Donald Trump is popular because he says things we all want to believe. Take drug prices, for example. We all want to believe drugs would be cheaper if he were president. So he tells us he’ll make them cheaper.
Recently Trump was interviewed by Fox News host Sean Hannity and said the following: “We don’t bid out pharmaceuticals. We don’t bid out drugs. We’re the largest purchaser of drugs in the world, we don’t bid it out.”
As everyone knows, Trump fancies himself as the best dealer in the world so naturally he wants you to believe he would negotiate a better deal – and lower your cost of buying drugs. In fact he goes so far as to promise to “save hundreds of billions of dollars a year.” Democratic candidates Hillary Clinton and Bernie Sanders also make such claims.
The late Senator Daniel Patrick Moynihan once famously said, “You’re entitled to your own opinion but not to your own facts.” This applies to Trump, Clinton and Sanders. The facts do not support their rhetoric.
The Wall Street Journal editorial board took all these candidates to task for these comments in a recent rebuttal. In the real world, prices in the Medicare drug benefit and all other forms of U.S. insurance coverage are negotiated. They are already bid out. The difference from the Trump-Clinton-Sanders price-control model is that pharmacy benefit managers, or PBMs, and other private insurers do the negotiating instead of the federal government.
CVS Negotiates Lower Prices
The proof of this was highlighted by a recent report by CVS Health, the second largest PBM by volume of prescriptions filled. They reported they held their annual drug price increase “trend” to a modest 5% in 2015. The figure for 2014 was 11.8%.
“Trend” is a standard financial measure of drug spending that reflects unit price growth, utilization, the mix of branded and generic drugs and the rebates that PBMs bargain down from pharmaceutical makers. Despite the claims of these presidential candidates that the public is helpless, patients and taxpayers pay significantly less as a result of these price negotiations.
CVS chief medical officer, Dr. Troy Brennan, explained that the PBM took a “new approach to negotiations” this year and thus obtained “much more leverage.” CVS created more selective formularies that took advantage of competition between similar medications like the new cholesterol and Hepatitis C drugs to extract deeper rebates. It also built new benefit designs that increased the use of generics and deployed tools like step therapy, which begins with the most cost-effective medicines before progressing to more expensive options. Dr. Brennan says without these interventions, the trend would have remained near 12%.
As a result of these negotiations, savings are passed on to customers, especially seniors. CVS was able to lower the premiums in its main Medicare drug plan by 2.7% year over year. Contrary to the claims of these politicians, Americans are benefitting from drug price competition and negotiation.
The editorial board of WSJ also points out that the total prescription drug spending in 2014 (the most recent year data is available) was an estimated $297.7 billion. Therefore claims by any politician that you can save “hundreds of billions” of dollars with a better deal are suggesting the drug industry is willing to offer its products for free – a tall tale even for Mr. Trump.