President Trump is thinking outside the box. He has just proposed a radical new plan intended to lower Medicare drug prices.

Avik Roy, writing in Forbes, describes the Trump administration plan just revealed to substantially reduce the price of certain costly drugs administered under Medicare, by linking what Medicare pays for these drugs to what other industrialized countries pay. Roy calls this “a stunning move that could entirely reshape the way the pharmaceutical and biotechnology industries think about their business model.”

It is no secret that Americans pay more for their drugs than do other countries. This has always been sold to the American people as a “necessary evil” so that pharmaceutical companies can develop new drugs. Here is what President Trump said in remarks made to the press:

“For decades, other countries have rigged the system so that American patients are charged much more – and in some cases, much, much more – for the exact same drug. In other words, Americans pay more, so that other countries pay less.”

Roy explains how we got to this point. Beginning in the 1990s, the pharmaceutical industry poured most of its resources into developing “blockbuster” drugs that addressed large public health problems, like high blood pressure and high cholesterol. Most famously, Pfizer developed Lipitor, a cholesterol-lowering drug that went on to become the best-selling drug of all time with global revenues exceeding $20 billion per year before its patent expired.

However, in the 2000s, a new strategy evolved where pharmaceutical giants like Roche, a Swiss company, and its U.S. subsidiary, Genentech, focused on so-called “orphan” or rare diseases. These diseases affected fewer than 250,000 Americans, but less competition and lower R&D expenditures made them more lucrative. The clinical trials phase of development was cheaper and shorter and higher prices with lower costs made for higher profits.

Fuel for Higher Medicare Part B Drug Prices

Medicare Part B for seniors covers drugs administered in a doctor’s office, such as those requiring an intravenous infusion. Once the drug is approved by the FDA, the drug company can charge whatever they want and Medicare pays for it. This is not a market-driven price but rather a private industry price control.

Roy explains how drug companies benefit: “This quirk in U.S. policy has fueled development of drugs that hit the sweet spot of Medicare Part B: drugs that are administered in a doctors’ office (not those you buy at your pharmacy), and drugs that treat diseases of old age (because Medicare is for people over 65). That sweet spot coincides with where we are increasingly spending more on prescription drugs: cancer, inflammatory arthritis, and the like.”

In addition, the Medicare Modernization Act of 2003 awarded doctors a 6% commission on drug infusions that is tied to the average selling price of a drug. This incentivizes physicians to steer patients to costlier drugs, because the physician gets a higher commission.

The Trump Proposal

The Trump proposal addresses the problems of Medicare Part B in two ways:

• Eliminate the 6% doctor commission – replace it with a fixed fee. This removes the incentive to steer patients to more expensive drugs.
• Link Medicare Part B prices to an International Pricing Index – This will be based on sixteen countries chosen because they found it relatively easy to acquire pricing data from these countries.

The program would be piloted under the Center for Medicare & Medicaid Innovation, an agency created by the Affordable Care Act to investigate ways to make the Medicare and Medicaid programs more cost-effective. The pilot would cover half of the U.S. population, and the administration estimates that the plan could reduce Medicare Part B spending by $17 Billion over the next five years.

The savings is not just for the government. Since seniors on Medicare are required to pay for a share of their Medicare Part B drug costs, lower Medicare drug prices would translate into significant savings for seniors receiving infused medications.

Of course, the pharmaceutical industry will fight back. Look for them to spread fear that this will eliminate new research for improved medicines. But be thankful that Trump is willing to take on this fight. His predecessors certainly never did.

“Fake News” can be misleading. “Fake Drugs” can be fatal.

That’s the take-home message of Carrie Luther, mother of Tosh Ackerman, who died after taking a fake Xanax pill filled with Fentanyl. Fentanyl is a synthetic opioid that is approximately 100 times stronger than morphine. It is highly addictive and very dangerous since it can cause respiratory arrest. It is frequently added to counterfeit drugs because it is inexpensive to manufacture and leads to addiction – thereby encouraging more use of the counterfeit drug.

Fentanyl is so dangerous that it is only permitted to be used in hospitals in locations where monitoring of respirations and emergency resuscitation equipment is readily available – like the emergency room or operating room. I know from a personal kidney stone experience that I could receive Fentanyl in the E.R. when I came in but I couldn’t receive it on the hospital floor after I was admitted.

