World Freeloads Off U.S. on Drug Pricing, Miller Says

one of the largest companies in the country. It is an American Fortune Fortune one hundred company, h the twentieth largest in the US, and it is the largest pharmacy benefit management organization in the United States. Dr Miller, I want to start with drug pricing. We hear a lot about you know that the price is too high? Uh do you think do you agree? Do you think that the cost of drugs in the US is too high? Let's start there at least I definitely think they are.

Americans are actually should during their burdens for the rest of the world. So we're four point six percent of the world's population, We're thirty three of world drug spend. We're somewhere between fifty and seventy percent of drug profits. So we truly are funding all innovation for the rest of the world, and they're actually freeloading on America. So

what could be done to actually bring prices down? So you know, we've worked very hard, and there's certain things that we can do every day, uh that, and that patients can actually do every day. So, for instance, if there's a generic available for a branded product, you should be taking the generics. The FDA approves them under the same process. They've been proven time and time again to

be equally effective. But there's also things we got to do dramatically if we're going to continue that, and that is we've got to make biosimilars available in this country. So biosimilars are generic versions of the complex drugs for cancer, rheumatoid arthritis, other diseases. American companies have been making these drugs for Europeans. They've been taking advantage of them for

the last eight years. The discounts are somewhere between sixty and sev yet they're unavailable in the United States and that makes no sense. Dr Miller, You've been described as

a cost fighting ninja. You must there must be a target on you from all of the pharmaceutical companies because I want you to tell us about formularies and how you arrive at the how do you go through the process of determining which drugs are covered and how much is paid, Because this is something that you're dealing with by looking at your own data, not relying on the data from let's say the drug companies or even from

healthcare providers. Yeah, so formularies are listed drugs, and that list has to have any a drug to treat any patient with any disease. It walks into a doctor and so there's about twenty five thousand different products in the United States, but it turns out that doctors need about dred of them, and so it allows us to put drug company against drug company to get better deals. So the simplest example is there are six different statins like lipatore, zoe,

core crust or other things. What you do is you say to the pharmaceutical manufacturers, I need a statun for my patients. But the data shows that you're all equivalent who will give us the best price, and so by pitting them together, we can actually drive market share and get lower prices. And so we have a process in which our formularies are designed by external experts to express scripts, no employees of express Scripts. The only thing they can

consider is clinical. They're not allowed to consider price. This way, we can guarantee to our plans and our patients that we've always put clinical first, that we always have the right drugs available for them. But then we once we have their parameters, can drive to the lowest net cost. So, Dr Miller, how do you respond to, let's say a pharmaceutical company that would say to you, by you're doing this, you are reducing our R and D budget and you're

sort of inhibiting the production of new drugs. Yeah, so I will tell you that the typical responses is that you know what is we uh, there's nothing in the pipeline. It turns out that because of American ingenuity, we have over seven thousand products in clinical testing in the United States right now, and that's the data according to the pharmaceutical manufacturers. When you look at FDA approvals, two thousand and fifteen was almost a record. You have to go

back twenty years to have that many drugs approved. So we actually have a very vigorous drug pipeline. That's funded by the ni H, it's funded by the pharmaceutical manufacturers, it's funded by others. And so I'm not worried that US trying to drive to the lowest cost. This is still a four hundred billion dollar industry. There's plenty of profitability there for the drug companies to do R and D. The President has publicly come out against high drug prices.

He's singled out various pharmaceutical companies. What can the president do without Congress? Can he do anything in order to change drug pricing? Yeah? So we there are things that require legislation, obviously, but there's a lot that can be done by regulations. So the f d A, cms all have really a lot of influence over drug pricing. So

I'll give you a couple examples. Right now, we have a backlog of generic approvals that the f d A. The FDA could obviously do things to accelerate those approvals. Getting those generics out into the marketplace lowers drug prices. We have these situations where we have only one generic

in the marketplace, they've been jacking up the price. You've seen this with situations like Derra prim The FDA could actually prioritize a competitor to uh DERA prim So don't just accept the applications as they come in in but when there's a shortage in the marketplace, put that at the top priority list and get a competitor and faster. So there are plenty of regulatory things that can be done to bring down drugs. Thank you very much for being with us. Dr Steve Miller is the Chief Medical

