Pfizer delays price hikes to give Trump time to work on 'blueprint' for reform

FILE - In this Friday, July 8, 2016 file photo, a prescription is filled at a pharmacy in Sacramento, Calif. (AP Photo/Rich Pedroncelli, File)

Six weeks after President Donald Trump predicted major drug companies would make “voluntary massive drops in prices” in two weeks, at least one company appears to have acceded to pressure from the White House in postponing a price increase, but experts say more reforms are needed to beat back the industry-wide tide of rising drug costs for consumers.

“I think people are going to see, for the first time ever in this country, a major drop in the cost of prescription drugs. Right?” Trump said at a May 30 bill signing event, turning to Health and Human Services Secretary Alex Azar. “And, Mr. Secretary, that’s already happening. Right? That’s already happening. You were telling me yesterday that we’re seeing a big — a tremendous improvement.”

Those comments came weeks after the White House unveiled a “blueprint” to lower drug prices titled “American Patients First.”

After being publicly shamed by Trump in a tweet Monday, drug-maker Pfizer announced Tuesday it would roll back price hikes on more than 40 drugs that had taken effect on July 1 “until the earlier of when the president’s blueprint goes into effect or the end of the year.”

“Pfizer shares the President’s concern for patients and commitment to providing affordable access to the medicines they need,” said CEO Ian Read in a statement.

Trump welcomed the decision as “great news” for the American people, but other companies that had planned mid-year price increases are still proceeding.

"Today’s announcement by Pfizer to roll back prescription drug prices in support of President Trump’s blueprint is a step in the right direction and a major win for American patients. I commend Pfizer for its constructive and professional approach, and its desire to work with President Trump to be part of the solution and not part of the problem," Azar said in a statement Tuesday.

According to CNN, the cost of 104 drugs rose in June and the first two days of July, including one company upping the price of a sleep drug by 700 percent. Independent from Trump’s Twitter activity, several insurers have also canceled increases due to a new California price transparency law.

“We’re glad to see that President Trump took Pfizer to the woodshed,” said David Mitchell, president and founder of Patients for Affordable Drugs, in a statement Wednesday. “There are other companies that have increased prices and could use the pressure of a Presidential tweet. But one-off tweets do not fix the systemic problems we have with drug prices. We need long-term structural action to provide enduring relief.”

Michael Rea, founder and CEO of Rx Savings Solutions, a company that helps consumers find lower cost drugs, said the hikes suggest political pressure to keep prices is waning.

“I’ve seen more activity in the last 12 days on drug price increases than I have in a long time,” he said.

If Pfizer can instantly drop prices in response to an irate Trump tweet, it raises the question of how much of the proposed price increase was really necessary in the first place.

“I think the Pfizer rollback is more a media event than a real reduction in price,” said Gerard Anderson, director of the Johns Hopkins Center for Hospital Finance and Management. “There is no reason that justifies a price increase since production costs are not increasing.”

Calling out specific companies on Twitter for raising prices on a handful of medications is also not a scalable solution to systemic conditions.

“Trump’s bullying Pfizer into postponing price hikes for a while might play well with his tough guy persona, but it’s more political theater than good policy,” said Jodi Dart, executive director of Prescription Justice, a non-profit organization that advocates for lower drug prices.

The Pfizer drama offers a window into the byzantine structure of U.S. drug pricing. Most consumers would likely have seen little to no impact from the price increase or the rollback since their insurance companies cover much of the cost, and even the insurers do not pay list price. What the insurance company pays depends on negotiations with drug-makers and pharmacy benefits managers. PBMs profit from rebates offered by drug companies as incentives to be covered by an insurer, a practice that critics say creates incentives to favor more expensive drugs that carry larger rebates.

Drug manufacturers defend their pricing practices as a reflection of their costs and market forces. Secretary Azar told lawmakers at a hearing last month that companies fear lowering prices will make them less attractive to PBMs.

“Drug companies have been increasing prices repeatedly over the last five or so years,” Anderson said. “However, when they raise the price, they do not always get the full amount in terms of revenue. In fact, they get only a small portion of the price increase because in most cases the insurers and PBMs do not give them the full price increase.”

According to Rea, pharmaceutical companies cite ingredient costs, research and development, and marketing as significant factors driving up prices.

“Each individual drug is going to have its own answer to that question, but there is a thirst for profitability from Wall Street that is just a reality of how a public company operates,” he said.

Agreement seems widespread that this dynamic is not working well for patients, but there is less consensus on what exactly to do about that.

“The system is extremely complex,” Rea said. “It is difficult to navigate. It is difficult for it to operate efficiently When you look at any other good or service we buy, it’s pretty straightforward.”

The Trump administration has threatened government action that would shift the business model away from PBMs and other middlemen standing between drug-makers and insurers.

