Forbes senior editor Alex Knapp joined "Forbes Newsroom" to discuss President Donald Trump's drug pricing executive order and the impact of potential cuts to Medicaid.
Category
🗞
NewsTranscript
00:00Hi, everybody. I'm Brittany Lewis, a breaking news reporter here at Forbes.
00:07Joining me now is my Forbes colleague, senior editor Alex Knapp. Alex, thank you so much for
00:11joining me. Always great to be here, Brittany. You are my go-to for everything healthcare-related,
00:18and there is a lot of healthcare-related news this week, so I want to dive right into it
00:23and get your expertise here. First, let's start on Monday. President Trump signed an
00:27executive order around drug prices. He's asking pharmaceutical companies to lower the prices of
00:32their drugs, and he said that this could reduce costs for prescription drugs of up to 30 percent
00:37to 80 percent. Can you talk to us first about what exactly is in this executive action?
00:44Sure. I'm going to pull out a little Shakespeare here in that there's a lot of sound and fury
00:49signifying nothing in the context of the executive order itself. What it does, in essence,
00:57is he wants to tie the cost of prescription drugs to what people pay in other developed
01:03nations, particularly Europe, where the costs of a lot of drugs are significantly lower for a wide
01:11variety of reasons. For one, their national healthcare systems negotiate for those prices,
01:17and Medicare, except for certain exceptions, is prohibited from negotiating for prices. That's
01:22one big reason for that. But there's not a lot of mechanism of action to actually make it happen.
01:31So the Department of Health and Human Services and its subsidiary agencies have to set targets,
01:36which they're going to ask the pharmaceutical companies very politely, I guess, to meet.
01:43And if they don't meet those goals, then the Health and Human Services Secretary right now, Robert F.
01:51Kennedy Jr., would be asked to start a regulatory process to kind of make this happen. The challenge
02:00there is that there's no actual law that would give the authority to HHS to actually negotiate drug prices. In fact,
02:08the Trump administration tried to do this the first time around during its first term, and the courts
02:16blocked those efforts on the grounds, basically, that there wasn't any legislation, as well as a few
02:22other things besides.
02:24I want to talk exactly why high drug prices seem to be a uniquely American problem. Because when you talk
02:30to other people from other countries, they are just shocked when they learn just how high Americans
02:35are paying for prescription drug prices. And in 2024, the organization RAND found this, that drug prices
02:41in the United States are over 270% higher than drugs in other countries. So why are drugs in the United
02:49States so much higher than anywhere else?
02:51So there's a wide variety of reasons for this. Part of it is that the drug companies often, like I said,
03:02they negotiate prices with national health care systems. The United States, of course, doesn't have
03:06one apart from Medicare, which does not negotiate the price of drugs. And so in some sense, the
03:16pharmaceutical companies kind of make up a little bit of some of the money that they're missing out on
03:23with some of those negotiated prices. There's a little bit of a free rider issue happening.
03:27The other complicating factor is that health systems and pharmacies also add to the cost of drugs. And in
03:37particular, a lot of the eventual price that like you or I pay for a drug is done by what are called
03:44pharmacy benefit managers who work on behalf of insurance companies and payers to kind of set the
03:49price of drugs. There is a real lack of transparency into how these people, how these organizations
03:58actually set the price of drugs. I remember I interviewed someone who, he started up his own
04:06PBM that wanted to provide drugs less expensively. And he said that he'd been studying PBMs for something
04:14like 10 years and he still didn't know exactly how they worked or how they got to the price of drugs.
04:19So, you know, it's complicated. It's okay. And that contributes to it. Now there is bipartisan
04:25legislation to kind of rein in these middlemen, these pharmacy benefit managers, and to add more
04:35transparency to the price of drugs. And when asked about reducing drug costs, you know, Senator Chuck
04:42Grassley for one, a Republican from Iowa, kind of pointed to his PBM legislation as being a better
04:48way to do it than kind of tying the price of drugs elsewhere. The other thing you got to keep in mind
04:53is that the United States is also a richer country than everyone else. Like per capita, our income is
04:59significantly higher than a lot of other countries. And so in some way that the price is somewhat
05:06progressive and that we're paying more because we can afford to pay more. And you could argue that
05:11that's maybe how it should be. You could also argue that it shouldn't, you know, however you want to
05:15see it. But, you know, a statistic I like to throw out is that if you made Great Britain a state of the
05:23union, it would be the 51st poorest state, poorer than Mississippi. Like, you know, we're just a really
05:30rich country. We can kind of afford to pay more. That's another part of it.
