Trump’s Plan Won’t Solve The Medication Price Crisis

By mariocigic/ Shutterstock

Lili Carneglia Professor, Valencia College
Font Size:

After a Twitter attack from President Trump, the pharmaceutical giant Pfizer paused its summer plans to increase drug prices.

This surprise backpedal leaves many hoping Trump will bring down the prices of prescription drugs as he promised to do in his speech unveiling the American Patients First plan a few months ago.

Unfortunately, the policy platform the president is pursuing will do very little to streamline the cumbersome and wholly ineffective health care system that forces Americans to pay more for prescription drugs than citizens of any other wealthy nation.

At the end of May, Trump promised that drug prices would plummet quickly following the unveiling of his pharmaceutical reform blueprint; instead, Big Pharma’s stock prices soared the day of the announcement.

Trump’s recent Twitter fight with Pfizer reveals that his plan, at the very least, is not working as quickly as planned — otherwise, he wouldn’t have to attack companies publicly to get them to drop prices. The Trump administration’s plan lacks specificity and fails to address the fundamental flaws in the U.S. healthcare system, leaving little room for optimism that it will work at all.

For starters, Trump’s plan fails to effectively address serious patent abuses.

In theory, patents provide protection to innovators in the pharmaceutical industry. The process of developing a single new drug can take years and billions of dollars before a company is ever allowed to bring the drug to market and make a profit. Allowing the company to patent the product and giving them temporary monopoly power helps them recover their tremendous research and development costs, justifying and driving innovation.

But the complexity in the current system means we rarely see the innovation drug patents are meant to foster. Instead, large pharmaceutical companies pursue a different type of entrepreneurship: regulatory arbitrage.

The most egregious way to game the existing system is “evergreening,” which involves slightly tweaking the original drug to receive a new patent, effectively extending their monopoly for additional terms.

For example, the makers of OxyContin have used this method to re-patent 13 times. By changing how quickly the drug releases and other restructuring disguised as means to reduce abuse, they were able to expand profits and extend their monopoly. This strategy strangles competition and distorts prices. Without competitors, the single provider can charge prices that would ordinarily drive them out of business, or spur public outrage as seen in the past EpiPen pricing scandal.

The Trump administration’s American Patient’s First plan doesn’t adequately address the evergreening issue, although it does mention concerns over other gaming strategies that prevent developed generics from entering the market.

Unfortunately, Trump’s willingness to ignore the root of the problem, the evergreening strategy, stops generic drug development before it begins. His proposed solutions for speeding up the generic drug approval process simply misses the forest for the trees.

Instead, the administration ought to revise the patent process to promote its original intent, rewarding progress and innovation.

Furthermore, in the market for health care the final consumer is usually not the person bearing the cost of the product, representing another fundamental flaw in our system.

When third parties like private or government insurance programs are the ones buying the drugs for the patients, the prices will always be high because they serve as a barrier to direct consumer choice. It is hard to imagine buying cars, groceries, or just about anything else without weighing quality and affordability beforehand.

Yet, this is how the market for prescription drugs works.

Third parties make these decisions, not based on costs, but complex laws, their relationships, and their negotiating power. This is why new cancer drugs cost about $120,000 annually, a price that would generally exclude even the most desperate consumer.

While many private insurance companies are responsible for some of this cost shifting, by far, the federal government absorbs the largest share of costs through existing health care programs.

Some suggest that we should aggregate these programs’ purchasing power as other countries have, rather than forcing Medicare to pay the distorted prices that exist. This would involve giving Medicare the power to negotiate drug prices with pharmaceutical companies directly, and the ability to walk away when negotiations get too expensive.

Trump made original campaign promises to do just this, but his plan’s specific actions have received criticism for being noncommittal.

Additionally, Health and Human Services Secretary Alex Azar clarified that this initiative would stay limited in scope, and another Trump administration official stated that the policies enacted on this front will probably not resemble the direct negotiating power many expected.

Yet Trump’s failure to deliver on this promise may actually be a blessing in disguise. Allowing government programs to negotiate arguably adds to the third-party payment issue, while potentially creating new problems regarding access to drugs that Medicare might fail to negotiate effectively.

Without simplification of the regulatory landscape, there is little room for progress in the pharmaceutical industry.

Trump’s plan to work within rather than comprehensively reform the current system is likely to create even more loopholes than the existing policies have bred. Until foundational changes can be made, Trump’s most effective strategy will be to stick with Twitter-shaming pharmaceutical companies.

Lili Carneglia is an economics professor at Valencia College and is a Young Voices Advocate. Follow her on Twitter.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.