Republican pricing projects could hit industry bottom line
Prices, profits and promotional spend are closely linked. Reduce prices and promotion will plummet.
But wait, the Republicans are in control. Accordingly, pharma, its marketing partners and even Wall Street often rest easy, especially when Republicans control Congress and the White House.
Be careful of conventional wisdom.
Remember, President Trump as a candidate declared that drug companies are “getting away with murder” on prices and promised relief. Democrats scoffed and the press raised thousands of questions, particularly when Alex Azar, former Lilly executive, became head of Health and Human Services (HHS).
Remember, too, that lowering drug costs to consumers polls well among Republicans as well as Democrats.
When Trump and Azar delivered their well-publicized White House address on drug prices in the Spring, even supporters noted that there were few details. Detractors called it more hype than an action plan.
But, as the summer wears on, more and more details are emerging – and they promise to bring summer heat to the bottom line of the industry.
Consider first that several companies, starting with Pfizer, Novartis and Merck, have promised to cap some prices “voluntarily” in response to calls from Trump demanding that they do so.
Meanwhile, Azar and Scott Gottlieb, Commissioner of the Food and Drug Administration (FDA), are moving aggressively. When they can, they immediately are enacting policies that combat some of the more effective price maintenance techniques of the industry. When they do not have clear authority, they are proposing rules and legislation to do so.
Here are just four ideas that promise to reduce industry pricing flexibility:
Importation: Coming right out of the Democratic playbook, Azar and Gottlieb surprisingly proposed the idea of importing drugs from abroad in the very limited, but high profile, cases where no competition exists for a generic drug. Congressional action may be needed to pull it off, but Democrats will quickly line up with the hope to broaden the exception. While Republicans remain in control, there is little chance that the idea will apply broadly to the prices most citizens pay for drugs. Expect a lively debate.
Rebates: Changing the anti-trust protected process of drug discounting to payers would broadly upend the retail/wholesale pricing at the heart of the insurance and Medicare system. This is the most pharma-friendly idea of the group and needs a rule change, so a proposed rule was sent to the Office of Management and Budget in July. While few details are yet available, the stock of payers dropped immediately amid the uncertainty. Watch this one closely as details emerge.
Medicare limits on new drug prices: While no one in the administration agrees that this could be the first step to government price setting, it sure looks like it. Again, it’s limited. The proposal would set prices on doctor administered new drugs for the first few months after approval and would reduce, from 6 percent to 3 percent, the fee paid to doctors to administer them. Expect pharma to push back hard on this one.
Biosimilar Action Plan (BIP): Gottlieb promised to accelerate the approval and adoption of biosimilars and he has already taken steps to do so. The recently released BIP brings together a group of additional ideas, many of which have been bandied about for months, even years. Expect action and serious cost advantages to citizens as Gottlieb pushes ahead on plans.
Rx to OTC: While ideas to speed the switch from Rx to OTC have been around for decades, Gottlieb promises action. Some new OTCs would come with additional patient education requirements to ensure safe and effective use. Faster switching would both reduce expensive doctor visits, saving patients, insurers and the government money. Action here may happen soon.
OK, none of these will return us to the days of zero copays at the pharmacy counter or substantially lower drug insurance costs. But, brought together and delivered by Republicans, they demonstrate that the days of pricing flexibility by sponsors is slipping quickly.
And, if Republicans can make these changes, what may happen in subsequent years if the political winds shift toward the middle or even to the left of the political spectrum?
Several prominent Democrats are dropping clues. For example, in late July a trio of Democratic members filed legislation that would allow Medicare to directly negotiate prices with drug companies and give HHS power to override licenses to allow generic competition if the negotiations falter. Such ideas would change substantially the traditional pricing flexibility enjoyed in the U.S.
Given the polling data noted above, expect plenty of talk about drug pricing in the upcoming election. Virtually no one outside the industry will advocate for the status quo.
While neither I nor anyone I know is forecasting an immediate recession in our business, storm clouds are gathering. Stay tuned.