Officer Senior Vice president Express Scripts. Joining us here at the National Medicare Advantage Summit taking place in Arlington, Virginia. It is hosted by a Better Medicare Alliance. We are broadcasting for the National Medicare Advantage Summit taking place in Arlington, Virginia, right across the River Potomac from Washington, d C. And here to tell us more about the healthcare system in the United States is Tom Scully. He's a general partner

with Welsh, Carson, Anderson and Stow. He has also senior counsel at Austin and Bird. But perhaps more importantly for our conversation, he was the administrator of the Centers for Medicare and Medicaid Services under President George W. Bush. And yes, both both bushes, one push, one end push too. Um, and you also really played a very important role in helping to design Medicare Part D Medicare Advantage both. Right, um, so,

where do where do you? Where do you start when you try to explain to people the current state, because there's so many pieces to this, whether it's Medicare advantage, whether it's supplemental, whether it's Medicare Medicaid. You say you're on the board of a Medicaid insurance program here in d C. How do you tease all this out so that we can understand at least where we are and what are some of the options to move forward to make it better. Who would ever know healthcare was so complicated?

Well maybe maybe the best way the reason you were you were the admit you would the administrator for the Centers for Medicare and Medicaid Services. What does the c m S. C MS is a giant agency in Baltimore, which most people in Washington you know. It's in Baltimore, and it runs Medicare and Medicaid and it also runs the exchanges, the Obamacare exchanges, UH and a number of other things. But it's um so you probably have seventy

seven million people. One of the four Americans roughly in the Medicaid program, which is lower income you know, lower income healthcare for women and kids, covers seventy the nursing homes in the country, covers most the disabled mentally retarded people in the country as far as mentally disabled UM and Medicare is forty four million seniors and chronically disabled people.

So their giant programs. The combined budget for CMS with between all of Medicare, Medicaid and the problems about one point four trillion dollars a year, So it basically runs about half the health care economy, and uh a lot of it is on autopilot. So I would say n of the you know, the these seven right people have the job in less twenty years. Democrats Republicans were all friends, and most of the job is running giant insurance plans and making sure all these beneficiaries getting take care of.

And in certain periods of time, like with Obamacare or in my case with the Party and Medicare advantage, they get very legislative legislator in tense times, you spend time changing the problem. So when I came in with Pushing two thousand one, it was like called heck, I changed the name. The CMS been a week after I got there. You didn't want to work for HECA? No, you know

what a long story. I used to run the for profit Hospital Association for eight c A and ten and those guys back in the nineties, and I had a lot of friends at HeLa. But there's a perception, fair unfair, that there's a big slumbo and bureaucracy. So I told my boss at the time, Tommy Toomp, said hey, let's change the name. And there's nothing in the statute. So

we just sat around made up in her name. Well, so you were talking about at one point for a trillion dollar budget for all of these agencies, and you're saying so on a pilot. Meanwhile, we're looking at budget projections that are saying that the cost is going to balloon as the population does age. Are there conversations that are being had that you're involved with with the current legislators for making feasible changes that would reduce costs over time?

And what the House bill? This is the biggest debate in the country list you know three months is the Paul Ryan House Bill didn't pass. So if you take Obamacare, I'm not trying to criticize President Obama. I think he was worthy effort to try to cover and of universal coverage. But what happened under President Obama's healthcare plan is if you look at before I kicked in two thousand twelve, you had fifty five million people on the medicaid. Problem.

Between then and today, it's going from fifty five million to seventy seven million, So two million people on Medicaid. If you kept it going for the next ten years, you go to ninety seven million. Current spending on Medicaid now six hundred billion dollars a year, six hundred billion dollars here, it's a big number already, a drums round. It will be from six to nine hundred and fifty

billion over the next ten years. But isn't that more of a commentary on sort of the fact that there are people who are falling into poverty or falling into a lower income bracket and help. No, you're President Obama did, I'm not trying to be good pro con that bill expanded the poverty coverage of Medicaid and mandated there was gonna go to a hundred and thirty eight percent of poverty in every state. The Supreme Court came out said

you can't force the states to do that. So thirty one northern, largely democratic states took the hundred percent from the money and expanded their problems massively, and nineteen largely southern, more conservative states said we're not going to do it. We don't want to have these giant new in talent problems, and until nineteen of them skipped it. Okay. So the real issue is what the Republicans have done. These are big policy changes that effect have an enormous impact in

every American the economy. Republicans largely said we're gonna freeze it where it is, So spending a Medicaid under what Paul Ryan wanted to do would go from six hundred billion this year to about seven d fifty billion, and ten years if you left it on the cruise control from Obamacare, we go from sillion to nine hundred billion. The Republicans would freeze it where it is at about seventies seven million people. Those are big policy issues. Do you want to cover all those new people in those

other states? Do you want to you know, those are you're talking about another twenty million people in the medicaid problems that good or bad those are big, fundamental, gigantic economic issues. So I have been to love to medicaid problem. But every person, let's every person is paying taxes out there listening to this, pays four thousand dollars per year. You're not a Medicaid that is your tax contribution to pay for Medicaid every year is four thousand dollars per taxpayer.