05:34Another component of it could be that drug makers have huge lobbying power in D.C. Is that something
05:42that you see in your reporting? Oh, that's absolutely the case. I mean, certainly, and, you know,
05:49it's bipartisan. And the drug, the drug companies definitely, you know, hold a lot of sway in D.C.
05:57And I suspect they'll be fighting against any proposal to introduce legislation to kind of make
06:07this policy a reality and make it something that can be implemented legally. I expect this, you know,
06:13anything that tries to happen with this EO to be fought in courts. So, you know, it'll definitely be
06:19a real battle, I think, to bring costs down in this way.
06:24And the title of your newsletter was Trump's drug pricing executive order is more bluster than
06:31substance. And as you noted, he tried doing this in his first term. That failed to happen. Do you
06:37think that we're going to see something really materialized where we're seeing a substantial
06:41reduction in the prices of drugs in this country based on this executive order alone? Because as you
06:46said, congressional approval, congressional legislation is also needed here.
06:51Yeah, I, you know, there's one interesting subset of this is that the text of the EO does seem to
06:57provide an incentive for drug companies that reduce their price when they sell directly to consumers.
07:05And this is something that drug companies have been experimenting with in a kind of very limited way.
07:10I think most notably that Lilly, for example, sells this GLP-1 drugs, particularly ZEP-bound,
07:18which is for weight loss. They have a program to sell that directly to consumer, which is something
07:24that they started up a few months ago that has seen some real success as a way to get the drug
07:31more inexpensively if your insurance doesn't cover it. And a lot of folks' insurance doesn't.
07:35And there is an incentive to do that. So you might see as a result of this, some programs
07:42geared around more direct consumer sales directly from drug companies instead of going through
07:48pharmacies. That would be kind of interesting. You also may see the kind of thing where you see some
07:55symbolic actions. So you saw with like domestic manufacturing, you know, some companies made a big
08:03deal about bringing some manufacturing back home or expanding domestic manufacturing.
08:11They plan to do it the whole time, but, you know, they'll make a show of it to make the administration
08:17happy. And as long as there's a show of it, the administration seems to be happy. So, you know,
08:22it's kind of a win-win that way.
08:24An argument maybe perhaps for these high drug prices is that if you lower them, that could
08:30stifle innovation. Does this executive order do anything regarding innovation in the healthcare
08:36space? Will we see less innovation with drugs, do you think, if prices are lower?
08:42You know, it is a real possibility. So one thing you have to keep in mind with talking about drug
08:48development is from start to finish, from the very start of the development process to the very end,
08:55only about 10% of drugs actually make it to market. But drug companies still spend hundreds of millions,
09:02even billions of dollars on drugs that fail. And those costs have to be recouped for the, you know,
09:09for the businesses to keep going. And so if you were to lower prices and your lower margins accordingly,
09:15I think, you know, you certainly still see drug development, but you see a lot more Me Too
09:21development. You'd probably see more like refinements of current drugs. You'd probably
09:26see more like this drug's already approved for XYZ cancer. Let's see if it works for ABNC cancer as
09:33well. But you'll probably see less innovation in the sense of riskier drugs or things that are untried
09:43or targets that are untried. You'd probably see less spending towards those, particularly with
09:48the president's budget wanting to cut basic research and other things. So, you know, that's
09:54where you get kind of a ripple effect here is with the NIH cutting funding to basic research,
09:59even cancer research. You're going to, you know, see fewer ideas being tested in the lab to even get
10:06to the drug development part in the first place. So yeah, that the combination of these things could
10:11definitely result in less innovation. It's a real trade-off. I want to now pivot a bit, and you did
10:16a perfect segue for me, so thank you very much, to President Trump's agenda. He wants to pass this,
10:22what he calls this one big beautiful bill. House Republicans want to jam that through. They're
10:27tasked with finding cuts here, and the Energy and Commerce Committee specifically was tasked with
10:32cutting hundreds of millions of dollars. And the way the math was adding up, it seemed that Medicaid
10:38was really on the chopping block. And House Republicans' eye talked to, a lot of them said,
10:42we're not touching Medicaid, we're not touching entitlements, all we're doing is finding out and
10:47weeding out the waste, fraud, and abuse. But it seems like there's going to be some significant
10:51cuts to Medicaid. Talk to us a little bit about that.
