Skip to main content

Federal Efforts, Health Care Costs

President Could Clear The Way For States To Bring Down Costs Of Prescription Drugs

Published On May 9, 2018

There’s a lot of chatter in DC this week about President Trump’s upcoming speech on drug prices, and what action his Administration will take to address this pressing issue. It was a major campaign promise for the President, but the somewhat tentative approach laid out in his 2019 budget proposal to Congress was a disappointment to many who hoped he would do more to aggressively tackle the underlying problem.

This speech will be his second crack at the issue, and there are hints from both Secretary of Health and Human Services Alex Azar and Commissioner of the FDA Scott Gottlieb that the proposals the President will be announcing are much more ambitious.

Overall what we’ll be looking for in these proposals is an understanding of two goals, which in the complicated structure of the pharmaceutical supply chain are not always aligned:

  1. Providing swift and significant relief to consumers facing high out-of-pocket costs.
  2. Addressing the underlying, systemic problems that make prices so high in the first place – to get at the root of the problem.

There are many approaches the Administration can take, including cracking down on anti-competitive behavior by industry players and reforming the way Medicare pays for drugs. But a key opportunity to effect real change in the short term is by making regulatory changes that empower states to tackle the issue themselves.

While there’s been a lot of discussion over the last year and a half about ways to make Medicaid spending more predictable for state governments, the role that drug prices play in state budgets hasn’t been given the attention it deserves in those national debates. In our conversations with leaders and stakeholders across the country, though, this issue comes up again and again.

Patients talk about being hit with an unreasonable co-pay at the pharmacy counter and having to choose between the drugs they need to survive and other necessities like food and utility bills.

Health systems say they struggle to implement innovative programs to provide better care because they can’t get a handle on the pharmacy expenses that take a greater portion of their expenditures each year.

Governors and state legislators are grappling with what these costs mean for the stability of their Medicaid programs and their overall state budgets.

One helpful resource for understanding the conundrum states face is the Louisiana Budget Allocator developed by Memorial Sloan Kettering’s Drug Pricing Lab. This interactive tool puts users in the shoes of state leaders attempting to find the funding needed to cover an expensive breakthrough treatment for Hepatitis C. It illustrates how difficult it is to reallocate resources to provide this drug to residents, despite the obvious moral reasons to do so, driving home the urgent need to make progress on this issue as we anxiously await the approval of other new cures.

During this year’s legislative sessions, states have considered a wide range of proposals to address drug prices. These ideas include leveraging volume purchasing, creating state-run entities to facilitate the importation of prescription drugs, increasing transparency, and more aggressively regulating prices and the pharmaceutical distribution system.

In several ways, though, states are constrained by federal laws and regulations that limit their ability to act. In the President’s speech, we’ll be keeping an eye out for a few specific proposals that would give states more latitude on this issue:

  • Granting Medicaid programs greater flexibility to negotiate prices. Currently, states receive special rebates from drug manufacturers for Medicaid purchases, and they are required to cover almost all FDA approved drugs, even if there are less expensive alternatives. One idea that’s gaining traction is allowing states to exclude certain drugs from their Medicaid programs if they aren’t delivering value to patients – giving them more power to negotiate better bargains.

That could take the form of approving Massachusetts’ waiver request or finalizing a proposed new demonstration that would provide states this formulary flexibility in exchange for giving up their guaranteed right to special Medicaid prices.

Whatever model is pursued, it’s critical that any proposal also includes strong protections for beneficiaries, like a robust exceptions process, to ensure no patients go without needed medication.

  • Empowering states to exert more market power through bulk purchasing. Some states might benefit from being able to pool purchasing for Medicaid and other programs, like those covering state employees, university students, and incarcerated populations, in order to maximize their negotiating power.
  • Removing federal barriers to the importation of drugs. Although prescription drugs often cost far less in other countries, federal law prohibits individuals and states from importing them. Just yesterday, Vermont passed a bill that would create a state-run wholesaler for imported drugs, but the program would require Secretary Azar’s approval to implement. While not a long-term solution, as long as the United States subsidizes cheaper drugs for the rest of the world, this model could provide relief for American consumers while that imbalance is remedied.
  • Modeling effective value-based purchasing. As states are offered more flexibility to innovate in the ways they purchase drugs, it will be important to consider which models of value-based purchasing are most effective in delivering results for programs and consumers. It will be interesting to see what example the Administration sets for states pursuing these innovative arrangements.

It remains to be seen which, if any, of these proposals will be included in the President’s plan, but any degree of new authority is likely to come as a relief to states. We’re cautiously optimistic that the affordability of drugs could be an area for real progress over the next several years, and we’ll be anxiously watching to see what course the Administration decides to set.

Stay up to date!

Sign up to receive the latest news, resources and updates on building a better health care system.