Real fix for drug pricing is within reach, but we’ll pass

Last week we learned that Novartis, the Swiss drug company, had paid Michael Cohen — Donald Trump’s personal lawyer — $1.2 million for what ended up being a single meeting. Then, on May

11, Trump announced a “plan” to reduce drug prices.

Why the scare quotes? Because the “plan” was mostly free of substance, controlled or otherwise. During the 2016 campaign Trump promised to use the government’s power, including Medicare’s role in paying for prescription drugs, to bring drug prices down. But none of that was in his speech that day.

It shouldn’t come as a surprise. But there are two substantive questions here. First, should the U.S. government actually do what Trump said he would do, but didn’t? And if so, why haven’t we taken action on drug prices? The answer to the first question is a definite yes. America pays far more for drugs than any other major nation, and there’s no good reason we should.

Bear in mind that the way the drug business works can’t and doesn’t bear any resemblance to the Econ 101, supply-and-demand stories beloved by free-market enthusiasts. What we have, instead, is a patent system in which the company that develops a drug is granted a temporary legal monopoly over sales of that drug. That system is OK, or at least defensible, as a way to reward innovation; but nothing about the logic of the patent system says that patent owners should be free to exploit their monopolies to the max.

There is, in fact, a very strong case for government action to limit the prices drug companies can charge. And the fact that taxpayers pay a large share of drug costs both reinforces the case for limiting drug prices and gives the government a lot of leverage.

Of course, draconian controls on drug prices could discourage innovation. But that’s not what anyone is talking about, and the benefits of moderate action would almost surely exceed the costs, for a variety of reasons: Drug companies would make less per unit but sell more, they would spend less developing drugs that largely duplicate existing medication, and more.

It’s true that simply granting Medicare the right to negotiate prices wouldn’t do much by itself. We’d also have to give Medicare some bargaining power, probably including the right to refuse to cover drugs whose prices are exorbitant.

But questions about the details aren’t what’s stopping action on drug prices, since we haven’t even gotten to the point of letting Medicare try to bring prices down. And the reason we haven’t gotten to that point is, sadly, both simple and crude: Pharma has bought itself enough politicians to block policies that might reduce its profits.

And Trump, far from draining this swamp, invited it in to the executive branch. Tom Price, his first secretary of health and human services, was forced out because of his lavish travel spending — but his pharma-related conflicts of interest were actually a much bigger deal. And his successor, Alex Azar, is ... a former drug company executive whose views on drug pricing are completely at odds with everything Trump said in the campaign.

American exceptionalism has prevailed again: We’re still the only major nation that lets the drug companies charge whatever they like.