President Reagan famously said, “the nine most terrifying words in the English language are: I’m from the Government and I’m here to help”. It is time for President Trump to learn this wisdom.
Along with Speaker Pelosi, Senator Sanders, and Representative Ocasio-Cortez, President Trump seems to believe that giving the government the authority to impose price controls on medicines will help patients. And, following the signing ceremony on Friday, he is now officially trying to make government price controls a reality.
Of course, he does not admit that three of the Executive Orders he announced would implement price controls. In classic Orwellian doublespeak he refers to his policies as a favored nations clause, an international price index, and allowing importation. Don’t be fooled.
The logic behind these policies begins with the observation that prices for some drugs are cheaper in other countries. The caveat “some drugs” is important, but missing from the President’s rhetoric.
Branded medicines and originator biologics are typically more expensive in the U.S. compared to other countries, but generic drugs are typically cheaper. And, since 90 percent of all medicines filled in the U.S. are dispensed as generics, most patients have access to affordable medications that, according to the Association for Accessible Medicines, reduced total 2018 healthcare expenditures by nearly $300 billion.
President Trump’s Executive Orders target branded medicines and originator biologics that are more expensive in the U.S. compared to Canada, Europe, and Japan. The three Executive Orders mandate that the prices for these drugs in the U.S. should approximate the prices that prevail in these countries with lower prices.
However, their medicines are cheaper because these countries impose price controls. Simple logic dictates that forcing the U.S. to adopt the price-controlled prices from these countries means that the U.S. is adopting their price controls as well.
Patients will pay a high price if price controls are adopted here in the U.S.
To start, there is the problem of accessibility. Patients in the U.S. currently have access to nearly 90 percent of all of the new medicines that have been launched since 2011 – more access than any other country in the world. Patients in Germany, the country with the next highest drug availability rate, could only access a bit more than 60 percent. Canadians have access to less than half.
U.S. patients have greater access than all other countries because the U.S. does not impose price controls on drugs. President Trump’s Executive Orders remove this advantage. The consequence will be less access to lifesaving or life-enhancing medicines.
Just as troubling, fewer cutting-edge medicines will be created. In 2019, the Congressional Budget Office (CBO) evaluated the impact from Speaker Pelosi’s reference pricing scheme that is similar to the orders the President just signed. The CBO’s analysis estimated that drug industry revenues could decline by up to $1 trillion over 10 years. Since drug companies devote about 20 percent of their revenues to R&D, this means that hundreds of billions of dollars in potential research funds will be lost. Such a large drop in R&D funding will jeopardize the discovery of effective treatments (or possibly even cures) for Covid-19, cancer, Alzheimer’s disease, and muscular dystrophy.
There are also pragmatic obstacles to implementing the Executive Orders that have not been given sufficient consideration. For example, since Americans have access to many drugs that are unavailable in other countries, how does the Administration implement its reference price schemes for drugs that have no reference price?
While not discussed as much, the Executive Orders also set a troubling precedent that, if followed, will damage the broader U.S. healthcare system. By explicitly introducing price controls into the U.S. healthcare system for the first time ever, President Trump has allowed the camel’s nose to get under the tent.
Given the push for nationalized healthcare from the progressive left, it is naïve to believe that healthcare price controls will end with drugs. As price controls spread to the other parts of the healthcare system, so will the problems. Ultimately, the result will be lengthy waiting lists for surgeries and procedures, troubling access issues, and pervasive doctor shortages.
One Executive Order the Administration proposed will help ensure that patients benefit from the hundreds of billions of dollars in drug rebates rather than pharmacy benefit managers and insurers as is often the case today. Unfortunately, this order only applies to patients who rely on insulin and EpiPens. There are also many other sensible reforms that President Trump should have implemented that would more effectively address the drug affordability problem without threatening future innovation. These include capping patients’ out-of-pocket expenditures in Medicare Part D and removing distortions that disincentivize the use of lower cost biosimilars.
Ultimately, price controls are the wrong answer to the drug affordability problem because, as President Reagan stated in his 1981 Inaugural Address, “Government is not the solution to our problem, government is the problem.” The best way to improve drug affordability without jeopardizing future innovation and access is to implement reforms that remove government distortions and empower patients.