Bargaining, Competition Are Trump’s Tools to Lower Drug Prices

Pharmaceutical industry spends billions to lobby Congress, influence media and manipulate regulators to protect its bottom line

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Since the early days of his candidacy, President Donald Trump has had an eye towards reducing drug costs by bringing market-based reforms to the pharmaceutical industry.

From his State of the Union address, where he promised to “make fixing the injustice of high drug prices one of our top priorities,” to a recent Twitter attack targeting Pfizer for raising prices (resulting in a quick reversal by the pharma giant), this president has not been afraid to talk and act tough.

The culmination of these efforts so far was a major speech in May, when, flanked by Department of Health and Human Services Secretary Alex Azar, Trump announced a new plan focused on reducing prescription drug costs.

Utilizing effective private sector tactics and free market negotiation, the president’s Blueprint to Lower Drug Prices provides a strong foundation for creating meaningful reform.

Proposed changes, such as providing Medicare Part D with new tools for negotiating lower rates and ending “gag orders” that prevent customers from seeing prices at the pharmacy counter, mirror what private sector actors such as pharmacy benefit managers have been doing to control costs for their clients for years.

Meanwhile, the creation of a working group to consider the importation of certain drugs during periods of shortages or price spikes shows Trump is also looking for ways to better leverage markets to ensure that access to lifesaving medications is not jeopardized. In addition, it can prevent characters like “Pharma Bro” Martin Shkreli from levying sudden, astronomical increases on consumers.

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While the solutions are varied, reforms proposed have for the most part reflected a belief that the best way to control drug prices is by encouraging negotiation and increased competition.

Still, it was surprising when news recently broke that the White House Office of Management and Budget is considering a rule change to end the very system of negotiated rebates and discounts that currently serves as the only check against skyrocketing costs, based on the curious assumption that rebates actually increase drug prices.

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Contradicting this assertion, a recent study by Anthony T. LoSasso of the University of Illinois School of Public Health and Ike Brannon of the Cato Institute found that rebates do help to control prices and that ending them would result in even larger increases.

The current system of rebates “represents a robust system of price negotiation and bargaining that ultimately maximizes social welfare” and that “such discounts unambiguously translate into lower premiums for enrollees,” they explained.

Trump should finish what he started and go after the true driver of escalating costs — the manufacturers themselves — which account for 88 percent of the cost of branded drugs.

By reforming the drug discount program for seniors and approving more than 1,000 low-cost generics through the FDA, Trump has already introduced meaningful changes into the health care market.

Ending rebates could very well undermine the good work completed to date. Instead of sabotaging his own campaign to lower drug prices, Trump should finish what he started and go after the true driver of escalating costs — the manufacturers themselves — which account for 88 percent of the cost of branded drugs.

Pharmaceutical companies have been looking for political cover to continue to raise prices and rake in profits.  So far, their investments to influence lawmakers and health care policy have been paying dividends.

Over the past decade, drug companies spent nearly $2.5 billion on lobbying and campaign donations to members of Congress. This does not include the many millions more spent on ad campaigns and PR firms working around the clock to secure favorable coverage in the media.

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During that same time period, Congress has failed to pass any meaningful legislation to cap prices and has not called major drugmakers before Congress to apply pressure. The result of all this lobbying and special-interest activity has been the creation of a health care system that is anything but a free market.

Azar, a former pharmaceutical company lobbyist himself, needs to reverse course on rebates and hold his old employers to account by implementing free-market reforms that will bring down costs and help patients struggling to pay for their medications.

Lowering drug prices by utilizing market-based solutions through negotiation and competition would prove a winning issue for the president and congressional Republicans, and a victory for the country as well.

Megan Barth is co-chair of the Media Equality Project and previously held sales positions with pharmaceutical and medical manufacturing companies over the course of nearly two decades.

The opinions expressed by contributors and/or content partners are their own and do not necessarily reflect the views of LifeZette.

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