And you and all make a decision do you want to cover all those people and have universal coverage. I think it's the right thing to do. The Medicaid problems of a mass I could you could spend hours explaining to you how screwed up it is structurally, but it's a wonderful problem. I happen to be a fan of usual coverage. But how much do you want to spend where? These are the single biggest issues in the government. Medicare and Medicaid are the biggest problems in the governments security,

and they drive all your taxpayer spending. And these policy issues about who you want to cover where and whose air subsidies and who should get subsidies are massive and they're important to people. And I know they're incredibly complicated. Who health is so complicated, but they are the budget and they are the governments that this is the future of government policy. Is there a model or is there another country that is doing something that we can learn from.

If you were given a clean I mean you're not going to ever get a clean slate, there is no clean slate. But if you were to be given, you know, half a clean slate, what would you do? What would you say? You can't? And I've been doing this forever, and I think things changing incrementally, and I look at I was not a big fan of Obamacare structurally, I

think he's trying to do the right thing. If you look at President Obama's package, and I've said this publicly a lot, it looks a hell of a lot like that George H. W. Bush Plan that I helped design nineteen ninety with a lot more money. So what they were trying to do, the unerfual covers was worthy in a in a rational goal. I think they ever did it went too far and and and and put too much on the structure. But they were trying to do

the right thing. And I think when you look at the Republicans are trying to do, they're actually trying to scale back what President Obama did. So whatever happens, the problems are going to get bigger. It's a matter of how much bigger. And even on the Republican bills, Medicare and Medicator and grow dramatically. The issue is are they gonna grow really fair star less fast so you can't really change it. Did the Dutch have a pretty good system? Yes,

the Germans I think a pretty good system. They have kind of neighborhood based systems. But you have to go back to and blow the whole thing up and start from the scratch. We have an incredibly complicated web of multiple problems the cover people, and you really have no choice but to build on it. Tom Scully, thank you so much for joining us. Truly a fascinating to hear your thoughts. Tom Scully was the head of CMS under

both President George one. Okay, you were in the White House, but you've been making healthcare policy and you did a Medicare party and you also did Medicare advantage, and we really appreciate you being with He looks incredibly healthy. Like about nine seven, Tom Scully general partner at Wells, Carson Anderson and still also Senior council at Austin and bird l LP. We are here broadcasting live at the National Medicare Advantage Summit in Arlington, Virginia. It is hosted by

the Better Medicare Alliance. This is Bloomberg. We are live at the National Medicare Advantage Summit in Arlington, Virginia, and we are so lucky to have Dr Kvita Patel here with us. She is a nonresident Senior Fellow at Brookings Institute and a former advisor to the Obama White House. She worked on the Affordable Care Act. Uh So, Dr Ptel, you really have a clear insight into what's going on

right now? What should we pay attention to. What's the most realistic change that could happen in short order to the a c A Affordable Care Act. So I still think the most realistic change is going to be no change that we're not going to see a repeal or something that kind of completely rips out the Affordable Care Act. There's still a lot of discussions going on, but the bottom line is the votes are not there right now.

Dr Ptel, maybe you could just disc ride to people how Medicare advantage works in the health care system and how this partnership between the public system, which is of

course Medicare UH and private insurance. How does that come together and how does they How did that present a challenge because most people look at this situation they go, boy, it can't get any more complicated, right, right, So the Medicare Advantage Program really started as a way to expand kind of what we would call private sector choices in

insurance for Medicare beneficiaries. And that was actually done during a Republican administration previously, the actual George H. W. Bush administration, and that failed a little bit in its first attempt, and then there was a little bit of a reboot in the in the George W. Bush administration, where we then got what we have today, which is the Medicare

Advantage Program. And basically of people in Medicare are in private plans, which are Medicare Advance Plans, which are basically confusing because and what if you have a family member like I do they just get a bunch of brochures like around October and they have all these choices, And

that's what you're referencing. But where we've gotten now is actually, in about five years, more than half of the Medicare beneficiaries are going to be in these Medicare advantage or private commercial insurance plans in Medicare, then the traditional fee for service a million people currently in Medicare correct about fifty five to sixty million in the Medicare program. That number is going to grow in the next five years. But then half of the people in this program in

