In an effort to force reductions in prescription drug prices, the Trump administration risks sending those prices through the roof.
Thankfully, the Department of Health and Human Services late last month delayed the expected finalization of a new rule that would radically upend the pharmaceutical market for Medicare Part D. Good. Sometimes it is better, as the criminal Fagin sang in “Oliver,” to “think [we]’d better think it out again.”
Do a Google search for “drug prices” on just about any day, and you’re likely to find a handful of new stories on the frustration Americans feel about the cost of medicine. That’s why the Trump administration is so assiduously looking for solutions. Unfortunately, this latest solution on which it had seemed to settle would create a greater problem to cure a lesser one. In this case, it would almost certainly drive up insurance premiums in the name of reducing prices for drugs sold directly to customers over the counter.
Most senior citizens get most medicines through Medicare Part D insurance. And savings on over-the-counter drugs, even if they are in the so-called doughnut hole payment gap, may not even come close to making up for their added premium costs.
What the Trump team almost did, and still might do, would be to end so-called rebates (actually, more like discounts) that drug companies give to entities that are essentially the middlemen between those companies and the insurance companies. Those entities, called pharmaceutical benefit managers, or PBMs, create lists of preferred drugs, called “formularies,” for the insurance companies and the patients they serve.
The purchasing power of the PBMs has helped keep premiums substantially below the original projections from 2003. The savings do not, however, show up in the list prices of drugs bought over the counter. The Trump team wants to drive the list price down, which surely will benefit seniors who haven’t yet met their annual deductible. But the proposed rule would do so by banning the PBMs from applying the rebates/discounts to insurance premiums, in the expectation the discounts would show up at the point of sale instead.
It’s all very complicated. Perhaps the best explainer came from Brian McNicoll, a former House staffer and writer for the conservative Heritage Foundation. He wrote that what the Trump team’s rule would do is the rough equivalent of a baseball team using a system that would reduce stadium beer prices slightly while hiking ticket prices substantially.
Worse, there’s no guarantee that the pharmaceutical manufacturers would reduce over-the-counter prices (the beer prices in the stadium example) by anywhere near enough to counteract the rise in premiums (ticket prices). The actuaries for HHS itself estimate premiums would rise by 25%.
Because the rule would apply directly to the government program of Medicare, the higher premium prices would be borne by taxpayers as well. Both the Congressional Budget Office and the Center for Medicare and Medicaid Services say the 10-year cost to taxpayers would rise by nearly $200 billion.
With the federal government already running annual deficits above $700 billion, these added costs would be flat-out unaffordable.
The entire healthcare pricing system in this country is out of whack. Market forces are unable to act because of the complex web of government incentives and regulations combined with third-party (insurance) payments. Drug pricing surely could work better than it does. Alas, though, the Trump proposal, though well intentioned, is the wrong brew to quench the thirst for more affordable medicine.
