President Trump, like former President Barack Obama, campaigned on the promise of taking on high drug prices. Trump, unlike Obama, 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 also lead to more innovation in the long run.
The predictable criticism of Trump’s plan, from Democrats and their friends in the drug industry and news media, either misunderstands or misrepresents the policies under debate.
Everyone agrees that 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.
[Opinion: Trump tackles soaring prescription drug prices]
Drugmakers have among the highest profit margins in the economy, about 13 percent, compared to about 1 percent for hospitals, 2 percent for oil and gas, and 3 percent for farmers. That high profit margin, which comes after a series of other middlemen take their cut, reflects market inefficiencies that stem from the temporary monopolies our government gives name-brand drugmakers in order to incentivize research and development.
[Related: FDA to call out brand name drug companies that block generics]
That’s why successful politicians such as Obama and Trump campaigned on lowering prices. They are high, and there’s room to lower them. 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.
What happened to those promises? Obama sacrificed them at the altar of Obamacare. The White House cut a deal with drugmakers, giving them even longer monopolies on some drugs, giving them more subsidies, and mandating insurance that covered more drugs. In exchange, drugmakers backed the legislation. All they had to throw in were some extra discounts for certain Medicare patients.
In the end, Obama, who depended on Big Pharma to pass Obamacare, did little or nothing to lower drug prices. In fact, some of his 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 drugmakers that game the system. Proposed changes to price transparency and greater negotiating leverage for Medicare Part D plans would also prevent drugmakers 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 drugmaker 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. Unlike Obama, he’s at least trying.
