Healthofficials estimate the policy change proposed by Trump will saveMedicare $17 billion in the first five years. (Photo:Shutterstock)

(Bloomberg) –President Donald Trump announced new policiesFriday aimed at lowering prescription drug prices under Medicare bylinking them to rates paid in other countries and allowingAmericans to buy medication imported from Canada.

The changes are included in executive orders that come as Trumpseeks to repair his standing on health-care issues, particularlywith senior voters. Polls have shown sentiment is souring over hishandling of the coronavirus pandemic and efforts to eliminate theAffordable Care Act without having a ready replacement.

Related: How states could take the lead on drug pricereform

The president also announced a new policy to require federallyqualified health centers to pass discounts they receive on insulinand EpiPens directly to their patients, and a drug rebate rule thatremoves legal shields for reimbursements paid by drugmakers tomiddlemen and insurers.

The orders "represent the most far-reaching prescription drugreforms ever issued by a president," Trump said at an event inWashington. They will "completely restructure" theprescription-drug market, he said.

Democrats and drugmakers quickly pushed back. House SpeakerNancy Pelosi said the moves "take no real action" to lower pricesand will put Medicare beneficiaries at risk of higher premiums.Industry lobbyist Stephen Ubl, head of the Pharmaceutical Researchand Manufacturers of America, called the pricing policy "radicaland dangerous."

The order tying prescription-drug prices to internationalbenchmarks, which Trump described as the "most favored nations"clause, won't go into effect until Aug. 24 to give drugmakers timeto come up with alternative measures for lowering costs, Trumpsaid. Several top pharmaceutical companies have requested a meetingon the issue, which will be held on Tuesday.

$17 billion savings

The international drug price rule is the only policy backed bythe administration that would boost the government's ability todecide what it will pay for medications. Health officials estimatethe policy change proposed by Trump will save Medicare $17 billionin the first five years. In 2018, Medicare spent $335 billion onprescription drugs, a 2.5% rise from the previous year.

"We pay for all of the resources and all of the development andforeign countries pay absolutely nothing," Trump said. "Americansare funding the enormous cost of drug resource for the entireplanet."

Trump's plan to import cheaper drugs from Canada is less likelyto be effective. Canada's pharmaceutical market is likely not bigenough to satisfy the U.S. demand for drugs.

Secretary of Health and Human Services Alex Azar said thatpersonal importation of insulin would be allowed, after not allowedlast year under the previous importation proposal.

Rebate rule

Trump also revived his drug rebate rule, stripping legal shieldsfor reimbursements paid by drugmakers to middlemen and insuranceplans providing coverage through Medicare's Part D drug program orMedicaid.

Those payments create incentives for higher drug prices, drugcompanies have argued, because they push companies to raise pricesin order to meet discount demands by drug middlemen. Instead ofmiddlemen receiving discounts based on the price of drugs, they'dget a fixed fee under the policy change.

The pharmaceutical industry supported the plan, which was onereason for its initial demise. Trump was also apparently concernedin the past that the policy would raise insurance premiums.Lawmakers criticized the rule for its massive price tag too. Itwould cost taxpayers $177 billion over a decade, according to theCongressional Budget Office.

Jon Conradi, an outside spokesman for the Campaign forSustainable Rx Pricing, which represents insurers, pharmacy benefitmanagers, and hospitals, lambasted Trump for bringing it back tothe table.

"A reboot of the Rebate Rule, after the administration's ownadmission it would increase premiums on Medicare beneficiaries andcost taxpayers hundreds of billions, would be a stunning cave toBig Pharma at the expense of American seniors and taxpayers,"Conradi said before the executive order was announced.

Discount program

The plan to use the federal drug discount program, known as340B, for hospitals to get cheaper insulin and EpiPens is also new.The 340B program requires drug companies that want to sell theirdrugs through state Medicaid plans to offer steep discounts tohospitals that serve primarily low-income patients. The program hasgrown considerably in the last few years.

Health centers will be required to pass on to patients anysavings that they get from drugmakers for insulin and epinephrine,Health Resources and Services Administration head Thomas Engelssaid on a call with reporters.

Drug industry representatives warned that the overarching spiritof four-fold executive order could put jobs and progress oncoronavirus therapeutics at risk, while also predicting thatimplementation was unlikely to make major waves.

'Cripple' companies

Drug industry representatives warned that the overarching spiritof four-fold executive order could put jobs and progress oncoronavirus therapeutics at risk, while also predicting thatimplementation was unlikely to make major waves.

Michelle McMurry-Heath, CEO of the Biotechnology InnovationOrganization, said adopting foreign price controls will "cripplethe small, innovative companies developing the vaccines andtherapies that will help end this pandemic and get the Americanpeople back to work."

Ubl, meanwhile, said setting prices "based on rates paid incountries that he has labeled as socialist, which will harmpatients today and into the future."

The Nasdaq Biotechnology Index, a market gauge that includesestablished drugmakers and smaller makers of innovative medicines,closed down 2.1% on Friday, a steeper decline than the broaderstock market. The S&P 500 declined 0.62%.

Diverging reactions

As might be expected, Congress had diverging reactions.

Pelosi said if Trump was committed to lowering drug costs, heshould throw his weight behind a bill sponsored by House Democratsthat she said better addressed the issue.

Meanwhile, Senate Finance Committee Chairman Chuck Grassleycommended Trump, stating that he doesn't blame the president fortaking action "where Congress has failed" to advance legislation."For those who don't like these executive actions, there's time toget to the table and back a legislative solution."

Congress self-imposed a Nov. 30 deadline to pass drug-pricinglegislation, but the Covid-19 pandemic and contentious 2020election has led many to believe action was unlikely.

"This is going to end up being political noise," said AlexanderKarnal, a partner and managing director at Deerfield ManagementCo., a healthcare-focused fund. "The types of things the presidenthas talked about doing would only put limitation and risk to thesector. When they come to implementation moving forward, people aregoing to stand by our industry because of the potential for what itcan do."

–With assistance from Justin Sink and John Tozzi.

Read more: 

• Brand-name prescription drug prices double in 6 to8 years
• Majority of Americans support current efforts tobring down drug prices
• Is killing drug rebates really the answer to highdrug prices?

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