Critics of President Donald Trump’s “Blueprint to Lower Drug Prices” have argued that negotiating higher drug prices in foreign nations will not lower drug prices in the United States.
In a May 18 letter to U.S. Trade Representative Robert Lighthizer, Sen. Ron Wyden (D-Ore.) argued that he was “puzzled” by the president’s assertion that “pharmaceutical companies will use their increased foreign profits to lower domestic prices.” Six House Democrats also launched an attack on this portion of the president’s plan by writing: “There is absolutely no reason to believe that trade policies designed to raise prescription drug prices overseas will result in equivalent or any decreases in prices in the United States.”
This congressional criticism is an unfair characterization of the president’s plan and demonstrates a weak knowledge of how the pharmaceutical marketplace actually operates.
The White House plan argues that other countries with socialized health systems “command unfairly low prices from U.S. drug makers” and that this “reduces innovation and the development of new treatments.” These assertions are irrefutable. Trump’s plan does not argue that drugmakers will take additional revenue from other nations and hand it to U.S. consumers.
Why, then, does the White House include foreign drug pricing in a plan designed to lower U.S. drug prices? The key to understanding how trade policy can lower drug prices can be found in the president’s correct assertion that greater revenue for drugmakers from abroad will increase innovation and bring more treatments to market. New revenue will make the marketplace more robust, and therefore more competitive, lowering U.S. prices.
To see the soundness of the White House argument, one simply needs to take a look at how market competition eliminated the drug price hysteria over hepatitis C drugs. In late 2013, the Food and Drug Administration approved a breakthrough treatment for hepatitis C, Sovaldi. The media went into a feeding frenzy because of the list price for the drug: $84,000 for a full 12-week treatment. A Google search with the keywords “$1,000 per pill” produces numerous stories about Sovaldi.
Policymakers piled into the story and onto Gilead Sciences Inc., which had priced Sovaldi. Two U.S. senators promptly announced that they were going to investigate how Gilead Sciences had determined the price. In a 2014 New York Times story, Matt Salo, executive director of the National Association of Medicaid Directors, predicted that Sovaldi alone would raise Medicaid costs by 10-15 percent. In the same story, a senior executive at Express Scripts Holding Co. warned “a perfect storm is arising out there.”
All the drug price hysteria turned out to be simply wrong and, more importantly, wrongheaded. According to Express Scripts’ own data, with the approval of Sovaldi in late 2013, spending on hepatitis C drugs did indeed spike up dramatically in 2014, becoming the No. 1 specialty drug class in Medicaid programs, for example.
Then something not predicted happened: Spending on hepatitis C drugs started to decline dramatically, dropping 34 percent in 2016 and another 27.9 percent in 2017, with predictions for continuing double-digit drops in the coming years. By 2017, the hepatitis C class of drugs dropped to ninth in Medicaid spending.
Two things happened. First, competition. Gilead’s competitors, such as AbbVie Inc. and Merck & Co. Inc., brought a slew of new hepatitis C drugs to the market after Sovaldi, and prices dropped with the competitive market. One 2016 report from The Pioneer Institute pointed out that “market competition from another drug manufacturer, not government-required disclosures around private company cost structures or price controls, resulted in the 46 percent reduction in the price of Sovaldi.”
In addition, spending on hepatitis C drugs dropped dramatically because large numbers of patients were being cured. Turns out, when a patient is completely cured, they don’t need to keep taking medicine. Pointing to the huge drop in spending on hepatitis C medicines that happened in 2016, a footnote in an Express Scripts drug trend report stated that the spending “decline may be due to the initial wave of hepatitis C patients … getting cured.”
The Department of Veterans Affairs announced in 2016 that it was on track to cure all veterans who are seeking treatment for hepatitis C, no matter the progression of the disease. This new class of hepatitis C drugs has proven to be so effective at curing patients that there are reports that Merck, Janssen, Bristol-Myers and others will be significantly scaling back research into new hepatitis C drugs.
Critics of the president’s plan are asserting a half-truth when they claim that additional revenue found abroad will not lower prices for U.S. consumers. Drugmakers are in business to make money, so they will use additional revenue to bring more products to market — increasing competition and, ultimately, lowering prices. More importantly, more therapies brought to market will mean more treatments and cures for patients.
William S. Smith, Ph.D., is visiting fellow on life sciences at the Pioneer Institute in Boston.
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