[Ip-health] Steven Pearlstein: Trump loses backbone on drug prices. Is there a pill for that?
james.love at keionline.org
Tue Feb 7 04:56:34 PST 2017
Steven Pearlstein's take on Trump, and on drug pricing.
The Washington Post
Trump loses backbone on drug prices. Is there a pill for that?
By Steven Pearlstein February 4
President Trump, left, listens as Robert Hugin, chairman of Celgene, speaks
during a meeting with representatives from the Pharmaceutical Research and
Manufacturers of America (PhRMA) at the White House. (Ron Sachs/Pool via
Amid all the kerfuffle in the last week over immigration, the Supreme
Court, Iran and Arnold Schwarzenegger’s TV ratings, too little attention
was paid to an extraordinary meeting at the White House at which President
Trump reneged on a campaign promise and sold out millions of “forgotten”
Americans to giant drug companies.
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
“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.
[What CEOs say happened in Trump’s closed-door meeting with big pharma]
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 only thing that can stop Trump from turning Washington into a
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
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.
Steven Pearlstein is a Post business and economics writer. He is also
Robinson Professor of Public Affairs at George Mason University. Follow
James Love. Knowledge Ecology International
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