Last Friday, when President Trump announced his plan to restrain the cost of prescription drugs, he was confronting a classic scenario of good news vs. bad news. The good news is that we have better and more sophisticated drugs than ever. The bad news is that consumers face higher out-of-pocket costs for drugs, foreign governments are free-riding off of U.S. investment in drug innovation, and government drug-purchase negotiation tools are outdated.
Donald Trump railed against the “injustice” of high drug prices during the 2016 campaign, tossing out ideas such as having Medicare bureaucrats negotiate directly on drug prices and allowing reimportation of drugs that cost much less due to foreign price controls. But once in office, he quickly realized that what sounded good at rallies was difficult or unwise to implement. But the political pressure to do something is real. Prescription-drug expenses were 12 percent of all health spending in 2015, up from only 7 percent during the 1990s.
The plan that President Trump announced last week isn’t dramatic, but it’s clearly aimed at increasing competition and ending the gaming of regulatory rules that may keep drug prices artificially inflated or hinder competition from cheaper generic drugs.
The administration worries that rebates paid to pharmacy-benefit managers are pushing up prices, so it will change the incentive structures to rein in some rebate policies. The Food and Drug Administration will focus more on policing the most extreme abuses of delaying or exploiting the generic-approval process.
Not allowing the sale of drugs that have long been available in other high-income countries in Europe and Asia is a real problem.
More ambitious ideas might also be in the works at the FDA, which has long drawn political fire for delaying the approval of new drugs. The FDA could accelerate release of new drugs by giving “conditional approval” to a drug intended for a “serious or life threatening disease” and for which there is an “unmet medical need.” It also could broaden its approval of new drugs by accepting drugs that have already been approved in other countries that have testing requirements similar to those in the U.S.
Not allowing the sale of drugs that have long been available in other high-income countries in Europe and Asia is a real problem. Take the case of Fluad, a vaccine that helps boost the immune response to flu in elderly people. According to the Center for Disease Control, “between 71 percent and 85 percent of seasonal flu-related deaths have occurred in people 65 years and older.” Health-care experts John Cohrssen and Henry Miller note that Fluad was first approved in Italy in 1997 and has since been approved in more than 35 counties: “That 18-year delay in availability in the United States likely resulted in many avoidable hospitalizations and deaths.”
President Trump’s drug-price initiatives won’t lower costs to consumers dramatically. But they will help on the margins while we continue to debate the real issue before us: How do we keep a sophisticated drug-delivery system that has high costs everyone wants to dodge — costs that we all want someone else to pay for? “Unless and until we decide to rethink and reengineer the drug development process, or consider other pathways to better health and well-being, the blame shifting and scapegoating we see in politics are going to continue,” says Tom Miller, a health-care analyst at the American Enterprise Institute.
In other words, we need a real debate over exactly what kind of a health-care system we want in the future and how to pay for it. But the political lifting on that is heavy, so don’t expect it to happen in the near future.