The next step in entitlement reform should not get the government more involved

Ringing the populist bell that has become his hallmark, President-elect Donald Trump recently said in his interview with Time Magazine that he doesn’t like what’s happening with drug prices and that he will do something to fix it. 

 

How will he go about lowering drug costs? Hopefully it is through competition and better value versus the heavy hand of government regulation and price controls.

 

{mosads}Perhaps reflecting his hard-nosed negotiating skills, President-elect Trump was for the proposal to leverage Medicare’s big market presence to lower drug costs for seniors and the disabled. 

 

That plan won’t end well for seniors. The Congressional Budget Office has concluded that the government wouldn’t be able to win bigger price concessions than private health plans already get.  The only way to achieve any savings would be to bar seniors from getting newer, drugs – the ones that treat or cure their diseases – from Part D plans. The only other way would be to restrict patient access to pharmacies. These are the kind of big government steps that lead to rationing.

 

Medicare’s drug benefit began in 2006 as an antidote to government price setting and interference in private pricing for hospital and doctors services. The program helps to make sure seniors and the disabled have the health care they need at a cost they can afford. Beneficiaries have the option to buy coverage that provides access to medicines they need at an affordable price. 

 

By any measure, Part D is a resounding success. It is privately administered by competing drug plans that vie for business among Medicare’s older, generally less well-off and more sick population. Beneficiaries pick whatever plan they want and pay part of the total premium, and the government picks up the rest of the tab. The average monthly premium for a basic 2017 Part D plan has been flat at about $34 a month for five years running – where else in health care can you claim that? 

 

Insurers negotiate aggressive discounts from drug companies that take about 35 percent off a drug’s list price, per an analysis by the QuintilesIMS Institute.  

 

Numerous think tanks, and their allies in Congress, want the government to step in and meddle with drug makers and health plans and pharmacies as they negotiate price discounts on Part D medications. They don’t like the private sector winning for seniors. They believe the government can do better than the employees who negotiate lower costs in the private sector every day.

 

This is a dumb idea. America’s seniors would lose access to medicines. Their health would worsen. And their healthcare costs would spike — bad news for seniors and taxpayers alike.

 

A better way would be to clear out the laws (many of which were passed 30 or even 40 years ago) that discourage cheaper drugs. For example, Congress enacted a law in 1990 that requires drug makers to give Medicaid the best price available in the market, or pay a rebate to states. Prior to the law’s enactment, hospitals, HMOs and others often got 50 percent or more off their drug prices. After the law was enacted, discounts shrank for those private payers, and all but disappeared for the smallest purchasers, as manufacturers sought to limit financial payments to state programs. Rather than lowering drug costs, the law increased them. 

 

Unfortunately, the “best price” program is still on the books, and is a significant discouragement to moving to paying for patient outcomes versus paying for pills. Why? If a drug maker and a plan enter an agreement to do so, the lower price becomes part of the “best price” scheme. This is why there are fewer than 250 contracts to pay for value in pharmaceuticals, while there are tens of thousands of pay for value programs for hospitals and doctors.

 

In cleaning up our built-for-yesterday laws, the incoming Trump team should also seek to modernize the FDA and speed up approvals of both generic and brand medications to lower prices and costs. FDA’s cumbersome, slow-motion approvals process means that new molecular entities often must wait many years before being introduced as drugs on the market. Currently, more than 4,300 generic drug applications await review and approval at FDA. In many cases, the resulting long approval times are attributable to the regulatory system’s lack of capacity for throughput.

 

The backlog may be a resources issue, and, if so, we should get the FDA more funding to make more approvals quicker. 

 

But there is also a leadership and cultural issue that should be addressed as well. FDA’s mission, in part, is to help ensure safety and efficacy of drugs and biologics. There is little reward for FDA leadership and line staff who go out on a limb to approve new products quickly. A safer path is to vet, and re-vet and, by extension, limit new approvals so the safety risk is so low, no bureaucrat’s standing or job is threatened. This is the culture that leads to a backlog of several thousand products. 

 

There ought to be a balance. As more products are approved, more leverage points on prices are created. When the Hepatitis C drug Sovaldi was first introduced, many thundered we couldn’t afford the $1,000 a pill cure. A year later and three more drugs on the market, and no one is paying $1,000 a pill, they are paying half as much or less. The more leverage points, the better prospects for lowering costs.

 

If his performance over the past year is any indication, America has elected a president who is quick to take off his gloves and to tap into the mounting frustration of an electorate that has grown impatient for change, including a desire to lower drug costs.

 

That is good. We just need to be smart about how we do it.

 

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The views expressed by authors are their own and not the views of The Hill.