President Trump is taking aim at the Rx industry. For decades, this industry has been billing US consumers higher prices for medications than other countries, making the US subsidize the world’s pharmaceutical costs. 

The objectives of the current program actions are as follows: 

  1. Hold foreign countries accountable for undervaluing the actual costs of drugs
  2. Increase access to advanced drugs for US patients.

While this may sound innovative and a radical change for the better in our healthcare system, some are opposing the idea. Even some Republicans, including Charles Grasley, (Senator, R, Iowa) have expressed concerns about this change, stating that it could make a bad problem worse. 

Under current law, the US government does not negotiate with pharmaceutical companies to obtain better pricing. The US insures a substantial amount of people on Medicare, and many feel that we should use this as leverage in bringing down the cost of prescriptions. In the short run, this makes sense. Although there is an alternate thought that the negotiations might cause more harm than good. 

Medicare is the primary insurance carrier for most retired people over the age of 65. Medicare also covers people that are permanently disabled. Currently there are 60.8 million people on Medicare. Medicare is a four part system as shown below. 

  • Medicare A (Hospitalization) provides inpatient/hospital coverage
  • Medicare B (Outpatient Services) provides outpatient/ medical coverage
  • Medicare C (Medicare Advantage Plan) offers an alternate way to receive your medicare benefits
  • Medicare D (Drug Coverage) provides Rx drug coverage

Medicare Part D is the prescription drug benefit component of Medicare.  The market-based approach has worked to keep costs down. By contrast, President Trump’s proposal would take a different tack. Under his plan, HHS would mirror the drug price practices of 14 other countries that pay artificially low prices for drugs. 

These governmental proposed controls within the market are great in the short-term in keeping the cost of drugs down. They also have unintended consequences that adversely impact consumers. An unintended consequence of pharmacy price controls is that Medicare B covers advanced, physician-administered medicines – HHS plans to tie U.S. drug prices to the artificially low prices paid in 14 other countries. Price controls may save the government money in the short term, but they would slow the rate of medical drug creation. 

In most developed countries, governments have enormous power to dictate the price of prescription drugs. Governments use this power to keep prices low, often at the expense of providing access to the newest breakthrough medicines. The result is that American patients shoulder more of the global research and development burden. President Trump has proposed addressing this inequity by taking aim at “the global freeloading that forces American consumers to subsidize lower prices in foreign countries.” ~President Trump

This is the right instinct. But oddly, instead of pushing back against the unfair pricing policies used abroad, Trump wants to copy them. 

Creating just a single new medicine costs $1.7 billion, on average, and can take more than a decade to develop and bring to market. Only a handful of drugs sell enough to cover their research and development costs — much less subsidize ongoing research into new medicines.

Medicare Part B covers some of the sickest patients, often with life-threatening illnesses. Progress towards new therapies for illnesses like Alzheimer’s, cancer, multiple sclerosis, and Parkinson’s disease would slow. New product launches would become rare events, whereas they are common today. 

U.S. patients have better and faster access to the newest drugs than any other country. Almost 90% of the 290 new drugs created and approved from 2011 to 2018 were immediately available in the US. The rest of the world obtained access 50% of those new offerings. Galen Institute For patients battling cancer and other debilitating diseases, these delays can be deadly. If we import their foreign government price controls, we will import their diminished access to new prescription drugs as well.

This change could potentially cause many life-saving drugs to never be created because of the risk of losses to drug manufacturers. 

A better solution would be to have these other countries pay their fair share for medications, tying the cost increases to the Consumer Price Index (CPI). This would drive costs up in those 14 other countries. It would also allow for the pharmaceutical industry to obtain reasonable profits and incentives to create new drug therapies.