During his 2016 presidential campaign, Donald Trump said that pharmaceutical companies are “getting away with murder.” Pledging to control prices, Trump is poised to announce a plan to control drug prices, but his remedy appears less like a punishment fit for “murderers” than a pat on the back for an old chum.
The expectation among experts is that the administration’s less-than-radical reforms will largely rely on increasing price competition through the formulary process, which means that doctors, pharmacists and other health care professionals work together to select the most effective and most affordable medications. Other likely proposals include moving drugs from Medicare Part B to Medicare Part D to stimulate price competition. These ideas are fine as far as they go but won’t do much to apply pressure to pharmaceutical companies to prevent and reverse dramatic price hikes.
This light-touch approach is not terribly surprising given that Trump’s secretary of Health and Human Services is Alex Azar, former president of the U.S. division of pharmaceutical giant Eli Lilly and Co., which tripled the price of its best-selling insulin drug under his watch. Nor is it surprising since drug companies have spent nearly $2.5 billion on direct lobbying and campaign donations during the last decade. And this doesn’t include the industry’s advertising blitz directed at the general public as well as lawmakers.
A key objective of this lobbying, which has proved to be quite successful, is to say: It’s not us, the pharmaceutical industry, that is responsible for high drug prices. Although the industry does not try to counter the widespread agreement that U.S. drug prices are too high, it is quick to assign the blame on all the other players in America’s health care universe: Insurers, pharmacy benefit managers, hospitals and pharmacies are all the real culprits.
With total U.S. spending on health care about $3.5 trillion last year and more than 70 percent of Americans very unhappy with the nation’s patchwork health care system, it’s not surprising that people denounce insurers and employers, middlemen and government, as well as pharmaceutical companies, for high costs. So, turning attention to other groups for soaring drug costs is the closest the industry can come to a winning strategy. And it didn’t take much to win over this administration.
Rather than Trump and Azar’s de facto plan to continue to let the fox police the henhouse, there are better ways to reduce drug prices. The best market-based solution is to enable the biggest purchasers of drugs — Medicare, Medicaid and the Children’s Health Insurance Program, as well as private-sector pharmacy benefit managers — to negotiate lower prices directly with pharmaceutical companies. The Centers for Medicare and Medicaid Services and PBMs together provide prescription coverage to nearly all Americans. PBMs, which do negotiate, save patients and third-party payers an average of $491 per year. If Medicare were able to negotiate prices on most drugs, like the Veterans Administration and Medicaid do, it could save more than $250 per person a year.
Generic drugs, which account for 89 percent of the 3.9 billion prescriptions dispensed in 2016 in the United States, saved about $1.67 trillion in the last decade, according to Food and Drug Administration Commissioner Scott Gottlieb. In addition, he has suggested publishing a list of 180 brand-name drugs that are off patent and have no generic competitors. A Brookings Institution study has also suggested greater transparency about how drug prices are set and “outcomes-based pricing,” in which the price paid to drugmakers is at least partly based on the benefits to patients.
Controlling drug prices, much less overall health care costs, is extremely complicated, but it is hard not to assign most of the blame to the health care industry, which made $33 billion in profits in the third quarter of 2017 alone. Meanwhile, Big Pharma is benefiting from the new corporate tax cuts, spending $50 billion to buy back shares to raise stock prices, which further enrich big drug companies and Wall Street, not patients or employees.
When it comes to drug prices, Trump was right that pharmaceutical companies are getting away with murder. It is time for Congress and the Trump administration to stop buying their excuses and policies from drug company lobbyists and start taking actions that would lower drug prices.
Andrew L. Yarrow, a former New York Times reporter whose fifth book will be published later this year, writes frequently about health, economic, and other policy issues.
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