President Donald Trump has complained that U.S. drug companies are “getting away with murder.” For once the hyperbole is forgivable: It suggests he takes the problem of drug costs seriously and might be willing to do something about it. Unfortunately, his administration’s efforts up to now suggest the opposite.
The White House has proposed tweaks to government health care programs. Some of these measures are worth trying – they could help at the margin – but tweaks aren’t enough. The underlying problem is drug prices that are indeed murderous: Americans and their insurers often pay many times what people in other developed countries pay for the same medicines. That’s what policy needs to confront.
The administration wants insurers participating in Medicare’s prescription-drug program, for instance, to share more directly with beneficiaries the discounts they arrange with drug companies. Out-of-pocket drug costs for some people on Medicare would be capped, and reimbursement for medicines administered by doctors would be trimmed. In Medicaid, a handful of states would be allowed to decline coverage for certain drugs, increasing their leverage in negotiating discounts.
Such changes could lower drug spending for some Medicare and Medicaid beneficiaries. But they miss the main point by shifting costs within the health care system rather than pressing down on the costs themselves. Unless this changes, the U.S. will continue to be overcharged for its drugs.
The companies often say that high U.S. prices pay for research into new lifesaving products. Leaving aside why U.S. patients should be asked to shoulder that burden for the entire world, the evidence shows that the argument is false: The premium companies collect in the U.S. market is substantially greater than the amount they spend on research and development.
State legislatures have aimed closer to the mark with efforts to expose the math behind price increases. Vermont, Nevada and California have new laws requiring that drug companies provide cost breakdowns to justify big price hikes on popular drugs (including, in Nevada’s case, drugs for diabetes). Several other states are considering doing the same.
Even if these laws stand – they’re being challenged in court – transparency gets you only so far. Pushing prices down will take stronger efforts from the federal government to increase competition.
One good way to do that is to speed the uptake of generics. Scott Gottlieb, commissioner of the Food and Drug Administration, has been pressuring drugmakers to stop trying to extend the monopolies they’ve been granted (via FDA approval and patents) for brand-name drugs. But only Congress can forbid those practices, and it has yet to act on bipartisan legislation that would do the job.
Another way to boost competition would be to let people and pharmacies import some drugs from other countries with sound pharmaceutical regulation, such as Canada. Almost one in 10 Americans say they already do, despite the official prohibition.
The U.S. should also do what so many other countries do: negotiate. The Centers for Medicare and Medicaid Services ought to use its enormous purchasing power on behalf of the 42 million Americans in the Medicare drug-benefit program, ensuring that prices better reflect the drugs’ actual medical value. Again, for this to happen, Congress would need to change the law.
Incredible as this will seem elsewhere in the world, the U.S. government has denied itself permission to apply pharmaceutical cost-benefit analysis and negotiate prices.
Trump is right to deplore the cost of drugs in the U.S. There’s no great mystery about the causes – and no doubt that much bolder measures than the administration has in mind will be needed to bring prices down.
Bloomberg View editorial.