McArdle: Why baby steps toward cheaper drugs are the best we can do

On the stump, Donald Trump the candidate promised big changes in the way America buys prescription drugs - allowing Medicare to negotiate drug prices directly with pharmaceutical manufacturers and allowing Americans to buy at the prices that Canada has negotiated by importing drugs from abroad. Now Trump the president has finally unveiled his big drug plan, and there is some confusion out there as to whether he has delivered on his promise.

On Hugh Hewitt's radio show, Health and Human Services Secretary Alex Azar delivered a lengthy retort to claims that the administration had punted on drug price negotiation: “What we are doing is more sweeping than anybody's ever proposed before. We are enhancing the powers of the retail prescription drug program, what's called Part D. We are unshackling these middlemen, these Part D plans, that negotiate on our behalf.”

A friend emailed to ask what the truth was. And in case he's not the only person confused, it seems worth explaining what Azar is saying.

In typical American fashion, when Medicare added prescription drug coverage, we didn't do anything simple, like having the government buy a bunch of drugs and dispense them, or simply offering to reimburse drug purchases. Instead, Medicare Part D operates through private plans, each of which has its own set of drugs that it's willing to cover. Those private plans can and do negotiate with pharmaceutical manufacturers to get discounts on those drugs. However, their ability to negotiate is limited, because Medicare requires that every plan offer at least two treatments for a given condition - and basically every available treatment for the “six protected classes,” which include conditions such as HIV and cancer.

It's a bit hard for drug plans to negotiate under such conditions. If manufacturers know that you are basically going to have to buy their product no matter what they charge, is it any wonder that some cancer drugs run well into the six figures?

So the administration is giving drug plans some leverage: It's proposing to drop the number of covered drugs down to one in some categories. The proposal also contains some language about letting Part D plans negotiate prices for drugs in the “six protected classes,” though it's not clear exactly what this means. It's reasonable to believe that this will lower the prices of the drugs for some conditions, though it's also reasonable to believe that this will make it harder for some seniors to get their preferred drugs.

So Azar is right that Trump's proposal means more negotiation for Medicare drug prices. And his critics are right that this is not at all what they meant by “let Medicare negotiate drug prices.” What they meant was that they wanted the Department of Health and Human Services to engage in global drug price negotiations for the whole program and thereby get fabulous discounts through the power of bulk purchasing.

Unfortunately, this isn't the end of the discussion, because most of the people saying “unleash the negotiators” are confused. By itself, covering a lot of patients doesn't give you all that much negotiating power; if it did, we'd already be enjoying some of the cheapest drug prices in the world. America's biggest pharmaceutical benefit managers cover more people than the entire populations of many European countries. Yet those countries get much lower prices on many drugs than we do.

How, then, do they get those savings? Through the healing magic of the word “no.” Regulators elsewhere, unlike here, have some freedom to say, “Nope, your drug is simply too expensive for the benefit it delivers.” This gives them a lot of leverage in negotiations, but it involves a certain amount of steely will, because in order to make it work, you have to occasionally actually refuse to cover a pricey drug, then weather the resulting public outcry from very sick patients who are desperate to have any treatment, whatever the cost.

The astute reader will by now have noticed that what Trump is proposing is actually a step toward what people wanted the government to do when they said “let Medicare negotiate drug prices” - even though it's not very much at all like what they imagined would happen when Medicare negotiated. This astute reader will also have noticed, however, that it's at best only a half-step. Drug plans will still have only limited ability to say, “Sorry about your cancer, but we're just not paying $300,000 to buy you another few months of life.”

It's not really surprising that they're only willing to take a half-step. Most American health care reform proposals look a lot like this one: Emulate some practice that's common in other countries, only weaken it so that it's not nearly as effective as what those countries do. You may be surprised to learn that the reason for this halfheartedness is not that the health care industry has especially charming lobbyists. No, the real villain in our health care saga is not K Street but the American voting public.

People in other countries seem reasonably willing to trust that if their government says a drug isn't worth it, then they don't need it. Americans tend to think that they are entitled to second-guess the government at every turn. Our health care system reflects that: We give doctors immense autonomy to prescribe any course of treatment they can think up, without some regulator tut-tutting over the national formulary. Unfortunately, that autonomy comes at a price. Almost 20 percent of gross domestic product, in fact.

And maybe we shouldn't say no. We are, after all, an incredibly rich country. If it costs us a boatload of money to buy marginal life extensions for American citizens, who's to say that's not money well spent?

But even if you believe we ought to say no more often, you're not going to get very far with that belief unless you can convince a whole lot of voters. In theory, Americans may be all for a cheaper health care system. In practice, when anyone tries to limit their choices, they stampede to the nearest legislator with outraged complaints. Until that mindset changes, baby steps forward are about the best we can do - which means that for the foreseeable future, we'll continue to have the most expensive health care system in the world.

Megan McArdle is a columnist for the Washington Post.

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