by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Candidate Trump garnered bipartisan plaudits by criticizing the pharmaceutical industry for the high cost of prescription drugs. Shortly after becoming president, he reached out to Democrats such as Representative Elijah Cummings with a promise to lower drug costs. But not long after that, he met with drug company CEOs and backed away from that promise.
“I’ll oppose anything that makes it harder for smaller, younger companies to take the risk of bringing their product to a vibrantly competitive market,” Trump said following the meeting. “That includes price-fixing by the biggest dog in the market, Medicare, which is what’s happening.” Then, last week, White House Press Secretary Sean Spicer reversed the administration’s position again, saying that Trump “is going to negotiate prices” in a reaffirmation of the original strategy.
Whatever Trump’s stated position of the day may be, he’ll soon find out that it is easier to criticize high drug costs than it is to lower them.
No one is particularly happy with the high cost of prescription drugs. It is not just the few outrageous price spikes that have garnered headlines, either: Prices rose more than 11 percent across the board last year and are expected to increase by a similar amount this year. But what mechanism would President Trump use to reverse this trend?
Most critics of drug prices focus on Medicare, the largest single purchaser of prescription drugs in the country. Why not use the government’s purchasing power to negotiate a better deal with the pharmaceutical industry, demanding either lower prices or rebates? Medicaid and the Veterans Administration already do this, but Congress has forbidden Medicare from undertaking similar negotiations. The congressional ban is probably silly, but the Congressional Budget Office and others have made it clear that negotiating prices is unlikely to achieve significant savings.
That is because the government would lack any real leverage in such negotiations. In essence, the government’s bargaining position would be, “Give us a better deal or we won’t let you sell your drug to Medicare patients,” which makes a kind of sense. Medicaid and the VA have employed the same strategy, after all, in most cases limiting their formularies to just a single drug — the low-bidder — in each therapeutic category. But those same seniors who are squawking about the price of drugs would be even more upset if drugs they wanted were suddenly unavailable through Medicare.