10:56Yeah, so right now, it definitely seems that there's going to be significant cuts,
11:00probably on the order of, you know, and we were talking double-digit cuts, you know,
11:06so the numbers aren't final, but, you know, around 20 percent-ish, kind of phased in over the next
11:12few years. You know, there's some real savvy dates in the budget. Some of these things don't
11:20take place until after the midterm election. Some of them don't take place until after the next
11:25presidential election. So I think there's definitely some concern for fallout from some
11:31of the impacts of these cuts that the folks in Congress are keeping in mind. There was an estimate
11:38by the Congressional Budget Office that the end results of the cuts in Medicare would probably
11:44result in about 13 and a half million more people being uninsured over the course of the next decade
11:51than would have been the case otherwise. That's bad not only for the people who are uninsured,
11:56it actually causes an increase of costs overall. So when people don't have health insurance,
12:02they don't have health coverage, they're not going to the doctor for some of the things,
12:05which means that the first time they encounter the health care system when they have a problem
12:09is going to be in the emergency room, which is significantly more expensive, results in
12:14hospitalization, which is significantly more expensive. So it's kind of like bragging that you
12:20cut your household budget by not doing, you know, we're not going to do our car maintenance every
12:25three months anymore. We're going to save, you know, a couple hundred bucks every few months,
12:30but then your car breaks down and you end up spending a lot more. That's kind of what the
12:35end results of some of these cuts may end up being.
12:38And I think you and I have talked about before about the unintended consequences,
12:43and that's what I've been seeing a lot. Not only the impact of the millions of people who are going to
12:48lose their coverage, but also the impact on the people who still have coverage. I mean,
12:52what does this do to premiums? What does this do to health care costs overall for people who still
12:57are insured? Yeah, that's a great question. Of course, some of the details are still being
13:02negotiated. They're not all out yet. You know, one thing is that there that looks like there will
13:07probably be an increase in cost sharing from patients. And yet I remember when people are on
13:12Medicaid, it's already because they don't have a lot of money or they can't work. And so that's going
13:20to be a burden there. It's also probably going to be asking the states to put in more money. A lot of
13:26state budgets are already overburdened. So the upshot of this, you know, when you look at some of the
13:33analysis coming out from the nonprofits that are studying these and doing the analysis is that
13:39there's probably going to be fewer services that are covered and some restrictions on eligibility
13:44and who will be, you know, allowed to enroll in Medicaid on the state level. That that is controlled
13:49on the state level. And one real place where you might see some costs of this is you got to remember,
13:55you know, again, over 70 million people get their health insurance through Medicaid. In particular,
14:01a significant number of births are covered in Medicaid. So pregnancies. So we may see more
14:09complications to pregnancies. We may see more issues, you know, involving miscarriages. We may
14:15see increases in infant mortality. And not only because people aren't getting coverage, but also
14:22a lot of rural health care systems kind of depend on, you know, these Medicaid payments
14:29to keep going, to keep their operating costs. A lot of rural hospitals are in the red. This could
14:36put them more in the red. We could, we've already started to see like maternal care and other kind
14:42of inpatient services like for mental health and other things being shut down. And it's just going to
14:47mean that for people in rural areas in particular, they're going to have fewer resources, fewer options
14:54to take care of their own health. And as you and I sit here right now, this one big, beautiful bill,
15:00as President Trump calls it, it hasn't even made its way to the Senate yet. But based on what you see
15:06now, based on the details that are coming out now, how exactly does this change the landscape of
15:11health care in this country? Do you think it's dramatic? Do you think it's more muted? What do you
15:15make of that? That's a great question. I have real questions over whether a lot of these cuts will
