,” or perhaps even prohibit, their use. Administration officials have said the rebates, a common feature of contracts in the U.S. pharmaceutical industry, could be viewed as illegal kickbacks because they reward an insurer for increasing the sales of a drugmaker’s products.
The Trump administration blueprint suggests it might be better to require a fixed price for a drug, rather than rebates, in contracts between drugmakers and the insurers that offer Medicare’s prescription-drug plans, known as PDPs.
Critics say that is exactly the type of interference Congress wanted to prevent.
Under the president’s proposal, Medicare would “dictate the details of pricing arrangements between the parties” — details that, under the Medicare law, are supposed to be worked out in negotiations between drug manufacturers and prescription-drug plans, said Wendy L. Krasner, a vice president of the Pharmaceutical Care Management Association, which represents drug-benefit managers like Express Scripts, CVS Health and OptumRx, a unit of UnitedHealth Group.
Medicare officials “may not interfere in those negotiations,” she said, and “this free-market approach is generally credited for the overwhelming success” of the drug-benefit program, known as Part D of Medicare.
The 2003 law that created the Medicare drug benefit says the secretary of health and human services “may not interfere with the negotiations between drug manufacturers and pharmacies and PDP sponsors” and may not establish “a price structure” for the reimbursement of prescription drugs.
This provision of the law, the “noninterference clause,” is central to the free-market approach Republicans took when they added drug benefits to Medicare. The benefits are delivered entirely by competing private plans that try to keep costs low by negotiating with pharmaceutical companies to obtain discounts in the form of rebates, which can exceed 25 percent of the list price of a drug.
Premiums for drug coverage, which average about $35 a month for a standard Part D plan, and the overall cost of the drug program ($94 billion last year) are below the original estimates, and surveys show that beneficiaries are generally satisfied with the program.
Trump has shown no particular commitment to the principle of noninterference. As a presidential candidate, he broke with his party and said the federal government should use its buying power to negotiate lower drug prices for Medicare beneficiaries, an idea long favored by Democrats. As president, he has backed away from that proposal, saying he wants to give private plans more tools to negotiate, under new federal rules and requirements.
Drug companies lobbied Congress to include the noninterference clause in the 2003 law. And they have often cited it in resisting Democratic proposals that call for the government to negotiate lower prices for Medicare beneficiaries. But now drugmakers want the government to require Medicare drug plans to share a minimum percentage of negotiated rebates with patients.
This, they say, would immediately reduce out-of-pocket costs for Medicare beneficiaries at the pharmacy counter. Such a change would also reduce the political pressure on drug manufacturers, which are often blamed for high drug prices.
Medicare officials have “clear statutory authority” to require insurers to pass on some of the savings they receive to Medicare beneficiaries, says the Pharmaceutical Research and Manufacturers of America, a trade group for drug companies.
Under federal law, the group says, Medicare drug plans must provide patients with “access to negotiated prices,” and the government can specify how much of any rebates must be included in those prices.
Rodney L. Whitlock, a health-policy analyst who worked for Republican members of Congress for 20 years, said the administration proposal “does sound like interference, getting in the middle of negotiations between drug manufacturers and the prescription-drug plans.” He said he would expect a legal challenge if the administration followed through on its idea.
But Joel C. White, who worked on the 2003 law as an aide to Republican members of the House Ways and Means Committee, said the Trump proposal could be justified with a nuanced argument: Drug manufacturers, insurers and pharmacy-benefit managers would still negotiate prices and rebates. The government “would not get in the middle of those negotiations,” he said, but would simply specify how much of the negotiated price concessions must be passed on to consumers.
Drug companies supported the 2003 law, the Medicare Modernization Act, but Democrats warned of price increases like those that have occurred in recent years.
One Democrat, Paul Sarbanes, who was then a senator from Maryland, said the bill would be “an absolute bonanza for the drug companies.”
Trump has proposed requiring Medicare drug plans to pass on at least one-third of their negotiated rebates to beneficiaries. The administration of President George W. Bush considered such a requirement, but rejected it as incompatible with the “market-based approach envisioned by the Congress.”
“We are wary of regulating negotiations between private parties, particularly regarding the specifics of price negotiations so as to ensure that enrollees receive competitive prices on their covered Part D drugs,” the Bush administration said.