Column: Trump again promises a plan to reduce drug prices. It won’t work
President Trump recently reiterated the pledge he made before taking office — that he’d work tirelessly to lower prices of prescription drugs.
“Hard-working Americans don’t deserve to pay such high prices for the drugs they need,” Trump tweeted the other day. “We are fighting DAILY to make sure this HAPPENS.”
His solution, he said, is for Americans to import drugs from Canada “that are MUCH CHEAPER than what we have now.”
This idea relies on Canada doing us a big favor, which is looking increasingly unlikely. More on that in a moment.
If the president were serious about addressing stratospheric drug prices and pharmaceutical-industry greed, he’d be proposing more aggressive measures.
He’d be following the lead of other developed countries.
The key difference is that most of these other nations have single-payer insurance systems — we’ve taken to calling it “Medicare for all” — that use their bargaining power to keep drug prices affordable.
In the United States, Medicare and Medicare Advantage plans cover nearly 60 million people. Needless to say, that’s a lot of muscle in any price negotiation.
“Allowing Medicare to negotiate drug prices would allow the market to operate more efficiently and likely have a large impact on drug expenditures,” said Josh Carlson, an associate pharmacy professor at the University of Washington.
“It is a reasonable option to consider given the current market power of pharmaceutical manufacturers,” he told me.
But Republican lawmakers, acting at the behest of drug companies, for years have resisted moves to allow Medicare to bargain with pharmaceutical manufacturers.
In fact, there’s no limit to what drug companies can charge in this country. Conservative politicians say a free market protects consumers from price gouging.
The reality is that the average American spent an inflation-adjusted $90 a year on prescription drugs in 1960, according to the Kaiser Family Foundation. That figure has soared to about $1,200.
That’s a more than 1,000% increase.
The free market, in other words, isn’t doing its job.
Our economic peers recognized this long ago, which is why, along with price negotiations, they regulate pharmaceutical costs to prevent sick people from being used as profit centers.
In Canada, for example, the Patented Medicine Prices Review Board ensures that drug costs “are not excessive,” which means companies can’t charge whatever they want for life-saving medications.
A fair profit is fine. Driving sick people into debt or bankruptcy is not.
Canada also has a law requiring that breakthrough new drugs — the really expensive ones — can’t be priced higher than the median price for the same drug around the world. This ensures the price for Canadians is fair relative to what people are paying elsewhere.
Similar regulations can be found in Britain, France, Germany, Japan and other developed countries. Such rules are why people in each of these nations spend just a fraction of what Americans spend for prescription drugs.
According to the Organization for Economic Cooperation and Development, the British spend $469 per person annually on meds, or a little less than a third of what Americans spend.
The French spend $653, or about half our total. The Germans spend $823. The Japanese $838.
Researchers have found that U.S. patients can pay as much as 16 times what people in other countries pay for some drugs. That’s not a free market. That’s “The Sopranos.”
I have a simple solution. Along with empowering Medicare to use its market clout (which is how a free market is supposed to work), let’s treat drug companies not as ordinary businesses but as utilities, providing a service that’s crucial to the public good.
Southern California Edison, San Diego Gas & Electric, and Pacific Gas & Electric are for-profit companies. But they can’t charge whatever they want. They have to seek permission from the California Public Utilities Commission before any rate hike.
As part of that process, each company needs to defend its proposed increase, and prove that higher prices are both fair and necessary.
That’s reasonable. You don’t want businesses that enjoy monopoly power charging whatever they want. There’d be no limit to what they’d try to get away with.
Prescription drugs merit similar treatment.
Make drug companies go before a panel of experts and justify desired prices. Have them present evidence for research and development costs. Require them to make a case for why a single pill should cost $1,000, as was the case when Gilead Sciences introduced its Hepatitis C drug Sovaldi in 2014.
As with power companies, if higher rates are justified, so be it. But charging whatever the market will bear for prescription drugs isn’t just bad public-healthy policy. It’s evil.
To cite just one example, the price of insulin has nearly tripled since 2002, and about a quarter of people with diabetes are taking less insulin than they should to make the high-priced drug last longer, according to the American Diabetes Assn.
A vial of insulin can cost Americans more than $300. The same exact vial can be purchased in Canada for $30.
Some experts worry that U.S. price controls would stifle research into new medicines.
“Punitive price negotiations would risk making us worse off by reducing future pharmaceutical innovation,” said Jeffrey Clemens, an associate professor of economics at UC San Diego.
But he also said that “true negotiations based on cost-effectiveness” would prompt drug companies “to develop high-value drugs,” which suggests that innovation wouldn’t necessarily suffer amid fair pricing.
Trump’s plan is to take advantage of Canada’s more rational healthcare system and allow Americans to import drugs from our northern neighbor. This would be helpful for our country. For Canada, not so much.
Canada doesn’t have an endless supply of prescription meds. One recent study estimated it would take only about six months to wipe out Canada’s entire supply of drugs if a significant portion of Americans did their buying there.
Mark Duggan, a healthcare economist at Stanford University, said he wouldn’t be surprised if drug companies used American-caused shortages as an excuse to raise their Canadian prices.
He even speculated that some pharmaceutical firms would simply stop selling in Canada, “which has a lower population than the state of California.” (Canada population: 37.6 million; California: 39.6 million.)
Needless to say, many Canadians aren’t thrilled about the idea of serving as America’s discount drugstore.
“Canada does not support actions that could adversely affect the supply of prescription drugs in Canada and potentially raise costs of prescription drugs for Canadians,” says a recent briefing paper for Canadian officials obtained by Reuters.
Trump’s plan, in other words, is the laziest possible approach to tackling runaway drug prices, offloading our problem onto another country that’s taken more meaningful steps. It also potentially screws Canadians in the name of helping Americans.
The president says that “hard-working Americans don’t deserve to pay such high prices for the drugs they need.”
That’s true. But Trump has yet to show he’s prepared to do the hard work necessary to fix the problem.
Totally Worth It
Be your money's boss! Learn how to make a budget and take control of your finances with this eight-week newsletter course.
You may occasionally receive promotional content from the Los Angeles Times.