Trump's Drug Deals Are Working. Here's What Could Make Them Work Even Better.

President Donald Trump promised lower healthcare costs, and he's bringing lower healthcare costs.

This week, Trump announced more voluntary deals with drug manufacturers under which they agreed to cut their U.S. prices to the rates they charge in other countries.

This was a textbook example of free-market healthcare policy in action. Mandates weren’t needed: these CEOs had every reason to ensure they do not lose out on the business the federal government provides.

This week’s agreements bring the total number of price reduction deals struck by the Trump administration with drug manufacturers to 26, covering 89 percent of the branded drug market. The Council of Economic Advisers puts the projected savings from these deals at $600 billion over the next decade.

The Trump administration is clearly proving effective at cutting drug costs. Now, it should apply the same free-market treatment to other areas of the healthcare market.

Cut the approval timelines that drive up drug prices

Remember Martin Shkreli, the “Pharma Bro” who bought the rights to a drug called Daraprim and raised the price overnight to $750 a pill? The resulting outrage was aimed at Shkreli, but the real story was regulatory. 

Daraprim had been off-patent for decades. In a functioning market, a generic manufacturer could have undercut him and made the stunt pointless. Instead, the FDA's generic-drug approval backlog was so long that no competitor could get a rival version through the pipeline fast enough to matter. 

Shkreli didn't out-compete anyone; he found a gap the FDA had already carved out.

The agency's review timelines are simply too long relative to the science involved, and every extra year of delay is a year that manufacturers face no pressure to compete on price. 

Monoclonal antibody treatments are one example. The FDA reviews antibody updates on an entirely slower track than vaccine updates, even though the two often do the same job, protecting people from the same pathogen. 

Updating a vaccine typically takes about a year, whereas updating an antibody treatment can take much longer, up to three years. There's no real scientific reason for that gap. It's mostly an accident of which office handles each one and the resulting paperwork. The mismatch means a therapy can sit in a queue long after the outbreak it was created to treat has passed.

Multiply that delay across generics, biosimilars, and antibody updates, and you get a drug market that’s guaranteed to stay uncompetitive. 

Give patients a reason to look at the price tag

While many politicians and left-wing activists don’t want to admit it, as long as somebody else is paying the bill (be it an insurer, employer, or the government), most patients have little reason to ask what anything costs. That's not how any other market functions, and it's a big reason why healthcare prices have drifted so high.

Expanding Health Savings Accounts and making consumer-directed health plans easier to use are two of the more boring-sounding but effective fixes in health policy. When people spend dollars they know are theirs, they compare prices the same way they do for cars or groceries. Providers respond by competing, and prices ultimately come down. 

Stop paying hospitals more than doctors

Medicare runs two separate payment systems — one for doctors' offices, one for hospitals — and it pays a lot more under the hospital system for the exact same visit. Same doctor, same equipment, same 15 minutes in the exam room. The only thing that changes is which billing code gets used.

Hospitals naturally figured this out a long time ago. Buy up an independent practice, keep the same doctors and building, flip the billing code to "hospital outpatient department," and Medicare starts cutting bigger checks for the same service. 

Congress closed part of this loophole in 2015, but only for new facilities; it left every existing arrangement untouched. So the incentive to keep gobbling up independent practices never went away.

The fix isn't complicated: pay the same rate for the same service, no matter whose letterhead is on the building. Site-neutral payment reform would end Washington, D.C.'s habit of rewarding hospitals for buying out the competition, without cutting a single benefit or touching anyone's healthcare.

None of these ideas involve Washington setting a price or dictating a deal. They ask Washington to do less and let competitive pressure work. Markets move fast when regulators stop getting in the way. There's no reason that lesson has to stop at the pharmacy counter.

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