Explainer: Trump’s plan to cut drug prices

(Reuters) – U.S. President Donald Trump on Friday signed four executive orders designed to reduce drug costs for consumers, in a bid to highlight his commitment to cutting prescription prices ahead of the November presidential election.

The orders, which range from relaxing drug importation rules to cutting Medicare payments to drugmakers, are far reaching but experts say they are unlikely to take effect in the near term and in some cases lack specifics.

The executive orders have for the most part been proposed by the Trump administration in various forms in the past, but stalled amid industry pushback.

PASSING ON REBATES TO PATIENTS

Trump signed an executive order requiring that the pharmaceutical benefits managers (PBMs) that negotiate on behalf of government health plans pass the discounts they receive directly to consumers. The rule applies to Medicare Part D, a government health plan primarily for seniors. It would reverse the longstanding practice of PBMs passing a portion of savings back to the health plan itself and pocketing the remainder as profit.

The administration said the order could reduce drug costs to seniors by as much as $30 billion per year. But industry analysts say it will be difficult to implement without falling afoul of the orders’ commitment to keep Medicare premiums flat.

DRUG IMPORTATION

This executive order instructs the U.S. Department of Health and Human Services (HHS) to permit individuals to import lower cost drugs from abroad. It also allows for re-importation of insulin and orders HHS to complete an ongoing effort begun in 2019 to let U.S. states import drugs from Canada.

Industry analysts have been skeptical that importation will greatly reduce drug prices, in part because there is a limited supply of drugs in foreign markets that can be diverted to the United States.

DISCOUNTS ON INSULIN

Trump ordered certain healthcare providers to sell insulin and injectable epinephrine at greatly reduced prices to patients who have no health insurance or scant coverage. Insulin and epinephrine are life-saving drugs for people with diabetes and severe allergies, respectively.

More than 30 million Americans have diabetes. The average price of insulin in the United States nearly tripled between 2002 and 2013, according to the American diabetes association. Reuters previously reported that the cost of insulin in the United States per vial was $320, while in Canada the same medication under a different name was $30.

MOST FAVORED NATION RULE

This rule, if implemented, would require Medicare to tie the prices it pays for drugs to those paid by other countries. Specifically, it would only pay a price for a drug that matches the lowest price paid among foreign governments. Medicare is currently prohibited from negotiating the prices it pays to drugmakers.

The order, which has been discussed as a possibility by the administration for more than a year, could potentially slash Medicare payments by billions of dollars. However, Trump has delayed implementation of this proposed rule until late August to give drugmakers a chance to propose an alternative solution.

If it is implemented, the rule would likely face legal challenges from drugmakers. There could also be challenges in determining what price other countries pay, given that many negotiations between governments and drugmakers are kept confidential.