Will Divided Government Produce Lower Drug Prices?

Will Divided Government Produce Lower Drug Prices?
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Divided government, as a result of Democrats taking back the House of Representatives in last week’s election, means that almost all legislation will grind to a halt. This is especially true in today’s era of political polarization.

But there is one Democratic policy priority that President Trump seems like he might support: prescription drug price controls. Last month, Trump introduced a new prescription drug pricing plan that would tie the prices of Medicare Part B drugs, which are administered in doctors’ offices, to an International Pricing Index based on 16 other developed countries.

Congress should ignore this price control siren song and support legislation that adopts market-based facets of prescription drug programs — like Medicare Part D — that are lowering drug costs while increasing access.

Trump’s price control plan amounts to an about-face. As recently as this past spring, his administration’s “American Patients First” drug price blueprint criticized setting prices based on an international index, describing “the price of a medicine in one or several countries to derive a benchmark or reference price” as “price controls [that] prevent drug companies from charging market rates for their products, while delaying the availability of new cures to patients living in countries implementing these policies.”

The president claims that his pricing plan will fight “global freeloaders.” But it does this by copying the freeloaders’ strategy of setting prices. The administration seems to want to have its cheaper drugs and eat what’s needed to create them too.

There’s no question that drug prices are a concern of patients. I hear about them every day. Yet the list prices that President Trump rails against have little to no effect on patients’ pocketbooks. Rather, their financial worries come from their insurance premiums, deductibles, and copay costs, which have roughly doubled over the last few years. In fact, more than 80 percent of Medicare patients have additional private, employer, or Medicaid coverage that covers or reduces out-of-pocket costs. There’s no guarantee that mandating lower list drug prices will diffuse through the insurers and employers and be passed on to patients.

Yet cost concerns are often secondary to worries over the potential clogging of the drug development pipeline, which patients hope will lead to medical breakthroughs to save their lives or livelihoods.

Price controls reduce the ability of drug companies to invest in new cures. Bringing a new drug to market can cost as much as $2 billion dollars, and only 1 out of 10 drugs make it through the arduous clinical trial process into development. The entire drug development process from discovery to launch takes about 10 to 15 years.

According to a paper by the National Bureau of Economic Research, cutting prices by 40 to 50 percent in the United States — as Trump’s proposal implies — will lead to between 30 and 60 percent fewer research and development projects being undertaken in the early stage of developing a new drug. The authors conclude: “A short-run benefit for consumers could lead to a long-run negative impact on social welfare.”

Patients who live in countries with drug price controls, including Australia, Canada, and the UK, only have between one-third and two-thirds of newly launched medicines available. That’s because if the government and drug manufacturers don’t agree on a price, the drug will not make it to the country’s market at all. Last week, for instance, the National Institute of Health and Care Excellence (NICE) announced it would not cover a new ovarian cancer therapy for routine use in the UK, disappointing patients.

Adding another middleman between new drugs and patients — as government price controls do — would similarly reduce market access here at home.

Instead of pursuing price controls, Congress and the Trump administration should encourage nascent efforts to broaden the successful market-based solutions that are working in Medicare Part D. In contrast to the Part B market, where drug companies have strong pricing power, Part D gives seniors the choice of dozens of price-competitive, over-the-counter drug plans. This has led to significant cost savings. Expanding the Part D model into drugs administered in the hospital and doctors’ offices under Part A and B could lead to even greater savings than the International Pricing Index.

Though they may not fit on a bumper sticker like price controls, good public policy solutions that lower prescription drug costs while maintaining patient access do exist. Perhaps divided government will force Congress to work together to achieve them.

Terry Wilcox is the co-founder and executive director of Patients Rising, a patient advocacy organization. 

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