Last week, we learned that Novartis, the Swiss drug company, had paid Michael Cohen — Donald Trump’s personal lawyer — $1.2 million for what ended up being a single meeting. Then, on Friday, Trump announced a “plan” to reduce drug prices.
Why the scare quotes? Because the “plan” was mostly free of substance, controlled or otherwise. (OK, there were a few ideas that experts found interesting, but they were fairly marginal.) During the 2016 campaign Trump promised to use the government’s power, including Medicare’s role in paying for prescription drugs, to bring drug prices down. But none of that was in his speech Friday.
And if someone tries to convince you that Trump really is getting tough on drug companies, there’s a simple response: If he were, his speech wouldn’t have sent drug stocks soaring.
None of this should come as a surprise. At this point, “Trump Breaks Another of His Populist Promises” is very much a dog-bites-man headline. But there are two substantive questions here. First, should the U.S. government actually do what Trump said he would do, but didn’t? And if so, why haven’t we taken action on drug prices?
The answer to the first question is a definite yes. America pays far more for drugs than any other major nation, and there’s no good reason we should. Basically, when it comes to drugs, we’re Big Pharma’s sucker of last resort.
Bear in mind that the way the drug business works can’t and doesn’t bear any resemblance to the Econ 101, supply-and-demand stories beloved by free-market enthusiasts. What we have, instead, is a patent system in which the company that develops a drug is granted a temporary legal monopoly over sales of that drug. That system is OK, or at least defensible, as a way to reward innovation; but nothing about the logic of the patent system says that patent owners should be free to exploit their monopolies to the max.
There is, in fact, a very strong case for government action to limit the prices drug companies can charge, just as there is a strong case for limiting monopoly power in general. And the fact that taxpayers pay a large share of drug costs both reinforces the case for limiting drug prices and gives the government a lot of leverage it could use to achieve that goal.
Of course, draconian controls on drug prices could discourage innovation. But that’s not what anyone is talking about, and the benefits of moderate action would almost surely exceed the costs, for a variety of reasons: Drug companies would make less per unit but sell more, they would spend less developing drugs that largely duplicate existing medication, and more. Oh, and America, with its unique unwillingness to bargain over drug prices, is basically subsidizing the rest of the world. Wasn’t Trump supposed to hate that sort of thing?
So why aren’t we doing something about drug prices?
It’s true that simply granting Medicare the right to negotiate prices wouldn’t do much by itself. We’d also have to give Medicare some bargaining power, probably including the right to refuse to cover drugs whose prices are exorbitant. And before you denounce this as “rationing,” remember that before 2003, Medicare didn’t pay for drugs at all.