- - Wednesday, April 24, 2019


Presidents from Bill Clinton forward have made bold pledges to fix America’s broken health care system. Indeed, the broken system and what to do about it is usually a theme of presidential campaigns. Yet the system is still broken, and government interventions in the medical marketplace have created more problems than they solved.

Donald Trump, who inherited the broken system, is only the latest in a line of those looking for the way out. He promised to use the power of government to lower the price of prescription drugs. That’s not the best way to fix it but it’s a start. Unfortunately, the people who designed the plan he’s backing turned left when they should have turned right to produce a scheme to enable negotiating lower drug prices, especially for seniors.

Three months ago the U.S. Department of Health and Human Services proposed a rule that would effectively prohibit rebates on prescription drugs paid by manufacturers to sponsors, managed-care organizations and “pharmacy benefit managers” under contract with them.

Now we wait to see if this proposal to eliminate rebates in the Part D program, which the pharmacy benefit managers use to negotiate lower prices from drug makers, is adopted. It shouldn’t be; the design is flawed. The people who came up with it acted on the flawed assumption that elimination of such managers would lead to lower prices although the pressure to lower prices has eased.

That would be a victory for the drug manufacturers. It would put taxpayers on the hook for higher health care costs while increasing company profits. A study conducted by Avalere Health projects premiums would go up by $85.7 billion and government spending would go up by $410 billion under the proposed rule.

Things are not always as complicated as the politicians and their experts make them seem, especially if there is agreement on goals. Matthew Eyles, president and CEO of America’s Health Insurance Plans wrote in a letter this month to HHS Secretary Alex Azar that “patients deserve affordable access to life-saving drugs. Everyone agrees [that] prescription drug prices are out of control. That’s because drug makers alone set outrageous launch and list prices. They alone have the power to raise those prices — putting access for patients at risk. And they alone have the power to reduce those prices.” Without market forces lowering prices and enormous government spending on prescription drugs, the pressure on prices pushes them up, not down.

President Trump has repeatedly accused drug companies of “getting away with murder.” In his State of the Union Address this year, he said that “one of my greatest priorities is to reduce the price of prescription drugs. In many other countries, these drugs cost far less than what we pay in the United States. That is why I have directed my administration to make fixing the injustice of high drug prices one of our top priorities. Prices will come down.”

We’ve heard this song before. The Obama administration formulated a rule on drug prices in a way that masked the damage to seniors and taxpayers, driven as usual by political considerations. The new Trump-era rule kicks in after the 2020 elections, just in case premiums, like the cost of government, go up. The Avalere Health model of the proposed rule found “premiums for seniors could rise as much as 40 percent if manufacturers retain 50 percent of current pricing concessions, and government costs could increase by more than $410 billion for drugs.”

President Trump should not model his policies on the policies of Barack Obama and presidents before him. He should back away from his agency’s misguided proposal and find a better way, using real markets to set prices and empower patients to have more rather than fewer choices. That will make prices come down, and come down quickly.

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