Drug Money

Can the president keep his promise to make drugs more affordable?

By Daniel Hoffman
Guest blogger

Daniel Hoffman

A central question about President Donald Trump concerns whether he genuinely intends to advance the cause of working Americans or, alternatively, is he leading them down the garden path? Few of his potential actions as president can answer that question as emphatically and successfully as making prescription medications more affordable.

During the campaign, Trump promised to rein in drug prices. More recently, he talked about stopping pharmaceutical companies from “getting away with murder.” Thus far, he has not revealed any specific plans.

That may be because Trump cannot drift too far from his Republican colleagues in Congress, many of whom may also want to make drugs more affordable but have two other goals that are more important to them. The first involves supporting the pharmaceutical companies that are among their biggest campaign contributors. Their number two priority requires pious adherence to a market-as-deity ideology.

This means any greater affordability of drugs will be limited to what pharma and the myth of a free market in health care will allow.

Let’s divide the proposals that analysts are discussing into two categories: “maybe” and “fuggedaboutit.” The “maybes” that the administration, with or without Congress, might deploy at least give the appearance of promoting market competition.

High on this list is an initiative to reduce drastically the scope and effectiveness of the U.S. Food and Drug Administration’s drug approval process. The White House and some members of Congress contend that relaxing regulations and accelerating the rate of new drug approvals will bring more compounds to market, thereby increasing competition and moderating prices.

This idea relies on the fallacy that scads of compounds remain backlogged in the FDA’s cumbersome files, and cutting the regulatory red tape will bring them to the market and create more competition.

As a means of lowering drug prices, weakening the FDA is both unrealistic and dangerous. Making more drugs available on the market will not lower prices because the pharmaceutical industry is a cartel. The patent protection it enjoys and collusion among companies mean that the prices of brand-name drugs stay within a hair’s breadth of each other, even when there are four or five competitor drugs that use the same chemical mechanism to treat the same condition. (The introduction of a generic drug may actually raise the price of the branded drug.)

The danger in crippling the FDA’s regulatory authority comes from the fact that it safeguards the nation against ineffective and dangerous drugs. Weakening its core function is likely to bring about many more Vioxx’s. Lest anyone has forgotten, Vioxx was the Merck anti-inflammatory painkiller that caused nearly 120,000 heart attacks and as many as 30,000 deaths between its approval in 1999 and its 2004 removal from the market.

Two other proposals stand on better economic and safety grounds. One involves eliminating some barriers to low-cost generic medications, including preventing big pharma companies from paying generic manufacturers to keep compounds off the market. Another would eliminate the kinds of exclusivity that allowed several unscrupulous generic companies to hike astronomically the prices of older, off-patent compounds.

Then there is the proposal, offered by both Trump and Bernie Sanders, that would allow Medicare to negotiate drug prices with pharma companies directly.

Both the Congressional Budget Office and the Office of Management and Budget have determined that replacing the private insurers that now haggle drug prices, and permitting Medicare to negotiate directly with the pharma companies, would bring only marginal savings. That’s because the Centers for Medicare & Medicaid Services is not allowed to refuse to cover any drug, no matter how expensive. Medicare would either need Congressional authority to discontinue coverage of particular drugs or, alternatively, legally require lower prices by putting Medicare drug coverage under Medicaid, which can refuse to cover certain drugs.

A final “maybe” proposal amounts to a diversionary effort that would target middlemen such as drug wholesalers and pharmacy benefits managers. These middlemen do contribute to higher drug costs, but not by a lot. The principal driver of high drug prices is the pharmaceutical industry, which last year was able to raise the average prices of branded drugs by almost 11 percent. Targeting the middleman will mainly distract the public and allow Trump to falsely claim he is bringing down drug prices.

If the “maybes” contain a boatload of proposals, the “fuggedaboutits” are a virtual armada. Only three ideas in that fleet deserve mentioning. One proposal would increase the transparency of the R&D costs that, according to pharma, drive drug prices. Although greater pricing transparency is certainly preferable, R&D costs hold only a weak connection to eventual drug prices. And in any case, the drug industry is implacably opposed to opening its books.

Another proposal would allow Medicare to reduce how much it pays for medications administered in hospitals and physicians’ offices. Hospitals and some doctors purchase some drugs at wholesale prices and are reimbursed at much higher rates by insurance. (For cancer doctors, this is sometimes called the “chemo concession.”) President Obama tried putting a toe in that water with a “demonstration project,” but eventually he had to abandon the effort. Too many physicians (especially oncologists and rheumatologists) make too much money from this “buy and bill” system to readily allow a change.

Finally, there is the idea of tough trade talk to make other countries pay more for drugs, thereby relieving some burden from U.S. consumers and taxpayers. This will remain just talk. Other countries will fiercely resist bailing out America’s self-imposed subservience to pharma through what they would consider an infringement on their own sovereignty.

So what are the prospects that this list of “maybes” and “fuggedaboutits” will make medications substantially more affordable?

The most likely answer is any of the proposals that get adopted and put into practice will constrain drug costs only marginally. They will almost certainly bear out the confidence of Pfizer’s CEO, Ian Read, who said during the campaign that neither Clinton nor Trump give him any cause for worry. For American consumers and taxpayers, on the other hand, the worries about the cost of care will get worse.

Daniel Hoffman is president of Pharmaceutical Business Research Associates, a pharmaceutical consulting firm in Glenmoore, PA.

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