Welcome to 2018, where drug-pricing policy is made on Twitter.
President Trump called out Pfizer Inc. in a tweet on Monday for a series of drug price increases. He tweeted a day later that Pfizer had agreed to roll them back after he had a phone discussion with its CEO. Pfizer released a press release soon afterward that added details. Of course, there are some devils there.
The price hikes aren’t dead — they’re deferred until Jan. 1, unless the administration’s drug-pricing blueprint comes into effect first. A likely delay of five months and 21 days for planned price hikes is not exactly the “voluntary massive drops in prices” that Trump once promised.
This is still highly unusual, but at the end of the day it’s largely a public relations exercise. Any patient benefit will most likely be minor and transient. And the impact on the fundamental issues driving up drug prices is likely to be nonexistent.
The fact that this is Pfizer is notable. The company has been a consistent and rather unapologetic price hiker. But the company is arguably getting a solid deal. It gave the Trump administration a needed PR victory on drug prices and let the president play master negotiator. Pfizer will most likely get a reprieve from public criticism at a minimum and possibly a boost to its reputation.
There are likely to be some consequences for Pfizer’s second-half results; the company doesn’t raise prices for fun. But Pfizer said Wednesday morning that the move won’t alter its 2018 guidance. After all, the company will continue to benefit from its many years of previous price hikes.
Tying the deferment to the pricing blueprint is notable. From a practical standpoint, it most likely won’t matter. There’s little chance that it will be enacted meaningfully anytime soon because at the moment it’s just a collection of questions and suggestions. Many of its more practical ideas would take congressional action, which is unlikely.
So Pfizer’s reference to the blueprint looks like an effort to conspicuously give credit to the White House. But it also may be a sign that the administration will target pharmacy benefit managers rather than drugmakers. This is something of a leap, but it makes sense as a possible motivation for Pfizer’s about-face.
Eliminating or reducing the rebates that PBMs demand from drugmakers is arguably the one blueprint proposal that would benefit big pharma significantly and allow Pfizer to defer price hikes with no consequences. Pfizer said on its most recent earnings call that the net increase in its drug prices amounted to 0 percent in the first quarter after PBM discounts.
If rebates went down, Pfizer’s drugs would be substantially more profitable at their current price, theoretically enabling them to maintain or even reduce list prices without eroding profit.
It sounds great. But remodeling the entire U.S. drug-pricing regime will take years, not months, and the administration has not provided a detailed plan of how it could be accomplished.
There could also be unintended consequences. Lower list prices are good for those exposed to them by a lack of insurance, high deductibles or co-pays. While the current system creates a lot of distortion and can rightfully be blamed for some price hikes, it’s not clear that a new system would be as good at reducing the actual prices paid for medicines. The notion that pharma firms would reduce list prices to the current net price and keep them there seems laughably optimistic.
A subset of Americans will briefly avoid modest increases to their prescription drug bill. That’s not nothing. But there’s a long way to go before this reversal is anything but a sideshow to the drug-pricing debate.
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The actual delay might be much shorter given the time it will take to roll back the price increases.
©2018 Bloomberg L.P.