Democrats have offered a new set of proposals to curb prescription drug prices. One wonders what problem they actually seek to solve.
After all, the current program is popular and working as planned. Some 84% of respondents to a recent survey say their Medicare Part D premiums are affordable; 76% say their out-of-pocket costs are reasonable; 83% say having a wide choice of plans is advantageous, and three-fourths say Part D covers all the medicines their doctors prescribe.
The House proposal — HR 3, the Lower Drug Costs Now Act — and the five-point plan Sen. Ron Wyden, chairman of the Senate Finance Committee, put forth that purportedly seeks to reduce drug prices and expand availability would do neither.
The Oregon Democrat wants to strike the noninterference clause from the legislation that created Medicare Part D, the prescription drug benefit. He also wants to allow the government to institute inflation penalties in the Part D and B programs and base them on the list price of the drug, not accounting for rebates and discounts private negotiators regularly obtain.
Wyden also wants to change patent law to make biopharmaceutical patents look more like patents for new screwdrivers, even though biopharmaceutical patents’ concept-to-market timeline is far longer and more expensive.
Part D is the rare federal program that has performed better than expected from a fiscal standpoint. When it was being created, both Democratic Reps. Henry Waxman of California and John Dingell of Michigan wanted to set the premium for drug coverage at $41 because they feared that, otherwise, it would be much higher.
To this day, the base benefit premium for Part D is $33, the average premium crept above $41 only in the last year, and plans are available at Walmart for as little as $28.
Moreover, the Centers for Medicare & Medicaid Services, which oversees Part D, lowered its 10-year cost estimates three times in the first decade of the benefit and said all three times the savings had resulted from not letting the Department of Health and Human Services intervene in drug negotiations.
More recently, the Congressional Budget Office has determined that allowing the government to become involved in drug negotiations would yield negligible savings, if any. Upon hearing this, even President Barack Obama abandoned the idea.
Douglas Holtz-Eakin, economist, healthcare expert, and former head of the CBO, said the present conditions create a virtuous cycle in which insurance companies push for the lowest prices they can, lower prices for drugs lead to lower premiums, lower premiums lead to more seniors signing up, and more seniors in the plan leads to lower costs.
Similarly, the inflation penalties are a backdoor attack on the noninterference clause. Negotiations between pharmaceutical companies and insurance plans frequently produce price-protection rebates and discounts premised on volume purchases. Hospitals in rural or underfunded areas sometimes use the income produced by the rebates to strengthen treatment for the underserved.
On top of it all, drug prices do not appear to be going up all that much. Drug prices fell 11% during the first three years of the Trump administration, according to a report from the Council of Economic Advisers.
Policymakers should always pursue efficiency and be alert for price hikes. But in this case, we have to wonder at the focus on price when costs appear stable, and the need for new drugs and treatments to meet new health challenges seemingly has never been higher.
As for the patent reforms, U.S. pharmaceutical and biopharmaceutical firms receive nearly 60% of patents issued worldwide. They have more than 8,000 medicines and more than 1,100 experimental cancer treatments in various trial stages right now. U.S. pharmaceutical companies are the unrivaled leaders in drug development, largely because of the protections provided by our patent system.
Wyden and others charge that drugmakers take advantage of this to game the system by getting patent protection for only minor improvements in drugs that otherwise could be genericized.
But again, strong market forces provide a check on this. Drugs that can’t compete on price or effectiveness do not make it on to the privately negotiated drug formularies, and where there are multiple drugs within single classes, patients save.
There are improvements that could work to lower drug prices, such as efforts to monitor rebates to ensure they truly benefit patients as opposed to providers or insurers. Proposals to cap out-of-pocket costs in the Part D program also deserve a look if they can be proven to generate substantial savings.
But don’t let Democrats fool us on this. Drug prices continue to be moderate compared to the inflation gripping the rest of the economy. Our biomedical research apparatus remains the best in the world because we have prevented government’s lowest-size-beats-all approach from limiting access to promising new drugs and therapies.
Brian McNicoll, a freelance writer based in Alexandria, Virginia, is a former senior writer for the Heritage Foundation and former director of communications for the House Committee on Oversight and Government Reform.
