Trump at least trying to bring down drug prices
PRESIDENT Trump, like former President Barack Obama, campaigned on the promise of taking on high drug prices. Trump is actually trying to keep that promise.
The White House and the Department of Health and Human Services in recent days rolled out dozens of policies, which, if enacted, will lower the market prices we pay for drugs, and could lead to more innovation in the long run.
Everyone agrees drug prices in the U.S. are too high. One reason is the noncompetitive nature of the complex channels traveled by pharmaceuticals and their financing from research laboratory to patient.
Drug makers have among the highest profit margins in the economy, about 13 percent, compared with about 1 percent for hospitals, 2 percent for oil and gas, and 3 percent for farmers. That high profit margin reflects market inefficiencies that stem from the temporary monopolies our government gives namebrand drug makers in order to incentivize research and development.
That’s why successful politicians such as Obama and Trump campaigned on lowering prices. Obama promised to allow re-importation of drugs from Canada, where government price controls keep drugs cheap, and to allow Medicare to negotiate better prices when it pays for drugs for the elderly.
Obama sacrificed those promises at the altar of Obamacare. The White House cut a deal with drug makers, giving them even longer monopolies on some drugs, giving them more subsidies, and mandating insurance that covered more drugs. In exchange, drug makers backed the legislation. All they had to throw in were some extra discounts for certain Medicare patients.
In the end some of Obama’s policies actually pushed prices higher. That’s why it’s heartening to see Trump at least avoid ideas that will make the problem worse, and at best take some good first steps.
It makes sense, for example, to improve government’s slow and inefficient response to drug makers that game the system. Proposed changes to price transparency and greater negotiating leverage for Medicare Part D plans would also prevent drug makers from charging more just because no one can stop them without running afoul of overly comprehensive government requirements for drug coverage. If every plan has to cover a particular treatment, then no one can make the drug maker lower his price.
Trump also tries to address the important and misunderstood free-rider problem. Canada and Europe are forcing American patients to foot the entire bill for research and development by setting price controls that are well below cost when R&D are factored in. The Trump administration says it will make this a negotiating point in trade talks. Drug pricing has little to do with market forces. Bring them back into play so as to spread the cost of drug innovation across patients in all of the world’s wealthy nations, not just one.
Democrats were pouncing before Trump even finished his speech, arguing that he hadn’t gone far enough. But their own performance in office demonstrated conclusively that there is no silver bullet for bringing down drug prices.
Instead of a single simplistic approach that will cripple development of new life-saving drugs, Trump’s small-ball approach might actually get results.