What Trump Should Have Said On Drug Prices

This editorial by Dr. Scott Gottlieb was published in Forbes on March 4, 2016.  Dr. Gottlieb is a physician, medical policy expert, and public health advocate. He has served as FDA Commissioner since May 11, 2017.

What Trump Should Have Said On Drug Prices

Donald Trump’s healthcare plan, specked out in a web post, tackles the advancing issue of drug prices with an aged concept–the importation of foreign drugs that are ostensibly cheap because they flow from countries that impose price controls.

The debate over drug pricing isn’t new. Nor is the call for importation as a way to try and circumvent some of these costs. But the evolution in these two issues reveals why the Trump plan–while perhaps good politics–will offer consumers little relief.

In 2014, the real prices that consumers paid for prescription branded drugs grew at 5.5%, which is the slowest pace in five years. The pharmacy chain CVS Health, which manages the prescription drug benefits of 65 million Americans, recently announced that the chain’s spending on prescription drugs rose just 5% in 2015.

This slowdown is a reflection of a market that’s increasingly competitive. The health systems and pharmacies that buy drugs on behalf of consumers can often extract big discounts on these medicines, and then pass these savings on to purchasers.

But that doesn’t mean we don’t have a challenge when it comes to the prices that consumers pay for drugs. The fact is that these savings aren’t always reaching consumers as more and more people find themselves underinsured for medicines.

Consumers are being forced into health plans that have very narrow and often “closed” drug formularies. These insurance schemes often don’t provide any coverage for many important medicines. Where health plans cover a drug, consumers are getting stuck with rising co-pays and out-of-pocket costs.

Obamacare has popularized these super skinny drug plans--not only in the health plans sold inside the Obamacare exchanges, but in employer-sponsored coverage as well. We have a growing “coverage gap” when it comes to branded prescription drugs. But that doesn’t mean that we don’t need to also reform the system for developing and marketing drugs, to make sure that it’s providing more opportunity for the sort of competition that can lower drug costs and expand access.

The problem is that drug importation doesn’t address any of these core challenges. In fact, the imported drugs may end up being quite expensive.

For one thing, the foreign drugs would mostly flow from North America, not Europe. And they’d largely be imported from Mexico, not Canada, given how exchange rates have changed since we last had this “re-importation” debate in earnest a decade ago. Canadian drugs are no longer as cheap when they’re purchased in U.S. dollars.

Moreover, under any reasonable scheme, the importation would be confined to drugs from facilities that have already undergone FDA inspection, and produce foreign-approved versions of medicines already sold in the U.S. But the branded firms own those facilities. They’re not going to simply ramp up the production lines to accommodate new demand, if it means that the drugs will be imported into the U.S. to skirt their tiered pricing. Nor will the foreign countries allow their local supply to be skimmed off, only to create local shortages of important medicines.

But the bigger issue is the cost of implementing such a scheme.

Given the rapid growth in the prevalence of sophisticated counterfeit drugs, no politician will approve a drug importation scheme without implementing a reasonable measure of regulatory oversight. There are simply too many channels for fake drugs to enter any importation scheme to forgo some meaningful controls.

Yet when importation of foreign drugs is done under a regulated scheme, it really wouldn't save money. I know. I worked on sketching an importation scheme for the FDA regulation of imported drugs when it looked like similar legislation would pass in 2004. That scheme would have added so much cost to the imported drugs; they wouldn’t be much cheaper than drugs sold inside our closed American system.

Counterfeiting of drugs has exploded since we last had a serious debate about the importation of branded drugs. In just one year, 2013, the Pharmaceutical Security Institute reports that worldwide incidents of pharmaceutical crime rose almost 9%. During one week in 2013, the FDA, in partnership with Interpol, seized $41 million worth of illegal or counterfeit medicines, and shut down over 1,600 illegal online pharmacies. Mexico is a major global source of those fake drugs. Its illicit trade stands at an estimated $650 million per year–equal to 10% of its total drug sales.