Medicare will be in the Medicare advantage program. How does Medicare advantage and partnering private health insurance companies with public ones reduce costs? So the way it reduces cost is basically by what what the government does is it actually pays the private insurance plan kind of a lump some amount to take care of basically everything. Right now, at traditional Medicare, there's hospital costs, physician costs, drug costs, and it's all pays out of separate pockets and pieces of

the government. Pie Medicare advantage, the government pays one lump sum to the private plan and says you take care of everything, no matter how much it costs. And if someone doesn't necessarily need all that money, then the plan keeps that extra money. And what the plans will do

in a way to save money. Is they will do really aggressive things like send a nurse out to a patient's home to do an in home assessment and not ever have to even see the doctor to establish kind of what that patient needs, all in an attempt to create a more efficient system. Okay, so talking about private health insurers brings me back to A C A and

the path forward. The latest plan that was unveiled today by an Alabama Republican congressman shows that there is an attempt to try to pull out high risk pools or sort of group people by how risky they are they are and their pre existing conditions. Can you speak to that and how effective that could be? Yeah? So you remember the criticism of the American Health Care Act is that potentially the older or sicker you are, you're gonna have to pay potentially a thousand percent more than you

would today under the Affordable Care Act. So what's being introduced now is ways to actually deal with sicker patients who are older and to try to acknowledge that they

need something different than just regular old Medicare insurance. So what you're seeing proposed um not just for Medicare but for actually any age are these high risk pools that take people out based on the numbers of kind of you know, numbers of diseases that they have, or how sick they are, based on how much money they're using in the system, or potentially pre existing conditions, and then

charge them more. And then well if one charges them more, but then it also puts them in a different cool almost like medicare advantage, where it's a private insurance system that then has to take care of them for a dedicated amount of money. But I don't understand this works why any insurance company would agree to take them on. So it's yes, that's a good question. Will anyone actually take on the sickest people in a population? If you pay enough money, somebody will. But who's gonna put that?

This gonna put the government is so at the end of the day, you have mentioned I obviously am a fan of the Affordable Care Act, even with its warts and flaws. At the end of the day, somebody has to foot the bill. We can't skirt or get around the fact that as a society we have to pay for healthcare as a society, including people who are really sick and including people who are super healthy. And that's

the bottom line. I want your thoughts on prescription drug prices and the insurance plans around those, because the president has the President Donald Trump has come out via tweets, via verbal uh rhetoric, he's saying drug prices are too high. Correct. So the emphasis on drug pricing is very interesting for a Republican administration, and it's largely, as you mentioned, because

of President Trump's quotes. Translating that into something that will change the way all of us receive our prescription drugs is very hard to do. However, that's something if you listen to all the people who work under President Trump, they've said that this is one of the top priorities for the White House. The way prescription drug plans work right now, most of us in America don't even realize it.

It's a third party that deals with the way your drugs are paid for, and those are called prescription benefit plans. And so there's a whole different entity and industry outside of your insurance card that actually deals with all of this. And that's why it's complicated and I am not likely to see a change happen soon. Well, I want to thank you for helping us understand that at least a little bit. Dr Kvita Patel, Nonresident Senior Fellow, Brookings Institution.

We are broadcasting at the National Medicare Advantage Summit taking place in Arlington, Virginia, is hosted by Better Medicare Alliance. And to turn our attention now to politics and America's relationship with China, I want to bring in Brendan A. Hearn. He is the chief investment officer of Crane Shares and Brendan of course, we're all wondering about the Chinese President Jijing Ping's visit to UH President Donald Trump's mar Alago Club in Florida. What do you think the most pressing

topic their meeting will be. It's going to be North Korea him. It's an area of mutual interest in an area where there's potential a lot of potential collaboration and coming up with a solution that is certainly a factor for both countries. Well, so North Korea is definitely even more on people's minds just because of the recent missile tests. But don't both sides have a reason to not say anything.

I mean, it's the best case scenario that neither of them say anything and they make nice and then they have a nice photo up with each other. I agree at Lisa. I think ultimately you want to get the dialogue going between you know, the first and second largest world economies leaders talking with one another, and hopefully that sets a path for more communication um in the years

to come. You know, Brendan, one of the issues has been Chinese acquisitions of what are considered to be essential assets. For example, Chinese companies attempts to purchase oil companies in the United States that was thwarted. Do you think that there is going to be talk about the Westinghouse Toshiba unit that is up for sale that is facing financial problems.

