President Trump issued four executive orders Friday that he said will lower drug prices — but in reality, three of the orders will cause far more harm than good and represent electioneering at its worst.
The three harmful executive orders allow the importation of drugs from Canada, reduce the price of insulin, and introduce an International Pricing Index for prescription drugs.
The International Pricing Index will effectively impose price controls on prescription drugs under Medicare Part B — and in so doing, dramatically slow medical progress. That will be disastrous for the health of current and future patients.
The International Pricing Index is the worst offender in the three executive orders. The index links the prices the U.S. government pays for prescription drugs to the lower prices Britain, France, Canada and other developed nations pay for the same drugs.
Governments in these countries forcibly cap drug prices. By tying U.S. drug prices to those overseas, President Trump is effectively importing other countries' price controls. Those price controls will deprive pharmaceutical researchers of the revenue needed to fund cutting-edge development of new drugs that could improve and in some cases save the lives of millions of patients.
Almost two-thirds of all new drugs are produced in the U.S. But innovation doesn't come easy.
It takes more than a decade and $2.6 billion, on average, to bring a drug from the lab to market. What's more, less than 12 percent of treatments that start clinical trials are ever approved by the U.S. Food and Drug Administration.
For drug companies and their backers to continue funding research and development, they need some level of assurance that their high-risk investments could pay off.
President Trump's executive orders render such assurance impossible. Price controls could reduce drug companies' revenue by as much as $1 trillion over a decade. As a result, up to 15 fewer new drugs could make it to market over that period, according to an analysis from the Congressional Budget Office.
The coronavirus pandemic has demonstrated that we need more medical innovation to develop safe and effective vaccines — anti-viral treatments and drugs such as remdesivir, which is showing promise as a treatment for patients with COVID-19.
But Trump's International Pricing Index will result in less medical innovation. It will prioritize a short-term decrease in drug prices in the months leading up to the November election over the long-term health of the American public.
The only good idea among the president’s executive orders will eliminate the rebates from drug companies that go to pharmacy benefit managers — the middlemen who negotiate with drug companies on behalf of insurers. These rebates enrich the middlemen by boosting drug prices for patients at the pharmacy. Eliminating the rebates will save patients money.
What else can the president do to help patients deal with rising health care costs without hurting innovative drug research and development?
One important step Trump should take would be to support a proposal that some in Congress are considering for the next round of coronavirus relief legislation to mandate greater pricing transparency in health care. This would make health care vastly more affordable and of higher quality.
A number of market-oriented thinkers — including former House Speaker Newt Gingrich, publisher Steve Forbes, and economist Arthur Laffer — endorsed such a proposal in a letter sent to President Trump and Republican congressional leadership this week.
Pricing in health care is notoriously opaque. Most patients have no idea how much health care services cost — everything from a routine doctor's visit to a knee replacement.
Even many doctors have no idea how much they charge their patients. Negotiations between insurers and health care providers happen behind closed doors. Bottom-line prices are closely held trade secrets that differ wildly from payer to payer.
As a result, consumers rarely shop around for health care. They have little incentive to do so, since their insurer typically picks up the bulk of the tab. Even if they wanted to seek price quotes from competing hospitals or doctors, patients would likely struggle to get a straight answer.
Health care providers, meanwhile, are insulated from the kind of competition over price that has reliably lowered costs and improved quality in almost every domain, from household appliances and cars to phone service and airline travel.
This lack of transparency has allowed health care prices to skyrocket unchecked, particularly for routine inpatient procedures.
For example, the price of a laparoscopic appendectomy rose by 136 percent between 2003 and 2016, according to recent analysis by the Kaiser Family Foundation and the Peterson Center on Healthcare. Overall price inflation was only one-fifth as much — just 28 percent, during that period.
So it's hardly surprising that America's overall health care spending is rising at such alarming rates. National health expenditures reached $3.6 trillion in 2019 — a startling $1 trillion increase over the 2010 figure.
U.S. health care spending is expected to soar to $6.2 trillion by 2028, according to the latest projections from the Centers for Medicare and Medicaid Services.
Such explosive price growth is one of the main reasons so many Americans struggle to afford care. A survey from March found that one-third of patients went without medical care in the previous year for financial reasons. That was before the coronavirus lockdowns put tens of millions of people out of work.
Reining in health care prices would be one of the most effective ways to address both the economic and public health crises precipitated by COVID-19. Mandating greater price transparency — such as by requiring hospitals to post their cash prices and negotiated rates online in a format that is easy for patients to access and analyze — would help achieve that goal.
Consider one recent study, which estimated that the average difference between the lowest price and highest price for medical services in the United States is nearly 300 percent. If patients knew about these enormous price differences, most would do their best to seek out the most affordable providers — or the ones offering the best value.
This, in turn, would force hospitals to price their services competitively or risk losing the business of cost-conscious patients. The result would be a dramatic reduction in prices — and an increase in value — across the health care marketplace.
Opponents of price transparency doubt that patients are savvy enough to make such price-based decisions when seeking care. That concern isn't shared by most Americans. More than eight in 10 voters support policies that would pull back the curtain on the price of non-emergency care.
Nor is this a partisan issue. More than three-quarters of Democrats favor health care price transparency reforms, as do 81 percent of independents and 86 percent of Republicans.
There's never been a more opportune time for lawmakers to give these voters what they want. Mandating price transparency in the next round of coronavirus aid would help eliminate much of the waste and unfairness that makes health care unaffordable. And it would do so by empowering patients to make informed decisions about their own health.