(C) Ohio Capital Journal
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Trump drug order ignores the government's interest in high drug prices, Ohio expert says • Ohio Capital Journal [1]
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Date: 2025-05-20
The issue of drug pricing has been as pressing in Ohio as anywhere. President Donald Trump last week issued an executive order requiring drugmakers to offer their products as cheaply here as they do overseas.
But players in the industry say the order lacks detail about how it would make that happen. An Ohio expert said the order ignores the arcane, often self-serving way drug prices are inflated by myriad players in the United States — including the government itself.
In Ohio, the cost of prescription drugs has been an issue of major contention the last several years, including lawsuits against drug middlemen known as Pharmacy Benefit Managers, who’ve been accused of vertical integration, inflating prices, and deterrence of competition.
Trump last Monday issued his executive order, Delivering Most-Favored-Nation Drug Pricing to American Patients.
The order notes that the United States has less than 5% of the world’s population, yet Americans pay “three quarters of global pharmaceutical profits.” It accuses drugmakers of unfairly billing Americans for research and development while agreeing to lower prices demanded by governments of other developed countries.
“Drug manufacturers, rather than seeking to equalize evident price discrimination, agree to other countries’ demands for low prices, and simultaneously fight against the ability for public and private payers in the United States to negotiate the best prices for patients,” the order says. “The inflated prices in the United States fuel global innovation while foreign health systems get a free ride.”
The order instructs U.S. Health and Human Services Secretary Robert Kennedy Jr. within 30 days to “communicate most-favored-nation price targets to pharmaceutical manufacturers…” Using that list, the government could import drugs selling more cheaply in other countries on a “case-by-case” basis, the order says.
However, there are about 20,000 different prescription drugs sold in the United States. The order doesn’t explain how, in just a month, anyone can gather and analyze global pricing data and decide which countries are getting the best deal on each — much less set up and administer a “case-by-case” system on such a scale.
And there’s the much bigger question of what Trump means by “price.” That word can have many definitions in the inefficient health care system of the United States.
There’s the list price — the price you would have to pay if you don’t have any insurance or other form of discount. But that’s not the price that is typically paid.
The drug middlemen known as pharmacy benefit managers, or PBMs, play a huge role in determining list and net prices in tens of millions of prescription drug transactions.
The biggest three are part of giant health care conglomerates — UnitedHealth Group, CVS Health and Cigna-Express Scripts — that also own top-10 insurance companies. The big PBMs represent those insurers and other payers in prescription-drug transactions.
Two facts about the big PBMs are of great relevance to drug pricing: Combined, the big three handle almost 80% of the insured drug transactions. And they decide which drugs are covered by insurance, and which of those get the most favorable treatment — usually in the form of the lowest copayment.
That enables them to get drugmakers to pay them big — and growing — rebates in exchange for favorable treatment. Drugmakers have been shown to increase list prices to cover the often-nontransparent rebates.
“Because rebates are based on list prices, PBMs are incentivized to prefer drugs with higher list prices, even when cheaper generics and biosimilars are available,” Emma Freer of the American Economic Liberties Project wrote in an MSNBC column Tuesday.
For example, the Federal Trade Commission is suing the big PBMs over insulin practices it says benefitted both the PBMs and the three companies that manufacture almost all the insulin in the United States. It said the PBMs excluded cheaper drugs from coverage so it could chase bigger rebates from more-expensive alternatives.
That would be a win-win for the drugmaker and the middleman. But it would be a big loser for the diabetic who has to make copayments based on inflated list prices, or who has to shoulder the full freight.
While Trump’s executive order accuses other countries of taking advantage of Americans, it’s silent on rebates.
The order is also silent on whether “most-favored-nation pricing” would be enjoyed by all Americans, or just those covered by government programs like Medicare and Medicaid.
Antonio Ciaccia, the Columbus, Ohio-based president of drug-pricing consultant 3 Axis Advisors, said the government also has a strong interest in high drug prices.
That’s because the federal government also gets huge amounts in drugmaker rebates. And that’s money it can use to justify other spending, or tax cuts.
For example, drugmakers are only allowed to pay rebates in Medicare because they’re exempted from the federal anti-kickback statute. Trump in 2020 issued an executive order that would have greatly narrowed the exemption, but it went nowhere.
Then, in 2022, an extension of anti-kickback exemptions under Medicare was slipped into an unrelated gun bill. Democrats and Republicans voted for the bill. Sen. Rob Portman, R-Ohio, gave a reason — the federal government stood to collect an estimated $180 billion in Medicare rebates over a decade.
Allowing rebates might cost Americans and their government more over the long run, but as budgets are written, they’re revenue that can be used for other things. In government circles, it’s known as a “pay-for.”
In an email, Ciaccia said that giving government an incentive to chase rebates inflates drug prices and that works against Trump’s stated priorities.
“The biggest lie in the drug supply chain is that government wants lower prices for medicines,” he said. “What government actually wants is bigger discounts off the prices of medicines.”
He added, “When public policy is explicitly designed to inflate drug prices and then soak discounts off those prices to fund ‘other’ things, if you actually lower the prices, those ‘other things’ are in big trouble. This is why the U.S. government can’t get enough of this addictive horse-trading of drug money for other priorities, which is why high prices reign supreme.”
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