Politics, Populism, and the Future of Prescription Drug Pricing Reform

When the market’s opening bell rang on the morning following the 2016 presidential election, stocks for major drug manufacturers surged across the board. Donald Trump’s victory was perceived as a boon for the pharmaceutical industry, which had warily eyed Hillary Clinton’s comprehensive plans for drug pricing reform. Nevertheless, in the election’s immediate wake, significant uncertainty surrounds the future of drug pricing reform – not least following Trump’s 7 December comments on bringing prices down - causing industry observers to take a closer look at the policy views of the president-elect, state and Congressional lawmakers, and the general public. If recent history is any guide, the populist impetus for legislative action will grow in federal and state legislatures but the ability to achieve balanced and effective reform may remain elusive. 

Drug companies’ post-election relief may be understandable in light of Clinton’s clear and consistent position on drug pricing issues. Clinton’s charged rhetoric on the campaign trail was reinforced by detailed plans for curbing “outlier price increases,” capping patient out-of-pocket costs, prohibiting “pay for delay” agreements to thwart generic competition, and requiring drug companies that receive federal support to invest a certain amount in R&D. Having dodged these proposed reforms, many stakeholders share the belief that Trump will generally favor the interests of big business while viewing drug pricing as a low-priority concern. Indeed, the brief outline of Trump’s health plan posted on his presidential transition website focuses on repealing and replacing the Affordable Care Act, reforming the Food and Drug Administration, and opposition to abortion, but makes no mention of prescription drug costs.[1]

However, this prior lack of emphasis on drug issues does not necessarily mean that the incoming administration will forego action in the future. Trump has occasionally expressed concerns about rising prescription drug costs while voicing support for permitting the personal importation of drugs and government negotiation of prices under Medicare Part D. Both of these ideas would represent fundamental-if not radical-changes to the status quo and have been fiercely opposed by industry lobbyists. Indeed, in an interview transcript posted by Time magazine earlier this week,  Trump confirmed his intent to ‘bring down drug prices.’

Moreover, even if the Executive Branch does not emerge as a source for imminent change, there is significant Congressional momentum along both sides of the aisle for legislative action. Republican Senator John McCain has been garnering support for the FAIR Drug Pricing Act, a comprehensive drug price transparency measure, and the Safe and Affordable Drugs from Canada Act, which would permit importation of drugs purchased at Canadian pharmacies. Meanwhile, Democratic Representative Elijah Cummings has expressed his intention to press drug price reform issues through his leadership position on the House Committee on Oversight and Government Reform. Thus, despite the increased partisan rancor during the 2016 election season, members of both parties seem willing to seek common ground on the issue of prescription drug costs.

This bipartisan trend is likely inspired by growing public concern over drug costs and the fact that overall spending on prescription drugs has steadily climbed in recent years, reaching $310 billion in 2015.[2] The September 2016 tracking poll from the Kaiser Family Foundation found that 77 percent of Americans view prescription drug costs as unreasonable and 83 percent favor limiting the amount drug companies can charge for high-cost drugs for illnesses like hepatitis or cancer.[3] Public sentiment has already translated into significant legislative activity at the state level. Several states, including Massachusetts, Montana, New York, and Oregon, have recently considered legislation to force drug companies to disclose pricing practices, and Vermont has passed a law that will require manufacturers of the 15 most costly drugs in the state to justify annual price increases of greater than 15 percent.[4]    

Nevertheless, despite a groundswell of public support for reform, lawmakers have begun to realize that problems relating to drug costs are largely resistant to simple legislative solutions. This has become especially clear in California, which has become a proving ground for reform efforts. In 2015, California adopted legislation that will cap copayments for outpatient prescription drugs offered by commercial insurers beginning January 1, 2017.[5] While there are hopes that the law will facilitate patient access to expensive drug treatments, there are also concerns that it will hamstring insurers’ ability to reduce and spread drug costs and lead to higher premiums. During the 2016 legislative session, reformers hit strong headwinds, with the failure of two drug price transparency bills and state voters’ rejection of Proposition 61, the California Drug Price Relief Act, which called for pegging state prescription drug spending under certain state programs to the discounted level paid by the Department of Veterans Affairs. Opposition groups, which were heavily funded by the pharmaceutical industry, had successfully criticized Proposition 61’s limited scope and warned that the measure could cause drug companies to further increase prices and reduce the rebates offered to state agencies.  

Legislative initiatives in California and other states have revealed that drug pricing reforms require difficult policy decisions that involve weighing the benefits and burdens of pharmaceutical innovation. To succeed, reform efforts must thread the needle between various opposing groups, including consumer advocates who seek relief from cost-sharing burdens, insurers and PBMs who seek flexibility and leeway in controlling costs, and manufacturers who aim to protect hard-earned gains from expensive and often risky R&D investments. The challenge is further complicated by the fact that the United States does not directly regulate or control drug pricing, meaning that there is no proven model or commonly accepted means of reform. Finally, some policymakers question whether it is appropriate to consider drastic reform at the moment, pointing to signs that market mechanisms may already be placing downward pressure on costs. They note that insurers and manufacturers have begun to negotiate value-based drug purchasing contracts that link payments to outcomes, and payors have made strides in bringing down once stratospheric prices for many expensive specialty drugs, including treatments for Hepatitis C.

In 2016, the populist trend in American politics was an undeniable factor behind Trump’s election victory as well as the ascendancy of Bernie Sanders and Elizabeth Warren within the Democratic Party. During upcoming months, industry observers will be looking for signs as to whether drug pricing is an area in which both parties can agree on instituting significant legislative action at the state and federal levels. The nature and shape of any such reforms will be highly consequential for the U.S. pharmaceutical industry, which has served as a prime source of innovation in medicine. The question going forward is whether cool-headed reform that facilitates patient access to drugs without stymying pharmaceutical R&D investment can be achieved in an era of fervent populism and discontent over rising healthcare costs.

John S. Linehan is an attorney in the Health Care and Life Sciences practice group of Epstein Becker Green. He can be reached at jlinehan@ebglaw.com.

[1] Website of President Elect Donald J. Trump, available at: https://www.greatagain.gov/policy/healthcare.html

[2] QuitilesIMS Institute for Healthcare Informatics, IMS Health Study: U.S. Drug spending Growth Reaches 8.5 Percent in 2015 (Apr. 2016), available at: https://www.imshealth.com/en/about-us/news/ims-health-study-us-drug-spending-growth-reaches-8.5-percent-in-2015

[3] Kaiser Health Tracking Poll: September 2016, available at: http://kff.org/health-costs/report/kaiser-health-tracking-poll-september-2016/

[4] Vermont S.216 (2016).

[5] California Assembly Bill 339 (2015).