The cost of healthcare has climbed at a rate considerably above that of inflation, and high drug costs are a big factor. During his campaign, President Trump indicated that he would take steps to force "big Pharma" to lower prices, and in that vein his administration is in the process of drafting a drug pricing executive order. But it appears that the upcoming executive order may be, if anything, supportive of big Pharma.

The drafting committee

The Drug Pricing and Innovation Working Group, the committee responsible for drafting the executive order, consists of a group of senior officials from Health and Human Services, the FDA, the Department of Commerce, the Department of Justice, and other interested departments. The group is led by Joe Grogan, who until last March worked as a lobbyist for Gilead Sciences (NASDAQ:GILD). Several other senior officials also have ties to the industry, including Scott Gottlieb, the new commissioner of the FDA, who was previously a consultant to the drug industry.

Medicine bottle and pills

Image source: Getty Images.

Committee notes

Some committee notes obtained by Kaiser Health News shed light on the subjects that the drafting committee has considered including in the executive order. The notes included ideas such as:

  • Extending patent lives for drugs sold in foreign markets. The idea behind this is to raise the costs for drugs sold overseas in hopes that this will allow pharmaceutical companies to lower costs for drugs in the USA.

  • Value-based pricing. Prescription costs would be unchanged, but pharmaceutical companies would pay patients rebates if the drugs failed to work.

  • Issuing 10-year Treasury bonds to help pay for common (and very expensive) hepatitis C drugs under Medicare and Medicaid, so that more patients in these programs would have access to these drugs.

  • Creating a new tax credit for investments in generic-drug research and manufacturing to encourage the development of cheaper generic versions of drugs.

  • Scaling back the 340B program, which requires drug companies to supply some medications at a discount for hospitals that treat low-income patients.

What isn't in the works

During his campaign, President Trump supported the idea of allowing Medicare to negotiate on price with drug manufacturers. Proponents of this measure believe that allowing the federal government to negotiate directly on price for prescriptions would lead to price cuts across the board. Detractors argue that, because Medicare is required to buy certain drugs, being able to negotiate wouldn't necessarily produce drastic savings.

Governments in countries such as Britain have the added power of being the only possible buyer of drugs because of universal healthcare, which gives them considerably greater negotiating clout than Medicare would have. In any event, there's no mention of allowing Medicare to negotiate on price in either the committee's notes or in the draft version of the executive order leaked to The New York Times.

A ray of hope

While it seems likely that the drug pricing executive order will be toothless at best -- and outright supportive of big Pharma at worst -- one hopeful sign has emerged from the FDA: Gottlieb has announced a plan to speed up the approval of new generic drugs, particularly in the case of drugs for which there is only one substitute in the marketplace. He told CNBC that the FDA will prioritize the approval of new generic drugs for these limited categories until there are at least three competitors for each. Should this plan succeed, the much higher level of competition for these important drugs should result in considerably lower prices.

 

Wendy Connick has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Gilead Sciences. The Motley Fool has the following options: long August 2017 $75 calls on Gilead Sciences. The Motley Fool has a disclosure policy.