Providing a reasonable measure of oversight to reduce the number of counterfeits coming through an importation scheme is complex and costly. It’s very hard to “inspect in” safety after a drug is manufactured. There’s no question that a drug importation scheme will increase the flow of counterfeits in the U.S. supply chain. Policy makers would have to weigh that cost against any perceived benefits.

So how should we address drug pricing, beyond repealing Obamacare and its costly regulations that have accelerated the hollowing out of drug coverage?

When it comes to drug prices, we have two challenges. The first are older generic drugs that should be sold cheaply, but are sometimes very costly. This is often a result of failures in the way that FDA is regulating generic medicines. The agency’s long and costly approach to regulating generic drugs is reducing competition in the generic market and increasing the cost of manufacturing generic medicines.

The second problem is the way that drugs get priced in the market. Government regulations force companies to launch drugs at a single price. Drug makers are prevented from charging different prices for the same drug, depending on how a medicine is being used, or the benefits that it’s actually delivering to a patient.

To make the market for new and innovative drugs more affordable, we need to make it more competitive. For all the talk of our “free market” for prescription drugs, there are a lot of regulatory layers that suppress the sort of competition that can enable medicines to be sold more cheaply, while still preserving the incentives that have fueled our exceptional level of domestic drug innovation.

It starts with reforming the market for generic drugs. Speculators shouldn’t be able to take advantage of consumers by securing monopolies on old drugs where legitimate patents have long lapsed, and then inappropriately jacking up the prices.

We also need to make sure that branded drugs–the sort of medicines that represent the biggest breakthroughs for the treatment of diseases like cancer–can be priced to reflect the value they deliver to patients. Than means allowing drugs to be priced according to clinical circumstances and even the stage of a disease for which they are being prescribed, and the clinical outcomes that they deliver.

This would entail reforming government price-fixing programs like the calculation for Medicaid best price, the ceiling price for the 340B program, and the reporting rules for Medicare’s Part B average sales price. Right now, this sort of government price regulation prevents drug makers from being able to offer the same drug at different prices, depending on how that medicine is being prescribed.

Take the Medicaid best price rules. Best price is the lowest price paid for a drug by any purchaser. A drug’s reported best price is required to reflect all discounts, rebates and other pricing adjustments. The “Medicaid Best Price” is the benchmark that the feds uses to make sure that state Medicaid programs get the lowest price for which a drug is offered to any purchaser.

But these rules also require that the rebates paid to a commercial health plan in the context of a single value-based contract (that ties a drug's price to its performance) be made available to all Medicaid programs. In other words, these discounts would have to be shared with every Medicaid program even though the Medicaid programs would not be subject to the requirements of the outcomes-based contract to pay more when a drug works, and less when it doesn't. The rules undermine the whole point of striking contracts that link prices to medical outcomes.

Enabling drugs prices to more accurately reflect the value they deliver to individual patients will also require FDA to change its own rules. Right now, drug makers are largely prevented from offering price concessions based on how a drug is used unless all of those precise uses are explicitly spelled out in the drug’s FDA approved label. So as the publication BioCentury recently noted, if a drug maker wanted to offer discounts based on a drug’s ability to shorten or reduce hospital stays, it can’t--not unless FDA explicitly says that the drug is approved to reduce or prevent hospital stays.

Finally, we also need to make sure that the market for branded drugs is competitive, and that breakthrough drugs can also face competition from new and better medicines. We can start by reforming FDA rules that give expedited access to new breakthrough drugs for unmet medical needs. We should extend these same opportunities to a second and a third drug that’s targeted to the same disease.

Right now there are more than 7,000 innovative drugs in development. The majority are being researched and developed by companies in the U.S. We’re the global medicine cabinet, with the most productive biotech industry in the world.

We must adopt policies that inspire this investment, while making sure that the opportunity to benefit from these advances remains affordable to Americans, and the prices charged reflect the value that drugs are delivering to individual patients.