15:21survive the Senate. You know, there seems to be a lot more opposition among, you know, Republican
15:28senators to a lot of these provisions. So I do think, you know, even the House version that we see
15:33now is muted from what was being floated a couple of weeks ago. You know, we've definitely seen some
15:39reductions and some of the proposed cuts and other things. I suspect that we will, as it goes to the
15:46Senate, we'll see even further reductions in cuts. And I do think that probably, one, you know,
15:55it'll probably be less, you know, we probably won't see a worst case scenario. I do think that the
16:01Senate negotiations are going to blunt a lot of the impacts of some of these things, especially as more
16:07state legislators and governors start lobbying as well. And people, again, worried about their
16:13midterm elections and other things. So it really depends. I think part of, weirdly enough, where the
16:21battle may going to happen is how many of the tax cuts that the administration is proposing end up
16:27going through. You may see that the bond markets are really opposed to the tax cuts and implement right
16:36now. Bond vigilantes kicked Liz Truss out of office in the UK when she tried some really significant
16:42unfunded tax mandates. So it's a real question of whether tax cuts or spending cuts to Medicaid went
16:51out overall in terms of reigning in the deficit. So that's the interesting battle to watch.
16:58And if we remember, I don't think Liz Truss' tenure was as long as a head of lettuce was ripe. I mean,
17:05that was the ongoing joke there. And she didn't survive over that. But I do not want to ask you,
17:11HHS Secretary Robert F. Kennedy Jr. did testify before lawmakers this week as an editor in the
17:18healthcare space. What piqued your interest? What stuck out to you? Well, I think that the primary
17:26thing that stuck out to me is that it left me wondering if the secretary is entirely knowledgeable
17:34about what's going on in the subsidiary agencies and HHS. So, you know, he got questions from
17:40senators and in the House about, you know, staffing cuts impacting cancer research, about people being
17:46kicked out of clinical trials. And he kind of denied that any of these things were going on, saying that,
17:52you know, no scientists have been fired, that nobody had been kicked out of a clinical trial who should
17:59have been in that clinical trial. But there's, you know, a significant amount of evidence reporting to
18:03suggest that that's simply not the case. And so it makes me wonder how aware is he of what his own
18:11agency is doing. And he also, I'm not sure, you know, one thing that was interesting to me is I'm not
18:18sure how into some of these cuts he was, he kind of said that as secretary, he has to defend the
18:24administration's budget, but he didn't seem particularly happy about, you know, how badly the
18:29cuts are impacting his own agency. And, you know, he, I give him credit for one thing is that he did
18:38admit to some mistakes that have been made and some of the doge cuts and others that have been
18:43subsequently reinstated enough to them. So credit where credit's due there, but it was certainly a very
18:49combative thing. And I think he's still left senators and representatives alike with a lot of
18:56unanswered questions. And I think something that really sparked social media's interest for sure
19:02is he said something to the effect of, don't get your medical advice from me. I mean, he's the HHS
19:07secretary before him. I mean, is that unprecedented for some, an HHS secretary to basically say,
19:14hey, I'm not the guy for medical advice?
19:17I, yeah, I mean, it certainly is, you know, part of the role of HHS, you know,
19:22this is the industry that oversees the CDC, the FDA, any, the NIH, any number of healthcare industries.
19:30And a big part of public health is, you know, providing advice and providing, you know, a base
19:37of knowledge that people can rely on to protect their own health. And so to say, I'm not the guy
19:42to get advice from, to me really felt like an application of responsibility. But also given that
19:49he also has a history of disseminating some medical information that, that turns out not to be true.
19:55I also maybe kind of agree with him on that point. So there's the, there's the paradox there.
20:02Well, Alex, I know that healthcare in this country is going to be a major talking point
20:08as this budget goes through, as we see more actions from the Trump administration. And I hope you can come
20:14on, make sense of them with us. Thank you so much for joining me. You are welcome back anytime.
20:20Great. Thanks. I'll be happy to come back.