Opinion

Age Old Debate Over Drug Prices

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Posted: Feb 21, 2019 3:00 PM
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Age Old Debate Over Drug Prices

Source: AP Photo/Carolyn Kaster)

There has been a long running debate within the conservative movement about the tension between patent length and free markets.  This debate is happening in the political playing field of how the government can get high drug prices under control.

President Donald J. Trump is looking for ways to get drug prices down and he has many powers to get drug prices in check. He has said in the past that the drug industry is “getting away with murder” when it comes to pricing. In the president’s State of the Union speech, he said “one of my greatest priorities is to reduce the price of prescription drugs.” One way is to address the monopoly granted to drug companies through long patents and to restore downward pressure on drug prices that is currently under attack by the drug manufacturing lobby.

The tension between patents and free markets is complicated when talking about drug prices, because there is so much government intervention with laws, rules and money that interfere with functioning markets. Patent length is an issue because a patent provides a government protected monopoly for a product over a period of time to incentivize innovation for profit.  The counter is a totally free market where the market allows unencumbered competition without government interference. There is no debate on that right now, the pharmaceutical lobby has the upper hand and is dictating policy.

There is a Senate Finance Committee hearing next week on drug pricing and they might want to look at some of the challenges that have caused high drug prices.  One is the recently negotiated U.S.-Mexico-Canada Agreement (USMCA) that has locked in a 10-year protection for biologic patents. Biologics are, by far, the most expensive drugs in the world. Jeffrey Francer, general counsel for the Association of Accessible Medicines was quoted by the Associated Press as saying “by including 10 years in a treaty, we are locking ourselves in to a higher level of monopoly protection for drugs that are already taking in billions of dollars a year.” Ratification of this treaty will lock in the biologic monopoly for drug manufacturers for 10-years even though there were proposals on the table a few years ago to allow the patent to expire in 7-years as a means to create competition and to lower cost.

Another big issue is a safe harbor exemption for rebates that serves to keep costs down. According to Mark Miller of the Laura and John Arnold Foundation in testimony to the Senate Finance Committee “the Medicaid rebate program is very successful at driving down average prices paid by the program relative to other payers.” Some in the Trump administration want to change the program in a way that will increase prices to consumers and remove one downward pressure on drug prices.

One issue that needs to be explored is a simple one.   Why do the drug companies set prices so high?  When you have a monopoly on a drug and a high percentage of your payers are government, there is great power on the part of a drug company to charge prices that are far higher than a free market would allow. This results in people having to choose between paying bills or the inflated cost of drugs they need.  The rebate issue is a distraction, because the overarching problem is the price point set by the manufacturer. This year alone, more than three dozen drug makers have raised their prices on hundreds of medications.

The big drug companies and an army of lobbyists have been working nonstop to deflect attention from outrageously high prices. But in reality, insurance providers and Pharmacy benefit managers (PBMs) are the only bargaining power, working hard to negotiate lower prices with drug makers to save seniors and other patients about 50 percent a year on their prescription drug and related medical costs.

The Senate hearing next week, and the efforts of President Donald J. Trump should be applauded. Now is time to look at the issues that will both restore market forces and put downward pressure on patented drugs where the drug companies can set the price. The drug companies have gotten away with something close to murder when it comes to pricing and conservatives need to find ways to stop the march towards even more taxpayer money being given to drug companies while they hold a monopoly patent over certain drugs.