In May, the President gave his first major speech on lowering drug prices, making good on his campaign promise to go after drug makers to get lower prices for consumers. Following the speech, the White House released the Administration’s blueprint for lowering drug prices. Two months later, some of the details of the plan are now starting to come into focus and we are seeing results.
For example, the drug companies Pfizer, Novartis, and Merck all announced that they were reversing decisions to raise drug prices this year and even offering discounts on some drugs. This is great news for patients especially when millions of Americans are skipping doses or not filling expensive prescriptions to try to save money. However, these changes are most likely the result of PR decisions within the drug companies to try to avoid being on the receiving end of another angry tweet from the President. The time for real, private-sector based reform in drug pricing should come now so that healthcare can be a winning issue for Republicans running for re-election, and to prevent drug makers from jacking up prices as soon as they feel the President is focused on other topics.
So far, there haven’t been any new rules out of the Department of Health and Human Services that would force drug companies to respond to added competition and lower prices. However, that could be about to change. The Trump Administration is considering a rule that would allow some purchases for medications overseas. Specifically, the rule would prevent companies from buying a drug that has been on the market for a long time and then jacking up the price to hundreds of dollars per pill. Preventing that kind of predatory practice is useful, but such a rule would have little impact on drug prices across the board.
Another rule under consideration would remove the “safe harbor” protections that allow for Pharmacy Benefit Managers (PBMs) to negotiate rebates from pharmaceutical companies on behalf of their clients. Unfortunately, this change could actually end up making prices go up for consumers. Rebates are a mechanism used to get discounts on drug prices, so it is hard to see how prices would come down if the discounts were eliminated. Moreover, analysts have found no correlation between rebates for brand-name drugs and cost increases. In fact, drugs with little or no rebate still increased in price. We should be giving private companies and patients more power to negotiate for lower prices, not less.
The impact of special interests on our healthcare system has made it anything but a free market. On this point, the President didn’t mince words and pointed directly at the source of the problem: drug companies, their extensive lobbying efforts, and their undue influence over lawmakers in Washington. The President said, “The drug lobby is making an absolute fortune at the expense of American consumers. No industry spends more money on lobbying than the pharmaceutical health products industry. Last year, these companies spent nearly $280 million on lobbyists. That’s more than tobacco, oil, and defense contractors combined.” Strong rhetoric always sounds good, but it requires strong action too; and that means President Trump will have to stand up to his own advisors, including Health and Human Services Secretary Alex Azar, who was a lobbyist for drug maker Ely Lilly before joining the Administration. The way to solve the problem is not heavy-handed regulation, but rather stopping PhRMA, the lobbying wing of the pharmaceutical industry that endorsed Obamacare, from dictating healthcare policy.
The solution to higher drug prices is to push for as much competition in the market as possible. Transparency and competition should always win out over rules written by industry lobbyists when it comes to drug pricing reform. Part of the President’s plan is focused on increasing competition, giving Medicare Part D new tools to negotiate lower drug prices. This blueprint is based on the model that PBMs have been using to control drug costs for their clients in the private sector for years.
Methods, such as using benefit design to encourage rebates, negotiations, and competition, will help Medicare and Medicaid become less expensive and bring private-sector innovation to these large government programs. Expanding these tools to every part of Medicare and Medicaid will give the government real bargaining power.
The good news is that we already know that this type of competition works. PBMs save payers and patients an average of $491 per person per year, reducing drug costs for over 266 million Americans. Using these private-sector tools will help patients save even more money.
With his speech and blueprint, the President has shown the resolve to take on the issue of high drug prices. Now he will need to follow through to take on the driver of costs: Prescription drug companies. If drug pricing reform ends up just being angry tweets at companies that raise prices and rules that tie the hands of companies trying to negotiate discounts, President Trump will have missed an opportunity to score a victory on an issue that is critically important to American families.
Michael Steele is the former Republican National Committee chairman and former lieutenant governor of Maryland. He is also an MSNBC political analyst.