Trump’s Plan to Lower Drug Prices – Part II

In Part I, we talked about the Trump proposals to lower drug prices. Avik Roy, healthcare economist writing in Forbes, says these proposals will go a long way toward lowering drug prices.

But Roy also says there is more that could be done. He has some criticisms of the Trump plan – and some suggestions on how to do more.

He says the Trump plan blueprint complains a lot about “high list prices for drugs” but worries that the real problem is the actual price, net of rebates and wholesaler discounts. Getting the net price down should be the real focus of the plan.

He also says the blueprint complains about “high and rising out-of-pocket costs for consumers.” This is certainly a concern, but rising insurance premiums is also a problem. The blueprint advocates measures that will cap out-of-pocket costs for seniors, but result in driving up Part D premiums and taxpayer spending on Medicare drugs.

Lastly, Roy says this is an over-emphasis on the idea that “foreign governments are free-riding off of American investment in innovation.” This refers to the fact that drugs can be purchased for less in foreign countries. The drug companies have long justified these differences by claiming that it is necessary to pay for the high cost of research and development of new drugs. Roy points out that drug companies are still making money off the sales of these drugs in other countries – it’s not charity!

What More Can Be Done?

The Trump plan proposals are a great step in the right direction, but more can be done. The key is competition – which always lowers prices and improves quality.

To improve competition some things must change. Where there is only one drug available to treat a particular disease, drug companies exploit this monopoly with irrational pricing. The Trump plan addresses this problem by capping growth of Part B drug prices at consumer inflation (CPI). Roy offers these other ideas:

  • Creating a safe harbor for private insures to jointly negotiate drug prices with a monopoly manufacturer in a given state. (a Swiss idea)
  • Eliminating requirements that force Medicare to pay for all FDA-approved drugs (open formularies)
  • Allowing the FDA to fast-track drugs that would compete with established monopolies
  • Allowing pharmacies to import a drug from other countries – if the manufacturer of an off-patent, monopoly drug takes a double-digit price increase.

 

We all want lower prices for needed drugs – and we want the best of research and development to find innovative new drugs. Until now we have been told that we can’t have both. It’s time to try these new proposals and find out if that’s a false choice.

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