Drug Pricing Reform Seeks to Lower Prices for Americans

The Trump administration aims to encourage competition in generic drug market
May 16, 2018 Updated: May 16, 2018

President Donald Trump laid out his vision for lower drug prices on May 11, announcing a major action plan to put “American patients first.” The president has made it a high priority for his administration to ensure that generic drugs are sold at a reasonable price in the United States.

“We will have a tougher negotiation, more competition, and much lower prices at the pharmacy counter, and it’ll start to take effect very soon,” Trump said.

The United States has the highest prescription drug spending in the world, due to higher list prices and greater use of expensive drugs. The nation spent $1,162 per person on prescription drugs in 2015, compared to $497 in the UK, $668 in France, and $803 in Japan, according to the Organization for Economic Cooperation and Development (OECD).

One of the main objectives of Trump’s blueprint is to increase competition in the generic drug market. Generic drugs are copies of brand-name drugs that are marketed after the brand-name patents expire.

According to an economic report by the president’s Council of Economic Advisers (CEA) published in late February, many artificially high prices result from government policies that prevent healthy price competition.

“Drug prices, for example, are sometimes artificially high due to government regulations that raise prices,” stated the CEA report. Hence the blueprint aims to reduce drug prices by encouraging more robust price competition.

List prices for drugs have skyrocketed in the last few decades, and government programs and private consumers do not always have the means to negotiate more reasonable prices.

According to the plan, the Department of Health and Human Services (HHS) will give Medicare Part D plans better tools to negotiate discounts on behalf of seniors. Medicare Part D provides affordable drug coverage for people who are 65 or older.

Many Americans, especially seniors, incur high out-of-pocket costs, since these are usually calculated based on drugs’ high list prices. HHS also plans to develop solutions to lower patients’ out-of-pocket spending.

Another action plan laid out in the blueprint is to create new incentives for drug manufacturers to lower their list prices. And to improve price transparency, the Food and Drug Administration (FDA) might require drug price disclosures in commercials.

“If we want to have a real market for drugs, why not have them disclose their prices in the ads, too?” HHS Secretary Alex Azar said at the White House following Trump’s remarks on lowering drug prices.

HHS will also focus on pharmacy benefit managers (PBMs), companies that act as intermediaries between insurers, manufacturers, and pharmacies. As middlemen, PBMs use rebates to negotiate discounts in the pharmacy channel.

“Our plan will end the dishonest double-dealing that allows the middleman to pocket rebates and discounts that should be passed on to consumers and patients,” Trump said.

Azar, who is also a former president of pharmaceutical company Eli Lilly, described the blueprint as “the most comprehensive attack on prescription drug affordability in history, by any president.

“This doesn’t get solved tomorrow.  It’s going to take years of restructuring the system.  But these are big, they are bold steps, he said.

Record Year for Generic Drug Approvals

The administration has also made it a high priority to ensure that generic drugs are approved on a faster timeline.

In 2017, the Food and Drug Administration approved more than 1,000 new generic drugs—a record number achieved in a single year. Generic drug approvals helped American consumers save $8.8 billion last year, according to Azar.

Trump also demanded fairness not just at home, but also abroad.

“When foreign governments extort unreasonably low prices from U.S. drugmakers, Americans have to pay more to subsidize the enormous cost of research and development,” said Trump.

Most foreign governments—especially those in socialist countries—cap drug prices and force drug manufacturers to comply with their rules in return for market access. Through this leverage, foreign governments can push for lower drug prices, which then erode the profits of pharmaceutical companies.

While the United States accounts for only 34 percent of OECD member countries’ combined GDP, Americans pay more than 70 percent of patented biopharmaceutical profits, according to CEA estimates.

“It’s time to end the global freeloading once and for all,” Trump said. He directed trade representative Robert Lighthizer to “make fixing this injustice a top priority” in ongoing trade negotiations.

More than half of the public (52 percent) say passing laws to bring down prescription drug prices should be a “top priority” for Trump and Congress, according to recent polling by the Kaiser Family Foundation. Pharmaceutical companies rank among the top organizations that the public think has “too much influence” in Washington, according to the same poll.

Trump accused lobbyists of protecting the status quo and keeping prices artificially high.

“The drug lobby is making an absolute fortune at the expense of American consumers,” Trump said. “No industry spends more money on lobbying than the pharmaceutical health products industry.”

Pharmaceutical companies spent roughly $280 million on lobbyists last year. That’s more than the money spent by tobacco, oil, and defense companies combined, according to the White House.

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