According to Sumathi Reddy, writing in The Wall Street Journal, the problem is online sales of pharmaceuticals. Reddy says the issue of counterfeit prescription medications like Xanax is a growing problem, attracting the attention of law enforcement organizations and pharmaceutical companies like Pfizer, which manufactures Xanax.

In June the U.S. Food and Drug Administration convened a meeting around the problem of illegal opioids sold online and through social media. “Millenials and those younger rely heavily on social media, “ says Alex Khu, assistant director of the U.S. Immigration and Customs Enforcement’s Global Trade Investigations division. “Criminal organizations recognize that trend and we’re starting to see advertisement and sales of counterfeit or substandard prescription drugs on social media sites.”

“The biggest danger is that these sites do not require a medical examination or a prescription, and the sites do not impose limitations on how much or how often the consumer purchases drugs,” Khu says.

The National Association of Boards of Pharmacy reviewed nearly 12,000 internet drug outlets selling prescription medications to U.S. patients. Of these, about 95% were found noncompliant with state and federal laws and NABP standards, according to a report published in September, which highlights the role social media sites play.

Pfizer manufactures Xanax, an antianxiety drug also known as alprazolam. Since its patent has expired other companies are free to make and sell the same drug in generic form. Over the past three years Pfizer has reported more than 10,000 Facebook accounts or profiles selling counterfeit Pfizer medications to the social media company. They’ve also referred more than 1,000 Instagram accounts selling counterfeit Pfizer products over the past six months to Facebook, the parent company of Instagram.

Counterfeit Xanax and other drugs are indistinguishable to the naked eye from the real thing. Only with magnification and training can one distinguish the difference.

How big is this problem?

Thomas Kubic, president and CEO of the Pharmaceutical Security Institute, a Virginia –based nonprofit, says there are roughly 15,000 to 17,000 annual cases of counterfeit drugs reported globally to his organization from its members, who include security directors from 33 pharmaceutical companies. Obviously this represents only the tip of the iceberg.

If you’re one of the 155 million Americans whose employer provides your healthcare insurance, you probably have no idea what it’s costing. But rest assured, you’re paying the bill – indirectly.

Anna Wilde Mathews, writing in The Wall Street Journal, says the average cost of employer health coverage offered to workers rose to nearly $20,000 for a family plan this year. This information comes from a survey of employers by the Kaiser Family Foundation. Annual premiums rose 5% to $19,616 for an employer-provided family plan in 2018.

Employers tried to blunt this increase by boosting the deductibles that workers must pay out of their pockets before insurance kicks in. This practice lets them reduce premium costs, shifting more of the cost to workers.

Nationwide, workers paid $5,547 a year on average in premiums for a family plan in 2018, according to the Kaiser employer survey. That represents 29% of the total premium cost. For an individual plan, the average total premium cost was $6,896 in the 2018 or 3% higher than last year, with workers paying 18% of the total.

ObamaCare premiums have steadily risen since implementation of the ACA in 2014. After double-digit increases for several years, next year’s rates appear to be stabilizing as this graph depicts:

This stabilizing trend was discussed in an earlier post, Healthcare Premiums Stabilizing – Finally! But this stabilizing trend for individual premiums may not be experienced by the employer-provided insurance market.

What accounts for these rising premium costs?

A report issued earlier this year by the Health Care Cost Institute, a non-profit, said that between 2012 and 2016, health spending growth tracked in insurer claims from employer-sponsored coverage “was almost entirely due to price increases,” for services including emergency-room visits, surgical hospital admissions and administered drugs. Utilization of most health care services remained unchanged or declined.

Other research linked rising health care prices to mergers that have brought together large hospital systems, often combined with an array of doctors and other types of health care providers. Mergers generally reduce competition and lead to higher prices.

Rising employer healthcare costs means employees pay more for their healthcare – and get fewer wage increases. This explains why wages have remained relatively stagnant despite the growing economy. Employers are experiencing growth in production and sales but rising healthcare costs have prevented many from passing on these increased revenues to employees.

This is more evidence that Congress must provide us with a better healthcare system that produces higher quality at lower costs. Only a market-driven system that incentivizes patients to be more pro-active about their healthcare, rewards transparency in pricing and quality in treatment, and removes government regulations that artificially drive up costs, can provide that.