A common refrain from Trump supporters is that everything he is doing is common sense. And there is no doubt that at some level they are correct. Taking aggressive measures to lower crime? Yeah, that is common sense. Taking aggressive measures to strengthen the US economy? Yeah, feels like something that the President should do. Fixing broken markets like the pharmaceutical industry? Of course that sounds like common sense. In fact, it is amazing that these issues haven’t been handled in the past, instead of the many cases in which the left’s policies actually made them worse. So, it makes sense that President Trump’s actions have their supporters.
The problem with Trump’s policies is not, as some claim, that he is taking these actions in the worst way possible, acting as an authoritarian, a socialist, and a bully. The true problem is that the President’s approach to these issues only works in the short run. in the long run, Trump’s policies will only make all of the problems worse. For instance, candy is good. That is common sense. But we can’t just eat candy all day every day. Even though candy is good, in the long run it will make you look like Chris Christie.
We would all like cheaper drugs, but there are consequences to the President putting his boot on the throat of pharmaceutical companies and demanding lower prices. Doing this runs over the intellectual property rights of drug developers, it incentivizes other countries to do the same, it harms future investment in the industry, it means less risk taking from the pharmaceutical companies, and most importantly it means that we will have fewer new drugs in the future. Is that common sense?
In pursuit of lower drug prices President Trump recently announced TrumpRx to help combat the high costs of pharmaceuticals. The idea is that the government will buy directly from the pharmaceutical companies at a price that is equal to or lower than what they charge in other countries (Most Favored Nation). This will likely be at least somewhat popular, because the prices will be much lower than those found at CVS or Walgreens.
However, this solution doesn’t deal with the core problems with the market for pharmaceuticals.
Drug prices aren’t high merely because the pharmaceutical companies are greedy. They are high because the market is broken. Patients are almost never the ones who pay for services. Instead, insurance companies, employers, hospitals, and the government are the payers. In fact, pharmaceutical companies have to pay off these middle men just to get their products to the patient. The prices are high because the process of bringing a drug to market is long, risky, and expensive. Meaning that patents are already many years old by the time companies start to recoup their investment costs and attempt to make a profit. And, other countries often threaten to ignore the IP protecting these innovations and just manufacture the drugs themselves, forcing these pharmaceutical companies to drop their prices or lose the market altogether.
Almost more importantly though, what President Trump is attempting to do using government power and threats is already being done by the private sector. Mark Cuban has a company providing drugs he purchases directly from pharmaceutical companies. Thousands of Direct Primary Care Doctors are doing the same at even lower prices than Cuban’s. And this is just the beginning. TrumpRx will suck the momentum out of this market. Government has more negotiating power, and Trump isn’t hesitating to threaten the full use of government against a company for not complying.
Free market solutions produce competition, innovation, and permanently lower prices. With a government solution, we only get lower prices in the short run, but we also get fewer new drugs in the future, likely less supply, and no competition.
President Trump does have a role that he could fill. He could lower the barriers to bringing new drugs to market. He could give patients more control of their money so they could better take advantage of these competitors to the traditional system. And, he could go after other countries for threatening the IP of US companies. These actions might not be as exciting or as immediately gratifying as candy. However, they would put the US on a path toward innovation, toward empowering patients, and toward lower drug prices that could be sustained for the long run.
Healthcare policy, like many other issues, needs action and its needs action now, but it needs the right actions or else the sugar rush will end, as they all do, in a painful crash.
Charles Sauer (@CharlesSauer ) is the president of the Market Institute. He has previously worked on Capitol Hill, for a governor, and for an academic think tank.
