It was almost exactly a year ago that Trump, campaigning in New Hampshire, said it was crazy that the federal government, effectively the world’s largest buyer of prescription drugs, was not allowed to negotiate directly with the drug companies to get lower prices, boasting that he could save taxpayers $300 billion a year on Medicare “on Day One.”
At a news conference the week before his inauguration, Trump doubled down on his promise to reduce prices, declaring that drug companies were “getting away with murder.” And on Tuesday, he summoned drug company chief executives to the White House to do to them what he had done to carmakers and aerospace executives, shaming them into creating jobs and lowering prices.
“We have to get prices down,” he told the drugmakers. “We have no choice.”
An hour later, however, the negotiator-in-chief emerged to say it was all a misunderstanding. Reading almost verbatim from the industry’s talking points, he vowed to “oppose anything that makes it harder for smaller, younger companies to take the risk of bringing their product to a vibrantly competitive market.” He would have nothing to do with anything so odious as “price fixing” by Medicare.
Asked about the apparent 180-degree turnaround later in the day, press secretary Sean Spicer conjured up the industry’s newest and most absurd talking point, explaining that it was not the job-creating drug companies but rather government bureaucrats and regulators who were preventing the government from getting the best deal for taxpayers.
The whole incident provided the latest reminder of Trump’s troubling tendency to agree with the last person he spoke with, in no small part because he understands so little about the issues about which he so confidently opines. Indeed, the whole drug price drama was a flimflam right from the start.
Trump’s original claim of $300 billion a year in annual Medicare savings was absurd on its face, given that $300 billion represents half of all Medicare spending and close to half of what the government and everyone else spends on drugs in a year. That whopper merited four Pinocchios from The Post’s Fact Checker.
Trump also seemed unaware that while Medicare is prevented from directly negotiating drug prices, most of the drugs paid for by Medicare are bought through private insurance plans sponsored by Medicare that can and do negotiate with competing drug companies. The government’s other big health insurance program, Medicaid, doesn’t negotiate drug prices, either, but in most states, the law requires that Medicaid receive the lowest price charged to any private insurance plan. As a result, Medicaid pays more than 20 percent less for drugs than Aetna or Blue Cross. Similar discounts are negotiated by the Department of Veterans Affairs on behalf of its network of hospitals and clinics.
Most experts agree that if Medicare were allowed to negotiate directly on behalf of all 50 million of its beneficiaries, it could push prices even lower, albeit modestly. But what Trump doesn’t appear to realize is that for those negotiations to be effective, two other things would have to happen that he might find hard to swallow.
First, for illnesses for which there are two or more equally effective drugs, the government would have to be free to create a formulary, in effect telling patients and their doctors, “We will pay for this drug but not that one.” There’s nothing in Obamacare that comes even close to that kind of government interference in clinical decisions. Republicans would never accept it, and if he understood it, neither would Trump.
And then there are illnesses for which only one drug offers the best treatment, either because it is protected by a patent or because the market is too small to attract another firm. In those cases, which account for many of the most expensive drugs, there is no competition so there could be no competitive bidding. The only negotiating leverage the government would have would be to refuse to pay for the drug, denying it to taxpaying patients. Another name for it is rationing. Good luck with that.
The basic story about drug pricing goes like this:
Because ours is the only country that does not negotiate prices with drug companies, using a national formulary, Americans pay roughly twice what patients in other countries do for the most widely used drugs still under patent. What that means, in effect, is that Americans pay for the 20 percent of drug industry revenue that is invested in researching new drugs, giving the rest of the world a free ride. In exchange for this largesse, a disproportionate share of the high-paying research jobs are located in the United States. Drug companies also used to pay a disproportionate share of corporate taxes to the U.S. Treasury until they became as innovative in tax avoidance as they are in product development.
As with just about every other facet of the American health system, drug pricing is impossibly opaque. While drugmakers post exorbitant prices for some drugs, large insurance companies and pharmacy benefit managers negotiate large discounts on behalf of their customers that are closely guarded secrets, but on average are close to 40 percent.
One perverse effect of this system is that it encourages drug companies to push posted prices ever higher so they can offer steeper and steeper discounts to win more business. The result is higher profits for insurers and pharmacy benefit managers, but also higher out-of-pocket costs for consumers who have no insurance or whose insurance policies include large deductibles or co-payments for drug purchases.
This past week, this rebate racket was detailed in a class-action lawsuit filed in federal court in Boston against the three leading drug companies — Sanofi, Novo Nordisk and Eli Lilly — which are accused of conspiring to raise the benchmark price of insulin by nearly 170 percent over the past five years, despite little increase in production or distribution costs. While fully insured patients have to pay little of this increase, the suit alleges, others who once paid $25 per prescription now are forced to pay $300 to $450, or as much as $900 a month. The companies said the suits were without merit.
Drug companies have also come to dislike the rebate racket, if for no other reason than stories of sky-high prices have given them a public relations black eye. Instead, they are pushing for what they call “value pricing,” in which drugs would be priced based on how effective they are in treating an illness and in reducing other medical cost.
But while value pricing may be a good idea, it won’t do anything to help Trump lower drug prices. The industry is hoping that the next generation of pills and biologics will dramatically reduce the number of days people spend in hospitals, the number of operations they have and the number of visits they make to doctors’ offices. What “value pricing” means to the pharmaceutical industry is the ability to capture most of those savings in the form of higher prices, not lower — and with it a larger slice of an ever-growing health-care pie.