"We are examining whether we need to disrupt the entire system of rebates, which drives list prices ever higher while patients keep paying more," Azar said in a speech Monday, signaling changes he acknowledged could be painful for the pharmaceutical industry.

President Trump has long complained about the high cost of prescription drugs, but he has recently backed away from the most extreme measures he proposed on the campaign trail, such as allowing Medicare to negotiate directly with pharmaceutical companies for better deals. Prior to taking office, he accused drug companies of “getting away with murder.”

“We're the largest buyer of drugs in the world," Trump said at a January 2017 press conference. "And yet we don't bid properly. We're going to start bidding. We're going to save billions of dollars over a period of time. And we're going to do that with a lot of other industries.”

Earlier this year, the White House Council of Economic Advisers issued a report that partly blamed high prices on government policies and regulations. The report acknowledges that other countries are able to set lower prices and force drug companies to comply, while the U.S. pays 70 percent of patented pharmaceutical profits, but it argues against similar controls in the U.S., warning they could stifle innovation.

The blueprint laid out by HHS in May largely follows the CEA’s recommendations by identifying four “key strategies” for reform: improved competition, better negotiation, incentives for lower list prices, and lowering out-of-pocket costs. Most of the steps could be taken by HHS without congressional approval, but some do require public comment periods.

Beyond limiting rebates for PBMs and pushing foreign countries to allow higher prices, the plan aims to encourage sharing of samples for generic drug development, experiment with value-based purchasing, make pricing more transparent, and prohibit contracts that prevent pharmacists from telling patients when they can pay less out-of-pocket.

The FDA has been directed to evaluate including list prices in drug advertisements, which Anderson believes would leave consumers “outraged” at drug-makers. The blueprint also calls for a study on whether some drugs administered by hospitals and doctors under Medicare Part B would cost less if they were under Medicare Part D.

“On the margins, the blueprint calls for some tinkering of the current system, which might provide a little relief – but the recommendations it put forward resulted in higher stock prices for big pharmaceutical companies,” Dart said.

Democrats who back empowering Medicare to negotiate prices argue the government would have far more leverage than individual insurers, but Republicans say it would be an ineffective and inappropriate government intrusion into the drug market. Azar said in May that direct government negotiation would be a step toward “socialized medicine.”

A health care reform plan released by Trump during his campaign in 2016 also included allowing consumers to import “safe and dependable” drugs from abroad. That tactic is missing from the blueprint as well, and Azar has dismissed the benefit it would have as minimal.

“The Trump administration proposals are vague. They diagnosis the situation very well but are short on specifics on how to control spending,” Anderson said.

Anderson suggested lower prices in other markets could at least be used to apply pressure on drug companies for equitable treatment.

“The U.S. pays twice as much for drugs as other countries. We could use external reference pricing which tells us how much the countries are paying for the same drugs. We could then use this information to ask the drug companies to justify the prices that are way out of line with other countries,” he said.

Although patient advocacy groups have applauded even incremental improvements, much of what Trump has proposed will take months or years to implement.

“The President’s plan takes useful steps toward to a more rational drug market: demanding price transparency in drug ads and promoting competition from lower-cost biosimilar and generic alternatives. But if progress stops there, we will fail to adequately constrain costs for most consumers or for the healthcare system as a whole,” said John Rother, president and CEO of the National Coalition on Health Care, in a statement.

Prescription Justice has a policy platform that includes ending “pay-for-delay” schemes that allow companies to extend the length of their monopolies, as well as allowing Medicare to negotiate lower prices and legalizing the importation of cheaper drugs. Dart also pointed to flaws in the patent system that leave U.S. consumers paying more than they should.

“Drug companies can charge whatever they like for a patented medication in the U.S., exercising monopolistic pricing,” she said. “Brand name medications that are still under patent protection are some of the most costly and unaffordable drugs, especially those that treat cancer, Hepatitis C and autoimmune disorders.”

The Food and Drug Administration grants drug companies exclusivity periods before competitors are allowed to offer cheaper generic versions of their medications. Those patent protections are running out for some drugs developed in the late 1990s by Pfizer and other top manufacturers, leaving them scrambling to make up profits elsewhere.

“Brand drug companies have government-given monopolies to sell drugs,” Anderson said. “They get patents and market exclusivity periods from the government that allows them to set the prices. When you have a monopoly and you are for profit company, you should charge as much as you can, and the drug companies have done just that.”

Rea is wary of government intervention, preferring to let free market forces solve the problem. Some elements of Trump’s blueprint could help facilitate that, but he has concerns about when or if they will be enacted.

“There were some good ideas in that blueprint,” Rea said. “Execution and bringing ideas to reality in any industry is difficult and this is a very complex, complicated space, and ideas unfortunately don’t equal relief for consumers.”

“That’s not in any way meant to be negative,” he added, “but it’s just hard to turn those ideas into reality.”

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