Why Trump's Big Drug Price Speech Sent Health Care Stocks Soaring

President Donald Trump speaks during a roundtable discussion on tax reform at the Cleveland Public Auditorium in Cleveland Ohio U.S

President Donald Trump speaks during a roundtable discussion on tax reform at the Cleveland Public Auditorium in Cleveland Thomson Reuters

President Donald Trump is expected to outline his administration's long-awaited plan to lower prescription drug prices in a speech Friday.

Senior administration officials on Thursday told reporters that the plan, dubbed "American Patients First", will increase competition in the drug market and create incentives for manufacturers to lower list prices while tweaking components of Medicare to try to lower costs for patients.

"There are some things in this set of proposals that can move us in the direction of lower prices for some people", said David Mitchell, founder of Patients for Affordable Drugs. Democrats have long favored giving Medicare that power, but Republicans traditionally oppose the idea. That trend, coupled with several high-profile cases where drug manufacturers significantly raised the price for common, decades-old drugs, have thrust the issue into the national spotlight.

Trump staffers said the new steps coming Friday could be taken immediately without action by lawmakers, who are mainly focused on November elections.

The more customers a plan covers, the more leverage it has to demand lower prices from the drug maker. PBMs, which process drug claims and negotiate drug discounts with pharmaceutical companies, are paid, in part, on the spread between the list price and rebates, which gives them incentive to raise list prices, critics argue.

"Everyone involved in the broken system - the drug makers, insurance companies, distributors, pharmacy benefit managers, and many others - contribute to the problem", he said.

Azar and other Trump officials have described the problem in stark terms and promised bold action.

Instead, he spent more time singling out drug "middlemen" - by which he clearly meant pharmacy benefit managers, although for whatever reason, he didn't call them out by name - as well as other countries with low drug prices.

The administration's plan did not include any new restrictions on pharmaceutical companies or health insurance companies.

Biotechnology Innovation Organization President and CEO Jim Greenwood said that his group - a representative of companies that have some of the most to lose from deep systemic reform - looked forward to working with the administration, though harbored "concerns that some of the ideas proposed today could, if adopted, hurt patient access to the medicines" and the development of future cures and treatments.

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Drugmakers have justified high prices by citing the costs of research and development, implying that the U.S.is the only country paying to create innovative medicines that then benefit the rest of the world.

Trump's speech singled out foreign governments that "extort unreasonably low prices from US drugmakers" using price controls and said USA trade representatives would prioritize the issue in trade deals.

Trump has also appointed industry insiders to top posts at the HHS and FDA.

Some of the administration's longer-term priorities include restricting use of rebates, creating incentives for drugmakers to lower list prices, and investigating tools to address foreign government practices that it said could be harming innovation and driving up USA prices.

The president wants to arm Medicare negotiators with new tools to obtain better prices for patients. In 2015, the US spent $1,162 per person on pharmaceuticals, according to the Organization for Economic Cooperation and Development.

Pharmaceutical companies often launch their drugs with high initial prices.

The blueprint echoes some of those initiatives and says curbing abuse of FDA's Risk Evaluation and Mitigation Strategy (REMS) programs will be a priority to help generic drugs come to market faster.

First, drug manufacturers have rapidly increased the list prices of drugs over the last couple of decades, sometimes even doubling or tripling prices.

Patents last longer in the USA than most countries, typically giving companies a dozen years of competition-free marketing after a drug launches.

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