President Trump on Friday introduced his blueprint to "bring soaring drug prices back down to earth." Mr. Trump said his administration will begin work immediately, although there is no timeline for implementing his proposals.
"Everyone involved in the broken system -- the drug makers, insurance companies, distributors, pharmacy benefit managers, and many others -- contribute to the problem," Mr. Trump said. "Government has also been part of the problem because previous leaders turned a blind eye to this incredible abuse. But under this administration, we are putting American patients first. ... I've instructed Secretary Azar to begin moving forward on reforms that will bring soaring drug prices back down to Earth."
In sweeping terms, the president announced how he — along with Health and Human Services Secretary Alex Azar — are working to bring down the prices of drugs, by, among other things, ending the "Pharmacist Gag Rule" that Mr. Trump said "punishes" pharmacists for instructing patients how they can save money.
"This is a total rip off, and we are ending it," Mr. Trump said Friday.
The president also spoke of ending trade practices abroad that lead to unfair prices for Americans.
"Finally, as we demand fairness for American patients at home, we will also demand fairness overseas," Mr. Trump said. "America will not be cheated any longer, and especially will not be cheated by foreign countries."
Before taking office last January, Mr. Trump railed against the pharmaceutical industry and accused it of "getting away with murder." He repeated those words at a Cabinet meeting in October.
"The other thing we're doing that relates to people's lives is the prescription drug prices are out of control," Mr. Trump said in October. "The drug prices have gone through the roof. And if you look at the same exact drug by the same exact company, made in the same exact box and sold someplace else, sometimes it's a fraction of what we pay in this country — meaning, as usual, the world is taking advantage of the United States. They're setting prices in other countries and we're not."
The populist rhetoric appears to be giving way to a more nuanced strategy focused on making the pharmaceutical market more open and competitive, with the aim of lowering costs for consumers. It's an approach that could avoid a direct confrontation with the powerful pharmaceutical lobby, but it could also underwhelm Americans seeking relief from escalating prescription costs.
Officials said the plan would increase competition, create incentives for drugmakers to lower initial prices and slash federal rules that make it harder for private insurers to negotiate lower prices. The result would be lower pharmacy costs for patients — a key Trump campaign promise.
The plan will not include giving the federal Medicare program power to directly negotiate prices with drugmakers, they noted. Trump campaigned on the idea, which is vigorously opposed by the pharmaceutical industry.
Public outrage over drug costs has been growing for years, because Americans are being squeezed in a number of ways: New medicines for cancer and other life-threatening diseases often launch with prices exceeding $100,000 per year. Drugs for common ailments like diabetes and asthma routinely see price hikes around 10 percent annually. Meanwhile some companies have been buying up once-cheap older drugs and hiking prices by 1,000 percent or more.
Since entering the White House, Mr. Trump has backed away from reforms directly targeting drugmakers and staffed his administration with appointees who have deep ties to the industry, including Azar, a former top executive at Eli Lilly.
Still, administration officials ratcheted up the rhetoric ahead of Mr. Trump's speech. Azar promised bold action. FDA Commissioner Scott Gottlieb — another Trump appointee with industry connections — hinted at a plan to "dismantle" the convoluted system of discounts and rebates between drugmakers and health care middlemen.
Members of Congress benefit heavily from the pharmaceutical industry's donations. Top drug companies have donated millions to campaigns and candidates so far in the 2018 election cycle, according to Federal Election Commission (FEC) records.
On Thursday, administration officials also vowed to address foreign governments that rely on U.S. medicines but pay drastically lower prices due to government controls. The U.S. accounts for 70 percent of the world's brand-name drug profits, according to a White House report released earlier this year.
Here are some of the drivers of U.S. prescription drug prices, proposals for reducing the costs and what's at stake:
LACK OF REGULATION
Drugmakers generally can charge as much as the market will bear because the U.S. government doesn't regulate medicine prices, unlike most other countries.
Medicare is the largest purchaser of prescription drugs in the nation, covering 60 million seniors and Americans with disabilities, but it is barred by law from directly negotiating lower prices with drugmakers. Democrats have long favored giving Medicare that power, but Republicans traditionally oppose the idea.
The powerful pharmaceutical lobby has repeatedly fended off proposals that could lower prices, such as Medicare negotiations or importing drugs from countries that regulate pricing.
With no direct government price regulation, the primary check on prices comes from buyers in bulk — such as insurance companies and pharmacy benefit managers, which handle prescription coverage for insurers, employers and other big clients.
But because there are so many players in the fragmented system, the discounts achieved in the U.S. are generally far more modest than those in other countries.
The result is that the U.S. spends more on medicines than any other nation. In 2015, the U.S. spent $1,162 per person on pharmaceuticals, according to the Organization for Economic Cooperation and Development. That compares with $756 for Canada and $497 for the United Kingdom, both of which have government measures to control drug prices.
LACK OF TRANSPARENCY
The U.S. system for pricing drugs is notoriously complex, so much that the "real" price for most medicines isn't clear. Critics contend that this lack of transparency limits competition and drives prices higher.
Pharmaceutical companies often launch their drugs with high initial prices. But they argue list prices are merely a starting point for negotiations because they give substantial rebates and discounts to pharmacy benefit managers. Those price concessions are almost never disclosed and it's unclear what portion actually flows back to consumers.
FDA Commissioner Scott Gottlieb and others say the lack of transparency in the current system creates perverse incentives in which drugmakers and other health care companies benefit from rising prices — at the expense of patients.
Trump officials have suggested requiring Medicare pharmacy benefit managers to share rebate payments with patients. Another proposal would do away with rebates altogether to encourage more upfront discounts in Medicare.
But the benefit managers and insurers say that they use rebates to lower health care premiums overall and that doing away with them would drive up costs.
PATENTS AND ANTI-COMPETITIVE TACTICS
Patents last longer in the U.S. than most countries, typically giving companies a dozen years of competition-free marketing after a drug launches. Most drugmakers increase their prices annually during this monopoly period, and until recently double-digit price hikes were the norm.
Drugmakers also have developed a number of techniques to block competitors from launching lower-cost generic drugs. Companies often tweak drug formulations to extend their patents. In other cases, companies directly pay would-be competitors to stay off the market in so-called "pay-to-delay" deals.
Gottlieb has promised a crackdown on some of these techniques used to "game the system." He's highlighted a practice in which drugmakers use tightly controlled distribution systems to prevent rival manufacturers from purchasing their drug. This effectively blocks the development of generic versions because generic drugmakers must test their products against the original medicine before they can win FDA approval.