Good question. I believe the this is an opportunity for President g to show Trump and and really the United States in general about how much business China is doing here in the US. Last year, three million tourists, three hundred thousand Chinese students studying. China is the second larger buyer of agricultural products, and there's US companies doing well in China. I think this gives China opportunities to show

how they can be a good business partner. And yes, there are sensitive sectors, you know, technology being one of them, nuclear energy. Well, what we're talking about with Westinghouse nuclear energy well, and China has a pollution issue. UM nuclear is going to be is currently one of those solutions, along with hydro wind and solar bringing Westinghouse technology to China. They're gonna build you know, it's upwards of two dozen

nuclear plants in the years to come. And why wouldn't that be a good thing for Westinghouse to have a Chinese ownership, either partial or full Brennan. I imagine that one thing that will be brought up is the trade deficit that the US has with China. President Trump has talked extensively about it. He has lamented how big it is, even though it has contracted over the years. What do you expect to come out of this particular meeting with respect to the trade deficit. I think it sets a

this dialogue and communication going forward. I believe that you have a little bit of a team of rivalries within the Trump administration where you've got say, Jared Kushner, Gary Cohen, Manuchin, and Male Pass on one side, uh more of say the globalist trade proponents, and on the other side you have a Steve Banion, Wilbert Ross, Peter Navarro, and so I believe you have a little bit of, uh, the administration finding its way between these two camps that have

divergent views. Well, hold on a second. It's really interesting that you mentioned that because Steve Bannon, as you know, was just removed from the National Security Council. Do you think that that's going to affect this conversation that President Trump has with President Jejim ping and possibly ease the negotiations over some kind of trade contract. I think behind the scenes that the hand, the visible hand of Henry Kissinger is at play. Uh. He visited China in December

to help arrange this meeting. He's been meeting with the administration to help them prep for this meeting. And and so certainly I think you're going to see a more balanced view potentially. I mean, time is gonna tell um in in this course of dialogue. Now, Brendan Crane Shares has a variety of exchange traded funds designed for a Chinese investments. Is the Chinese you want? Is it currently in your mind overvalued or undervalued versus the US dollar?

That's a good question, PIM. I mean, I think ultimately interest rate differentials helped drive currencies China has slowly slightly started the titan not the official interest rates. So so I don't think China meets the Treasury departments uh definition of a currency manipulator. Um. But I think if we were in euro, yen or pound, you might say it's undervalued. Yeah, this is going to be something that that could come up because President Trump has said that, uh, that China

is manipulating its currency. And yet you know, you do wonder if there was some kind of removal of some kind of state control, the direction probably would be down not up right. It probably would de appreciate. Beginning in China cut the official interest rates, the FED moves to a tightening bias the the yuan depreciates versus the dollar. China is slowly starting to tighten up a little bit in advance of a big political turnover at the end of this year. This is the year of stability for

China economically, in advance of the political and leadership changes coming. Brendon, before we, you know, sort of look at China as a monolithic entity. Is it worth noting that they have their own problems such as bad loans, and is it possible that we are underestimating the issues that face the Chinese leadership. It's not just all about the United States. Oh, I agree, there's a domestic agenda that's been set, you know.

You know, if you one looks at the thirteen five year Plan, the um Chinese government is very explicit and where they want to drive not only their economy but the society. And there there are liabilities on the balance sheet. At the same time there's assets. And I think you bring up a great point. China is a big country, just not geographically, but the economy and parts of China

is doing very well right now. Domestic consumption parts of China geared to more traditional um steal aluminum coal, you know, a little bit of of of a tougher roach. You've got this barbelled economy right now. So for President Jijmping, it's an election gear. He wants to send a message to his constituents back home. What's the best case scenario

that could emerge from this meeting for that purpose. I think ultimately this is a sign of respect of face and that that Trump is willing to meet with g at this stage of his new presidency. Is a tree in in and of itself. So I think it's a. It's a good sign and shows something that's so important to China, which is respect. Yeah, and so what about for President Trump? I think ultimately Trump, you know, Trump

is going to one. He was elected with a set agenda from the people who voted for him, and he wants to satisfy those voters. At the same time, the US is a global leader economically, and I think upsetting what what will be an increasingly better mutually beneficial relationship economically, um it especially around an area like North Korea where China can help. Right, Brendan to Hearn, thank you so much for joining us. This will be something that we I am sure we'll talk to you again about soon.

Brendan to Hern is chief investment officer at Crane Shares in New York City, talking about President Trump's meeting with President Jejan Ping of China. Thanks for listening to the Bloomberg p Now podcast. You can subscribe and listen to interviews at iTunes, SoundCloud, or whatever podcast platform you prefer. I'm Pim Fox. I'm out there on Twitter at Pim Fox. I'm out there on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio