Trump and drug companies have secret plans to lower prices

An assortment of pills sits on top of a $100 bill around the portrait of Benjamin Franklin

Aug. 27, 2020 6 AM PT

One thing Republicans and Democrats agree on is that drug prices are too darn high. So it should be offensive to all that President Trump and the drug industry are competing to offer the most disingenuous plan for making prescription meds more affordable.

Pharmaceutical Research and Manufacturers of America, or PhRMA, the drug industry’s lobbying group, reportedly submitted a memo to Trump this week aimed at countering his proposal to link the U.S. prices of some drugs to lower costs abroad.

The industry is offering to cut prices by 10% for some Medicare beneficiaries, but only for super-expensive drugs administered in person by doctors and hospitals. Think chemotherapy, not the pills most people take at home.

Though it’s positive that both the president and drugmakers are talking about lower prices, the depressing reality is that all concerned are ignoring genuine measures to accomplish this goal — approaches adopted by other developed countries whose citizens pay half the average amount that Americans pay for healthcare.

Instead, both Trump and drug companies are pushing ideas intended primarily to maintain the status quo that keeps U.S. drug prices the highest in the world.

“Both sides are trying to give Trump a win before the election,” said Joey Mattingly, an associate professor of pharmaceutical health services research at the University of Maryland.

“This isn’t sweeping change,” he told me. “It feels more like the first moves in a very short game of chess.”

One problem here is that neither Trump nor drug companies have put their respective proposals on the table for public scrutiny.

A month ago, Trump made a great show of signing an executive order that he called a “favored nations clause” aimed at ending “global freeloading on the backs of American patients and American seniors.”

However, he’s kept the text of that order secret while giving drugmakers room to cook up their own ideas.

What’s known is that Trump’s order would somehow peg prices of some doctor-administered drugs under Medicare Part B to lower prices paid overseas.

It wouldn’t apply to the more commonly used Medicare Part D, the system’s prescription drug plan.

Drug companies this week countered with their own secret proposal, highlights of which were shared with Politico by a handful of industry sources.

PhRMA, the drug lobby, didn’t respond to my request for comment.

What the drug companies reportedly are offering is 10% off some Medicare Part B prices but no reduction in Part D costs. This could result in savings of $100 billion over a decade, Politico reported.

To recap: Trump wants a relatively small number of drugs to be priced similarly to lower overseas prices, but he hasn’t said which prices or countries he’d use as the benchmark.

Drugmakers want to avoid even that modest change by voluntarily lowering prices on the same drugs by 10%.

“This is something,” Mattingly observed. “But neither proposal comes close to addressing prices of major drugs like insulin that many people use.”

It’s infuriating, particularly in light of the fact that we know from the example of our economic peers how drug prices can be brought to reasonable levels.

First, you allow a large-scale government insurance program to negotiate prices with manufacturers. Medicare, representing about 60 million U.S. beneficiaries, is prevented by law from doing that.

Second, you impose price controls that allow pharmaceutical companies to make a fair profit but prevent them from taking advantage of the sick.

In this country, drugmakers can charge as much as they want, which is why no other country comes close to our stratospheric pricing.

Driving costs even higher are the layers of middlemen — led by so-called pharmacy benefit managers — that make pricing deliberately opaque and complex while cutting themselves in for a piece of the action.

“The rule I would like to see adopted would be for Medicare to be empowered to walk away from the table if a pharmaceutical company is unwilling to accept prices low enough to make their drug cost-effective,” said Jeffrey Clemens, a healthcare economist at UC San Diego.

That’s not what Trump is proposing.

Drug companies, meanwhile, are contorting themselves to appear open to discussion while at the same time doing everything possible to avoid broad price reductions.

Notably, they’re offering nothing that would change the current system of setting list prices for prescription meds at insanely high levels as a starting point for negotiations with insurers.

Jeffrey S. Hoch, a healthcare economist at UC Davis, observed that drug companies could simply raise prices by 10% to mitigate the effects of a promised 10% price cut.

A $90 pill, in other words, becomes a $100 pill. Profits are unchanged.

“It seems the details of this will be important so we can evaluate whether the savings are imaginary or just minor,” Hoch said.

Katherine Baicker, a professor of public policy at the University of Chicago who also sits on the board of drugmaker Eli Lilly & Co., said another way to lower prices would be to speed the entry of branded and generic competitors to the marketplace.

But she said we’re a long way from a significant — and safe — streamlining of the pharmaceutical approval process.

“It’s more about politics than economics,” Baicker observed.

I agree. And the politics of the moment indicate that it’s better to claim a win than to actually score one.

Xi Chen, an associate professor of public health at Yale University, said only “a small part of Medicare drug spending” is being addressed by Trump and drug companies.

“Any proposal that leaves out Part D drugs does not seem to make much sense,” he told me. “Better to consider a broader approach to include both Part B and D.”

Like I said before, we already know what works. Other developed countries have spent decades hammering out the kinks of drug pricing.

That’s why the political theater now underway by Trump and drugmakers is so frustrating. Neither side is proposing serious change.

“They’re not trying to fix the healthcare system,” said Mattingly at the University of Maryland. “They’re not trying to protect people from medical debt. This is about allowing Trump to say he did something.”

That’s not nothing.

But it hardly comes close to what’s needed.