Trump Lowers Drug Prices – Good or Bad Idea? – Part II

 

Last post I discussed the Trump executive orders to reduce drug prices. I outlined the Trump plan with the following points:

  • Ban drug-maker rebates in Medicare Part D
  • Benchmarking Medicare’s reimbursement rates to International Pricing Index
  • Specific lowering of drugs at Federally Qualified Health Centers

 

The Wall Street Journal editorial board opposes this plan and I discussed their reasons. For a review of their reasons for opposition, visit Part I. Today I will discuss another point of view from one who supports this plan.

Support for the Trump Plan

Avik Roy, healthcare economist writing in Forbes, supports the Trump plan. Roy supports the International Pricing Index (IPI), although he would prefer if the benchmark focused on countries with private health insurance, instead of single-payer systems, like Canada and the United Kingdom. While Medicare can generate savings by using an index that includes single-payer nations, it would generate even greater savings if the index was focused on countries with the most market-oriented health care systems.

He says the latest Trump plan, which calls for HHS Secretary Alex Azar to come up with a plan to test whether such a rule would reduce costs and improve outcomes, turbocharges the IPI. Instead of Medicare paying drug companies at the averageprice of a group of industrialized countries, Medicare would pay the lowest price among comparably wealthy nations.

He states this makes eminent sense. In any normal market, the biggest purchaser of a product is able to negotiate the lowest bulk price for that product. In the bizarre world of Medicare dug spending, taxpayers are forced to pay the highestprice even though they represent the largest market in the world for prescription drugs. Furthermore, the most-favored-nation approach will do the most to reduce seniors’ out-of-pocket costs, and the most to reduce entitlement spending and thereby the deficit.

He supports the Trump plan which requires pharmacy benefit managers (PBMs) to pass their discounts or “rebates” directly to the patients using those drugs, in way that would improve the efficiency of the prescription drug market and lower costs for seniors. He says that rebates amount to about $30 billion a year.

He also approves of eliminating providers from jacking up rates on drugs they obtain through the federally supported FQHCs and pocketing the difference. He argues these drugs have been provided by federal support and patients must not be overcharged when they receive treatment.

The drug lobby argues that these interventions by the Trump administration will undermine the “free market” for prescription drugs. Roy says a truly “free market” for prescription drugs does not exist in the U.S. He makes two points:

  • Branded drugs in the U.S. are protected by government-imposed and government-enforced monopolies through the patent system.Monopolies are not markets. He argues drug-makers have used the system to extend their monopolies through trivial and non-innovative modifications to existing drugs in order to continue raising their prices.
  • The U.S. health care system makes it easy for drug makers to charge whatever they want. The tax exclusion for employer-sponsored insurance prevents patients from shopping for the coverage and care that serves them best. Insurance mandates force coverage of certain drugs regardless of their cost. Medicare Part B effectively writes blank checks to drug companies to charge whatever they think they can without causing excessive reputational damage.

 

Roy concludes with these words:“President Trump has many faults, but he deserves credit for tearing up this stale ideological oaf. His executive order could save tens of billions in taxpayer funds, and help millions of low-and middle-income Americans better afford their medicines.” 

There you have it – two opposing points of view on an issue we all can relate to. We all want lower drug prices but we also want new and innovative drugs available as soon as possible. The Covid-19 pandemic has made this issue highly relevant as we all wait eagerly for the development of new drug therapies and an effective vaccine.

Is this new Trump plan to lower drug prices a good or a bad idea?

Let me know what you think.

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