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QUOTE OF THE WEEK
NEW DRUG PRICE CONTROL POLICY WILL CREATE CHAOS – Ken’s Thought of the Week
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Threat Analyst Ken Abramowitz is author of “The Multifront War”
Editor: Dr. Rachel Ehrenfeld, President, American Center for Democracy (ACD)
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On May 12, President Trump signed the Executive Order (EO) on REDUCING DRUG PRICES FOR AMERICANS AND TAXPAYERS. It created several key directives:
1) It correctly stated that Americans pay three times more for pharmaceuticals than our developed world counterparts.
2) Therefore, it demanded that pharmaceutical manufacturers must offer the same low prices as abroad, in effect cutting prices 65%.
3) It directs the Secretary of Health and Human Services (HHS) to facilitate direct sales to consumers at the “Most-Favored-Nation” low price.
4) It directs HHS to try to negotiate with the pharma industry “most-favored-nation pricing”, but if significant progress is not made within six months, it directs the Secretary to impose the most-favored pricing on each company.
Such a draconian policy is typical of a communist/socialist government, but not a Republican democratic government that obeys patent laws. So why is the Trump Administration proposing to disregard more than a hundred years of patent law protection to dictate prices to one of America’s strongest industries, which save lives and is the envy of the world?
1) Most likely, pollsters have convinced the politicians that cutting drug prices is very popular. However, the pollsters have undoubtedly not conveyed to the focus groups the fact that investment in new drugs development would immediately fall. This will lead to a crisis in 5-10 years when new improved drugs will not enter the market, to the distinct detriment of future patients (and voters).
2) Republican strategists probably also assume that this policy will attract Democrats to vote for the forthcoming “Big Beautiful Bill’ by July.
3) The Trump Administration wants to shock the drug industry into action to cut prices and move production back to the US, even though those two policies are contradictory.
4) The Administration believes the false narrative of the very wealthy pharma industry that middlemen are no longer needed, and patients can easily buy drugs directly from the drug companies, as happens very sporadically now. Such a policy would repudiate the 100-year buying pattern of corporate America, which provides health insurance to about 50% of all Americans. These corporations insist on using insurance companies to pay the claims, on using pharmaceutical benefit managers (PBMs) to monitor drug utilization/drug-to-drug interactions, on using drug distributors to stock pharmacies on a timely basis, and on allowing patients to receive their medications at 50,000 local pharmacies or, alternatively, from mail-order pharmacies, all under the direction of nearly 1,100,000 physicians who write prescriptions and monitor patient care.
5) In its search for dramatic short-term savings, the Administration is purposely overlooking the true solution to long term cost savings. The key opportunity is to accelerate the movement of nearly 80 million Medicaid beneficiaries into managed care insurance companies that currently serve only 50% of the population. Similarly, Medicare managed care companies serve only 50% of the nearly 70 million Medicare beneficiaries.
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In the unlikely chance that the Administration is allowed to illegally break patent law protection and cut 65% of the price for the 50% of the market controlled by federal and state governments, what are the implications?
1) Pharma companies will seek to raise prices abroad over time to the nationalized systems they serve there. They will also seek to raise prices to corporate America and its employees.
2) The US market that generates 75% of total corporate earnings will lose the profitability of selling to patients covered by government payers, or about 35% of corporate profits, causing stock prices to fall 35%.
3) The pharma industry would dramatically reduce research spending on new drugs that would serve the senior market. Venture capital would dry up for young private companies.
4) If this poorly conceived new policy is not enacted by the Republican party, or not allowed by the courts, the public will complain that they never received the promised 65% cut in prices.
5) In any case, due to the uncertainty, investors will flee from making investments in either public or private healthcare companies. Future clinical trials will be cut by at least 50%. Companies will cease to market new drugs in low priced foreign markets.
6) If the Administration rethinks its overly grand policy, it could probably negotiate with the pharma companies for far lower drug prices for the 10% of the population that lacks health insurance, who could then buy directly from drug companies who would then establish their own mail order pharmacies or simply contract with existing mail order or local pharmacies.
7) Drugs should not be allowed to be imported from foreign countries, as the risk of adulteration from criminals/terrorists is far too high.
So how does the Administration get out of this mess of dictating prices to the pharma industry, cutting pharma sales and profits, and creating future supply shortages and constraints? The easiest way is to simply wait for court challenges to mount, which will stop this poorly conceived policy. The Administration can then say they tried to help everyone, but the “rogue” judges refused to allow them to dictate pharma price concessions. And what a blessing it will be!
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