Ron Klink: Right and wrong ways to address drug prices

In what may have been the last significant action of his presidency, President Trump issued two executive orders designed to lower prescription drug spending in Medicare.

The first order would eliminate the current system of “rebates” for prescription drugs covered by Medicare Part D. The second order, dubbed the “Most Favored Nation” model, ties Medicare payments for advanced medicines covered by Medicare Part B — think chemotherapy infusions and other physician-administered medicines — to the lowest prices paid by governments abroad.

The “rebate rule” will reduce out-of-pocket drug costs for American patients. The “Most Favored Nation” model will reduce access to advanced medicines today and deprive American scientists of research dollars tomorrow.

As lawmakers begin thinking through this year’s agenda, one of these rules offers a model worth emulating. The other should end with Trump’s presidency.

Rising costs at the pharmacy counter have long bothered many of us. Indeed, the average American now spends about $1,200 annually on prescription medicines. Surprisingly, though, just 14% of overall health care expenditures is dedicated to prescription medicines — and this number has been stable since the 1960s. Further, overall spending on prescription drugs has been remarkably stable in recent years, generally tracking with inflation.

It doesn’t feel that way at the pharmacy because middlemen in the drug supply chain — namely, insurers and pharmacy benefit managers — have increasingly shifted the costs of prescription drugs to patients.

The rebate rule endeavors to make sure these middlemen share the discounts and rebates they secure from drug companies directly with patients. Analysts expect this effort to trim nearly 30% off the average patient’s pharmacy bill.

Trump’s Most Favored Nation model ties Medicare reimbursements for advanced, physician-administered drugs to the lowest prices paid abroad. This is a mistake.

Foreign governments pay less for drugs because they undervalue American science — and routinely refuse to cover innovative treatments. So at a minimum, the rule would result in less investment for scientific research, stifling the development of tomorrow’s medicines. But the rule would undoubtedly reduce access to many critical drugs — indeed, the Centers for Medicare and Medicaid Services admits that much of the savings from Trump’s Most Favored Nation model would come from “beneficiaries not accessing their drugs.”

Trump is far from the first to suggest Medicare should import foreign reference pricing. House Speaker Nancy Pelosi offered a measure — the Lower Drug Costs Now Act, or House Resolution 3 — which would have also pegged Medicare reimbursements to the lower prices paid abroad.

Whether through legislation or executive fiat, these efforts should concern all of us. It doesn’t make sense to import the mistakes of our trading partners.

Reducing drug spending is a noble goal. Rebate reform demonstrates that it’s eminently achievable.

Ron Klink is a former Democratic U.S. representative from Pennsylvania and is currently senior policy adviser at Nelson Mullins Riley & Scarborough LLP.