President Donald Trump’s prescription for lower drug costs likely will involve a push for more competition and clearing hurdles for more generic drugs.
The president’s planned speech this week on the issue was postponed because Health and Human Services Secretary Alex Azar is recovering from an illness. Azar was hospitalized last week for diverticulitis, an inflammation of small pouches in the walls of the colon.
In approving new drugs, the Food and Drug Administration has said it seeks to balance promoting innovation with competition. FDA Commissioner Scott Gottlieb announced the Drug Competition Action Plan last year.
Currently, incentives for innovation to spur new treatments, cures, and other medical advances include giving the manufacturer a lawful monopoly.
After statutory time elapsed for that monopoly under existing federal policy, a competing company then could begin to develop a generic drug to compete with the brand name.
However, the process doesn’t always work because of barriers to competition, which can be scientific or marketing challenges or based on shenanigans by a company hoping to block a competing drug.
Pharmaceutical companies have used distribution restrictions to keep manufacturers of generics from getting copies of the brand-name drug. Without samples of the pills, a highly similar medication could be nearly impossible to produce.
Producers of generic drugs employ their own tactics through what is known as “exclusivity parking.” Under it, the first company to get a generic has 180 days after release to be the only generic on the market. Sometimes, though, these companies don’t bring the drug to market and the 180-day clock doesn’t start.
In what government officials call “pay for delay,” a brand name company pays a generic producer to stop the process of bringing a drug to market for a certain amount of time.
More competition is what counts, said Ed Haislmaier, a senior fellow for health policy studies at The Heritage Foundation.
“The key is competition, which has a more lasting impact on prices. Generics are only a subset of that,” Haislmaier told The Daily Signal.
“There’s been an argument that the FDA should focus on break-through drugs instead of me-too drugs. But, it’s those so-called me-too drugs that bring competition and prices down,” Haislmaier continued.
The government also has identified a major difference between traditional medicines—meant to treat an illness and used by a large number of people—and specialty medicines, which in many cases can be a cure and are used by a fairly small percentage of the population.
From 2006 to 2018, spending on traditional medicines actually decreased by 22 percent, and spending on specialty drugs increased by 106 percent, according to the Department of Health and Human Services.
However, Haislmaier argues that medicines that offer the ability to cure a problem that could be used in place of a procedure, should be a welcomed development of medicine.
“It seems significant to pay $80,000 for a drug that cures Hepatitis C, but it doesn’t seem so significant to pay $80,000 for an organ transplant,” he said. “We should stop treating specialty drugs as a problem.”
In theory, pharmacy benefit managers—which negotiate the cost of drugs for insurers and employers—can lower prices for customers, Haislmaier said. Though, it’s questionable of the savings the PBMs negotiate is passed on to the customers. But merely importing more drugs runs the risk of enriching only a middle man without any real effect on consumers.
In February, the White House Council of Economic Advisers issued a report focused on reducing drug prices and spurring innovation—two goals sometimes viewed as conflicting.
The Council of Economic Advisers noted that reforms to Medicare and Medicaid programs, as well as the FDA, “could encourage more robust price competition.”
“Drug prices, for example, are sometimes artificially high due to government regulations that raise prices,” the report says.
The report notes that price controls in other countries contribute to how high prescription drug prices are in the United States.
The United States pays far more than other countries that belong to the Organization for Economic Cooperation and Development, an intergovernmental group of 35 member countries professing a commitment to democracy and market economies.
The presidential council’s report says:
Global financial returns from product development drive innovation. But those returns are unfairly low today. This is because most foreign governments, which are the primary buyers in their respective pharmaceutical markets, force drug manufacturers to comply with pricing rules to gain market access.
Through this leverage, foreign governments are able to set drug prices below those that prevail in the United States and erode the returns to innovation manufacturers might otherwise see from selling in their markets. Among members of the Organization for Economic Cooperation and Development (OECD), CEA [the Council of Economic Advisers] estimates that Americans pay more than 70 percent of patented biopharmaceutical profits.
