May 23, 2018 at 5:00 am ET
President Donald Trump has offered a comprehensive set of policies to address drug pricing. The critique that his plan is pro-pharmaceutical industry is wrong.
In this piece, I offer praise and skeptical comments on three topics central to his plans: price negotiations, possible use of trade levers to influence overseas drug prices, and government mandates for direct-to-consumer advertising. While the first offers an example of the plan’s sophistication, the latter two policy ideas are flawed.
Trump’s agenda is ambitious. He wants to materially alter a health care system that he has called “complicated.” In the area of drug pricing, his plans lead some commentators to falsely label them as weak or pro-pharma. Those assertions miss the complexity of what he has proposed.
Due to the influence of qualified and competent health care leaders such as Department of Health and Human Services Secretary Alex Azar and Food and Drug Administration Commissioner Scott Gottlieb, the Trump proposals are different than the bumper sticker sloganeering of the presidential campaign.
For example, candidate Trump talked about government price negotiations in Medicare, but — likely based on additional information from the market and his senior advisors — President Trump does not propose such direct negotiations. Rather, he proposes to use the middlemen (pharmacy benefit managers) to do more negotiating on behalf of the Medicare program and use better tools.
The shift reminds me of a remark attributed to John Maynard Keynes: “When the facts change, I change my mind. What do you do, sir?” As a longtime critic of direct government negotiations on drug pricing, I welcome Trump’s acknowledgment that such negotiations already occur between drug firms and PBMs.
Unfortunately, on PBS NewsHour, Azar undermined the plan by asserting that the same PBMs the president excoriated will be given more business by pushing medicines for cancer patients into Part D-like negotiations. Moreover, Azar proposes to give power to these commercial agents to dramatically narrow the scope of medicines for profoundly sick patients. Neither of these “details” are trivial, and both are unwise.
What is most welcome from the Trump price negotiation plan is recognition that patients deserve better treatment and should receive a material share of any discounts or rebates negotiated between PBMs and drug firms. The inclusion of sensible new tools to enhance the transparency and accountability of negotiations — financed in large part with public funds — is also a sound approach. An especially important example of such new techniques is reforms that permit truthful communications between biopharmaceutical firms and sophisticated payers about the value of medicines.
The president has also noted that U.S. consumers (aka taxpayers) pay far more for medicines than their counterparts in other economically developed nations. He’s right, but his efforts to use trade laws to force price increases for such ex-U.S. drug sales are naïve.
Under existing international trade law, sovereign countries are free to set up their own health care systems. So, with the narrow exception of a fair and transparent government procurement regime, there is little to nothing the U.S. can do under current rules of the World Trade Organization to mandate higher prices.
It might be possible for the U.S. to engage in product, or industry sector specific treatment, to increase prices in the context of a bilateral or multinational trade agreement. No materially important agreements are pending since Trump withdrew the U.S. from the Trans-Pacific Partnership. The likelihood of any substantial agreement, in the context of revisitation or North American Free Trade Agreement reform, is near zero. Simply put, Trump has a valid diagnosis, but not a realistic treatment plan.
Additionally, in an attempt to put more transparency into drug prices, the president has called for inclusion of list prices for drugs as a part of any direct-to-consumer advertising. As satisfying as this soundbite policy might seem, it is wrongheaded for two reasons.
First, this type of government-mandated speech could be unconstitutional, as a violation of the First Amendment. While the government can mandate disclosures — using a ‘rational basis’ legal test — it cannot force commercial advertisers to speak in a way that is false and misleading.
Second, as both the president and Azar have recognized, actual drug prices vary from list prices. Requiring publication of list drug prices would not empower consumers but lead to confusion. Such a mandate would also fail to serve the interests of consumers by undermining the public health goals of disease awareness initiatives that often underlie DTC campaigns. Potential patients may be deterred from even visiting a medical professional because they fear the sticker shock price of a drug for their disease or condition.
There is no rational basis to require price disclosure for only one set of products. There is no compelling reason to mandate drug price disclosure when food products do not have a similar requirement.
Overall, Trump deserves praise for his ambition on drug prices. He has offered some constructive concrete measures (more competition through aggressive programs at the FDA) that could, over time, affect competition and thus prices.
The president has also avoided carrying forward campaign rhetoric on direct price negotiations and offered in its place a placeholder for a market-based set of solutions. His proposals for using trade laws to increase overseas drug prices ought to include more detail on benefits for American consumers, or focus on other things.
Lastly, as a supporter of more speech in the context of political advocacy (think Citizens United), he ought to avoid government mandates on how to communicate, especially when the result could be counterproductive.
David Beier is a managing director for Bay City Capital, a life sciences investment firm based in San Francisco.
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