Semro column: A very mixed bag on drug prices
This story begins with a broken promise. In 2016, then candidate Donald Trump made the campaign promise to reduce drug costs by allowing Medicare to negotiate prices. It’s a good idea.
In 2016, 56.8 million Americans were enrolled in Medicare and 43.2 million were enrolled in Medicare Part D, the prescription drug benefit. That’s a huge percentage of market share critical to the drug industry and its bottom line. But those consumers have no leverage when it comes to setting prices for the drugs they need to stay alive and healthy. Consequently, prices for 20 of the most common brand name drugs prescribed for seniors in Medicare Part D, increased by 12 percent every year for the last five years.
A fundamental free-market principle is to use consumer leverage to influence list prices and control price growth. American seniors can’t choose to stay out of that market, but they could leverage their huge numbers to influence it and keep drug prices more affordable.
On Jan. 25, 2016 at a campaign rally in Farmington, New Hampshire, candidate Trump whole-heartedly embraced that idea. He said that Medicare could save “$300 billion” a year if it negotiated discounts. “We don’t do it,” he said. “Why? Because of the drug companies.” And with the exception of the United States, negotiating drug prices for their citizens is what most other developed countries do. That’s why overseas drug prices are substantially lower than ours.
But the President caved-in on that campaign promise in his recent prescription drug proposal. And even if he hadn’t, the current Congress would’ve never supported it. The drug lobby is simply too powerful.
This isn’t new. In 2010, the Obama administration and a Democratic controlled Congress bowed to the drug lobby when they refused to include drug negotiations in the Affordable Care Act. At the end of the day, controlling sky-rocketing drug prices is more about campaign finance laws than health policy.
Having said all of that, when you get into the details, the President’s latest drug plan doesn’t meaningfully reduce drug list prices.
Expediting approval of generic drugs and new provisions to make it more difficult for drug companies to delay generic status may help. But reducing delays in generic drug approval will do nothing to reduce list prices for brand name drugs. And remember, even generic drugs aren’t that cheap.
In 2016, 300 generic Medicare drugs saw price increases of 100 percent or more and 15 saw price jumps of over 1,000 percent. According to a new study from Avalere Health, insurers are also moving many Medicare Part D generic drugs into higher co-pay tiers in order to stabilize premiums. Out-of-pocket costs for a basket of generic drugs increased by 93 percent between 2011 and 2015.
Including drug prices in advertising is also positive but will probably do very little to lower list prices. In addition, drug companies will almost certainly take legal action to prevent the public disclosure of their prices.
Reforming the rebate system for Pharmacy Benefit Managers (PBMs) who negotiate drug discounts for third parties is a good idea. But gaming PBM rebates is a symptom of this dysfunctional system, not the cause.
The most concerning part of this proposal is the entirely political claim that other countries are free-loading off of America by effectively negotiating lower drug prices for their citizens. It’s ironic that Trump now describes the very idea that he campaigned on in 2016 as “free-loading.” Back then, it was smart deal-making and a courageous stand against drug companies who were “getting away with murder.”
Apparently, the administration will use “trade policies” to force foreign countries into paying substantially higher drug prices. This strategy assumes that as drug companies bring in more foreign money from drug sales, they will, out of the goodness of their hearts, reduce prices in the U.S. That sounds an awful lot like “Mexico is going to pay for the wall.” Since tax reform passed, drug companies have spent over $50 billion of their tax cuts on stock buy-backs and not price reductions.
As for the idea that these countries aren’t paying for drug research and development, keep in mind that pharmaceutical companies aren’t paying nearly as much as they claim. Actual R&D costs for new drugs range from $43 to $125 million and not the $1 billion they usually say. In addition, all of the 210 drugs approved by the FDA between 2010 and 2016 were based upon science paid for by the taxpayer funded National Institutes of Health.
Perhaps the best barometer for the Trump drug proposal is that drug company stock prices went up significantly after the President’s announcement.
On May 30, President Trump said that drug companies would announce “massive” price cuts within two weeks. As of June 18, none of the 10 largest drug companies had cut list prices or confirmed any plan to do so.
Bob Semro of Glenwood Springs is a former health policy analyst for the Bell Policy Center, and a legislative and senior advocate.