President Trump has jumped at every opportunity to falsely blame other countries’ drug pricing decisions for Big Pharma’s grossly excessive prices in the U.S. Following this false premise, the proposal, announced yesterday, to cut drug prices is far more bark than bite.
Casting himself as the savior of US patients whom he falsely claims pay for “virtually all” global biopharmaceutical research and development, Trump touted three experiments to reduce Medicare prices:
- limiting doctors’ percentage mark-ups on certain prescriptions to encourage better prescribing practices (so that clinicians’ earnings are not tied to the higher price of a prescribed medicine);
- letting private sector vendors negotiate with pharmaceutical corporations on Medicare drug prices for a limited number of medicines and in limited geographic regions; and
- setting prices for medicines used by doctors in their offices and hospitals in only 50% of the country by resetting those prices gradually over time to amounts paid for those same medicines by procurers in sixteen reference countries.
This last proposal may appear bold because it deploys a strategy Trump has sharply criticized, and attempted to block, in other countries—using some measure of price controls to restrain Pharma’s unconscionable monopoly pricing. According to the administration’s plan, by 2025 prices on a very select number of medicines could drop on average by 30%.
The $17.2 billion in savings over 5 years promised by Trump sounds like a lot, but the savings each year would amount to less than 1% of drug manufacturers’ 2015 earnings from U.S. sales. Given average list-price increases of nearly 10% per year, Trump’s “savings” are overwhelmed by predictable drug-price inflation, and do not take into account any compensatory action Big Pharma would most surely take.
Despite blowing a toy whistle against Big Pharma, his threats against other governments are all too real given his administration’s monopoly maximizing intellectual property proposals in trade agreements (including the recently renegotiated North American Free Trade Agreement) and his repeated bullying of countries daring to use price control measures and other public health safeguards that are lawful, rational, life saving and evidence-based.
Trump’s assertion that drug companies will give U.S. payers a break if they can only charge higher prices overseas is laughable. We have a 23-year natural experiment (ever since the adoption of the WTO TRIPS Agreement in 1995) where higher patent protections and greater protections for pharmaceutical monopolies globally have not resulted in discernable lower prices in the U.S. We have another natural experiment of allowing U.S. companies to repatriate billions of dollars of “foreign” earning and pay greatly reduced taxes. If that money was essential to drug company R&D, they certainly didn’t show it – instead virtually all imported dollars went to stock buybacks or dividends to reward to investors and senior management.
President Trump is in the pocket of the Big Pharma. He is playing an election cycle shell game: trying to confuse the public at the same time that his serious campaign of raising prices abroad advances under the radar.
An earlier version of this post reported that the average price reduction that could be expected from the new Trump Administration was 44%, this has been corrected to 30% in the version above.