White House budget director suggests rebate mandates for Medicare to cut drug prices

White House
Trump repeatedly has said drug prices need to be lowered.

In what would be a radical departure for a Republican administration, the White House budget director has suggested that extending to Medicare the same kinds of rebates that drugmakers are required to provide to Medicaid is one way to lower the costs of drugs to U.S. citizens.

Speaking at a conference at Stanford University, White House budget director Mick Mulvaney said that his office has brought up the idea of rebates for Medicare with the president, The Washington Post reported.

Trump, who repeatedly has said drug prices need to be lowered, talked during his campaign about letting Medicare negotiate prices to lower drug prices but never about requiring the kinds of deep rebates drugmakers must pay back to Medicaid, something the Obama administration looked at.

“We’ve actually floated that idea with the president, to be a little bit heavier-handed on the rebates they have to pay in order to drive the prices down,” said Mulvaney, who is director of the Office of Management and Budget. He said that drugmakers were getting a “tremendous giveaway” under the current system. 

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The industry’s response was immediate and definitive in its opposition. “Any type of government price-setting in Medicare Part D would limit access to needed medicines and increase costs for beneficiaries,” PhRMA spokeswoman Holly Campbell told the newspaper. “It also would destabilize a successful, market-based program in which beneficiaries are highly satisfied and would curtail investment in research and development needed to discover new treatments. The risks of these proposals clearly outweigh the benefits.”

That opposition is not surprising given that an HHS report based on 2009 drug prices put the discounts to Medicaid at more than twice as much as those Medicare received off of average wholesale prices, 45% vs. 19%. Drug prices for Medicaid also cannot be raised more than the rate of inflation, a price control that does not apply to Medicare Part D drug plans.

Democrats have called for those kinds of limits on Medicare drug prices, or at least allowing so-called dual eligible patients, those who qualify for both Medicaid and Medicare, to get their Medicare drugs at Medicaid prices.

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While it would be a stretch for a Republican-controlled Congress to support any kind of mandated rebates for Medicare, Bernstein analyst Ronny Gal told clients in a note today that there is some wiggle room for the Centers for Medicare & Medicaid Services to take steps without Congressional action. He said CMS could give Medicare pharmacy benefit managers more freedom to negotiate prices. It also has the authority to “'experiment.”

Gal said drugmakers would resist any kind of bill that would give Medicare rebates, but if a bill got through and if there were no limits on future pricing, he thinks they would “pay the bill and gradually raise prices to offset it.”  

Mulvaney’s remarks came even as HHS Secretary Tom Price has been meeting with industry groups, including PhRMA, about drug prices. While Price has not said how he might look to attack rising drug prices, a statement from the White House about those meetings to the Post said, “Secretary Price reaffirmed President Trump and the Administration’s commitment to address escalating prescription drug costs...”

For its part, PhRMA called its meeting with Price productive, saying, it had “expressed our commitment to working with the administration to advance market-based reforms, such as addressing barriers to value-based payment arrangements, enhancing generic competition and ensuring patients benefit from the discounts and rebates negotiated by payers.”

The reference to payer rebates has become one of PhRMA’s main lines of defense in the debate over high drug prices. Its members have claimed that a big part of the drug pricing issue is that PBMs and other payers are demanding rebates for drugs, only some of which they share with patients, and that drugmakers have to then raise their prices to make a reasonable return, a contention PBMs have hotly denied.

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