This editorial by Elizabeth Wright was published in The WasteWatcher blog on July 28, 2020. Wright is the Director of Health and Public Policy for Citizens Against Government Waste.

Presidential Executive Orders Will Not Lower Drug Costs

On Friday, President Trump signed three Executive Orders that he claims will lower drug costs. He withheld a fourth EO for 30 days in anticipation of a meeting to discuss alternatives with pharmaceutical manufacturer CEOs. Originally scheduled for Tuesday, July 28, it was cancelled but some news outlets are reporting the meeting will be held Wednesday.

Citizens Against Government Waste released a press statement on Friday voicing our opposition for two of the EOs, one of which would allow the importation of drugs from Canada and other countries. The other, which has been delayed until August 24, would establish a most-favored-nation (MFN) pricing policy for Medicare Part B, a price control. This is the latest form of what has been better known as the International Pricing Index.

A third EO would change how contracted pharmacy benefit managers (PBMs) negotiate significant discounts on drugs for Medicare Part D beneficiaries using a retrospective rebate system. CAGW posted a blog expressing our disapproval with the EO because it would disrupt how PBMs keep Medicare Part D drug costs and premiums down. The underlying reason for rebates, as opposed to upfront discounts, remain. A class action lawsuit initiated in 1994 citing two antitrust laws, the Sherman Antitrust Act and Robinson-Patman Act, followed by a settlement, was responsible for changing upfront drug price negotiations based on volume to rebates based on utilization.

The fourth EO would allow patients without access to affordable insulin and injectable epinephrine through private insurance or Federal programs, such as Medicare and Medicaid, to purchase the drugs from a Federally Qualified Health Centers. The prices would align with the 340B safety-net program’s substantial discounts.

The EO that is an effort to import drugs began with a proposed rule to import drugs from Canada, to which CAGW submitted comments on March 5, 2020 opposing the process. The EO essentially follows the proposed rule and asks that it be finalized.

Even if the rule was finalized, Canada has already stated it will not supply their price-controlled drugs to U.S. citizens. Their main concern is that doing so would cause increased shortages in their country. It is highly unlikely that pharmaceutical manufacturers would ship more drugs to Canada, or any country, than its population needs, in order for the same drugs to be sent back to the U.S.

Based on the current proposed rule, not all drugs could be reimported, like controlled substances, intravenous drugs, and biological products. A quick review of the rule clearly shows that meeting the requirements to make sure the drugs are reimported safely back into the U.S. would be expensive and provide little, if any savings.

What the rule will do is encourage more illegal behavior and a greater production of counterfeit drugs from countries like China, Mexico, and India. Faux “Canadian” drugs and websites already attempt to sell dangerous and worthless products to unsuspecting citizens, on the street and through corrupt pharmacists, and that problem will be exacerbated by legitimizing importation of drugs.

The other rule to which CAGW vehemently objects would change how Medicare Part B drugs are paid for by the government.

These drugs are purchased and administered by physicians in their offices or in outpatient offices. The EO would likely resemble an October 2018 announcement of a proposed rule that would establish a price for a Part B drug based on a mix of international prices from 14 countries, including developed nations such Canada, England, Greece, Italy, and Japan.

Physicians are reimbursed for Part B drugs at a statutory set average sales price plus 6 percent for drugs they administer in their offices. (Due to the sequester cuts from the Bipartisan Budget Act, the reimbursement is currently 4.3 percent.)

But the EO’s new MFN process would pay the lowest price in these countries, a more extreme policy than paying the aggregate price. These countries have socialized, government-controlled healthcare and utilize price controls and rationing to keep costs down.

The argument made by administration officials has been that if Medicare pays the lower price it would force U.S.-based research companies to demand more from foreign developed nations because they “don’t have to do business there or can negotiate a price more in line with what Americans pay.”

That’s an interesting theory but without stronger intellectual property protections agreed to in trade countries, these countries are either more likely to attempt to steal patents, as Italy tried in 2017, or they would choose not to purchase the drug at all. In fact, these countries routinely refuse to pay for innovative drugs, thus denying access to them by their citizens.

A Galen Institute report by Doug Badger, “Examination of International Drug Pricing Policies in Selected Countries Shows Prevalent Government Control over Pricing and Restrictions on Access,” pointed out that of all the new therapies introduced between 2011 and 2018, 89 percent are available to Americans. Foreigners get access to fewer drugs, like only 62 percent in Germany and 48 percent in the France. For cancer drugs, the numbers show similar disparities. Americans get access to 96 percent of new oncology drugs, while Germans get access to 73 percent, the French get access to 66 percent, and Belgians gets access to 56 percent.

CAGW agrees reforms can be made to Medicare Part B, perhaps by utilizing a specific amount, instead of a percentage added to the average sales price of the drug to reimburse physicians. But the EO adopts policies that simply affirm that price controls work. It runs counter to the President’s Council of Economic Advisers February 2020 report that accuses countries of “free-riding” on U.S. investments due to their price control structures and “that if free-riding abroad was reduced and foreign relative drug prices reflected relative GDP per capita, total innovator revenues from those countries would have been $194 billion higher in 2017, raising global revenues by 42 percent. Reducing foreign price controls would increase profits and innovation, thereby leading to greater competition and lower prices for U.S. patients.”

The EOs are a disaster for taxpayers and patients, would make it difficult to negotiate future and fairer trade deals when it comes to biopharmaceuticals, and in CAGW’s view, represent some of the worst decisions on healthcare policy ever made by a Republican administration.