Prices will only increase if that’s what the government further incentivizes.
Donald Trump’s budget contains several reforms aimed to save consumers money on prescription drugs.
The proposal, whatever its merits, comes at an opportune time. An article published on Wednesday in Health Affairs by researchers affiliated with the Centers for Medicare and Medicaid Services labeled prescription drugs prices as the fastest rising of all medical costs.
“Among the largest health care goods and services, prescription drugs are projected to experience the fastest average annual spending growth in 2017–26 (6.3 percent per year),” the Health Affairs article points out. “This trend primarily reflects faster anticipated growth in drug prices, which is attributable to a larger share of drug spending being accounted for by specialty drugs over the coming decade.”
The budget contains three ideas to mitigate the expected rise in prices.
First, the budget outlines a plan in which Medicaid allows five states to conduct experimental pricing programs that seek to lower costs for consumers. The states would “determine their own drug formularies, coupled with an appeals process to protect beneﬁciary access to non-covered drugs based on medical need, and negotiate drug prices directly with manufacturers. HHS and participating States would rigorously evaluate these demonstrations, which would provide States with new tools to control drug costs and tailor drug coverage decisions to State needs.” These states, the laboratories of democracy, would then provide a model to the rest of the states on what works to lessen prices and what does not.
Second, the budget calls for the 180-day exclusivity clock on first-to-file generic drug applicants to start ticking once those companies file. “Triggering the start of the 180 day-exclusivity period for ﬁrst-to-ﬁle applicants who ‘park’ their exclusivity would speed delivery of generic drugs and provide substantial cost savings to American consumers,” Trump’s budget claims.
The third big idea focuses on Medicare Part D. The document explains, “Proposed changes are designed to: lower beneﬁciary costs at the pharmacy counter by requiring plans to share at the point of sale a portion of rebates that plans receive from drug manufacturers; enhance Part D plans’ negotiation power with manufacturers by allowing for additional ﬂexibilities in formulary management; encourage utilization of higher value drugs by eliminating cost-sharing for generic drugs for beneﬁciaries who receive the low-income subsidy; modify the Part D payment structure to discourage drug manufacturers’ price and rebate strategies that increase spending for both beneﬁciaries and the Government; and provide beneﬁciaries with more predictable annual drug expenses through the creation of a new out-of-pocket spending cap.”
Perhaps these ideas help. Not one strikes as the Rosetta Stone possessing the key to everything. The grand rhetoric offered by the president in the State of the Union on prescription drugs meets a trio of wonkish, Washingtonesque solutions. He described “fixing the injustice of high drug prices” as “one of our top priorities” in plain language in the State of the Union. In the budget, he talks vaguely about “drug formularies” and seeking to “improve payment accuracy” and “the misaligned incentives of the Part D drug beneﬁt structure.”
What does that mean? In English and in policy, we do not know.
One area unexplored involves the correlation, or perhaps connection, between the government more aggressively subsidizing prescription drugs and the costs of those drugs exploding. George W. Bush’s Medicare Part D program aggressively subsidized prescription drugs for most Medicare recipients. His successor deemed prescription drugs an “Essential Health Benefit.” Now the Trump budget calls for “a new out-of-pocket spending cap.”
Given that in the aftermath of the first two laws outlining government-funded prescription medication as a right the prices skyrocketed, why does the president imagine a spending cap on consumers will not similarly incentivize overuse and, for the government, overcharging?
Even before the unveiling of the budget, Americans saw the forecast for the prices of prescriptions rise more sharply over the next seven years than any other aspect of medical care. After the release of the budget, this does not appear likely to change.
Hunt Lawrence is a New York-based investor. Daniel Flynn is the author of five books.