This week the Trump administration released a compilation of ideas aimed at reducing prescription drug costs. Slowing the rise of drug costs is an important part of addressing the nation’s fiscal challenges because rising health care costs are the largest driver of long-term deficits.
About 10 percent of health care spending, roughly $360 billion in 2018, goes to prescription drugs. Drug spending is also the fastest-growing type of health care spending when projecting over the next five to ten years.
On the administration's proposal, the first thing worth noting is that the rhetoric of this being a sweeping reform that will immediately lead to lower drug prices is severely hyperbolic. Instead, this “blueprint,” containing 136 question marks, leaves a lot to still be determined by the Health and Human Services secretary, Congress, and by private sector action that will take a long period of time.
As I said in the most recent episode of our podcast, Facing the Future: “This is really, I would think, more accurately thought of as kicking off a discussion over what to do about prescription drug prices, and not much about what will be immediately done to lower the growth of those prescription drug costs.”
Ultimately, any plan to control costs has to find a meaningful way to exert pressure on prices or control access to the drug, either through market forces or government intervention. The administration’s plan lacks big moves in either direction.
The plan does not include the president’s campaign promise to have Medicare negotiate with drug companies for lower prices. While this got a lot of attention, most experts have concluded that Medicare negotiation, by itself, would not lower prices. However, pairing negotiation with the ability to deny drug companies access to the Medicare market through formularies would give the negotiation more teeth and thus a greater ability to reduce prices.
One highly touted idea in the plan is to pressure other countries into raising the prices they are willing to pay for prescription drugs. While this would increase drug company profits, it would not lower U.S. drug prices because again, there is no force to push down prices.
A few interesting ideas in the proposal involve transparency in the marketplace as a means to lower utilization of higher-cost drugs. One idea is to eliminate gag rules in place in some states that prevent pharmacists from being able to suggest when a customer can save money by either paying for a drug in cash (instead of using insurance) or by switching to an equivalent but lower-cost alternative.
Another idea is to require drug companies to advertise the list prices of drugs just as they do side-effects.
Finally, the proposal does take limited aim at growing drug prices paid by Medicare in outpatient settings by limiting price increases to the rate of inflation for some drugs. This is one of the areas with the worst incentives pushing high drug spending because doctors get paid more when they administer high-price drugs. The Obama administration had suggested pilot projects to test the impact of reducing the piece of physician payments directly tied to drug prices and reducing cost-sharing for patients.
Unfortunately, Congress thwarted those tests. This is one area the current administration could revisit that might bring along some members of both parties who are serious, and not just in rhetoric, about reducing drug spending.