President Donald Trump made a promise to the American people to be a change-maker in Washington — a force outside the political class to take on the D.C. elite keeping corrupt systems running for their own vested interests. Years of political football and misaligned incentives have taken ideas initially meant to serve the American taxpayer and warped them into unnavigable mazes of kickbacks and bureaucracy.
But even the swampiest of Washington would have a hard time creating a system more convoluted than the system governing drug pricing in the U.S. Democrats blame corporate greed and insufficient federal power to negotiate prices downward for the burdensome drug costs passed onto the consumer. Republicans blame bad government policies that force inefficiencies into what otherwise would be a free market optimal for both the buyer and the seller.
For years, this ideological divide helped to bring nothing to the table, as total prescription drug expenditures in the U.S. rose from $205 billion in 2005 to $333 billion in 2017. However, as just recently revealed by the Council of Economic Advisers, the Consumer Price Index for prescription drugs decreased 2 percent in June compared to one year ago. The rising trend in prescription drug prices is finally starting to move in reverse.
So, what’s going on? If you look at all the players in the ecosystem determining what U.S. patients ultimately pay for their prescriptions, the answer is clear: The Trump administration is targeting every spot where value is extracted from the consumer and taking action to ensure that their interests, instead of those of the corporate classes involved, are put first.
When you get a prescription from your doctor, you typically go to the pharmacy, pay a fee known as a “copay” for the medication, and pick it up — a simple transaction. But all the dealings behind the scenes that allowed you to make this transaction aren’t so simple.
Your health plan or employer typically pays premiums to a company known as a pharmacy benefit manager, or PBM. The job of a PBM is to negotiate the price you pay at the pharmacy for the drugs listed on their “formulary” — those covered by your health plan. As the pharmacy charges you (the patient) a lower amount, the PBM agrees to reimburse the pharmacy with the funds it gathered from the premiums it collects from insurers.
Curious as to how or why certain drugs are placed on a PBM’s formulary? This is where the pharmaceutical companies who manufacture the drugs come into play. As the PBM’s job is to pay out funds to pharmacies as reimbursements, the costs of having certain drugs listed on the formulary is a major factor in the decision, given that the PBM is profit-driven.
Knowing this, pharmaceutical companies will often pay sums of money known as “rebates” to the PBM in exchange for their drugs being listed on the formulary — for without this listing, patients will largely be unable to purchase the manufacturers’ drugs from a pharmacy.
Seeing all the players involved, what we end up with is a system of bribes and service payments where you, the actual patient in need of the drugs, exist as barely an afterthought. But here is where the system really starts to devolve.
The drug manufacturers set their own prices on the products they produce. This would not be an issue, basic economics tells us, if there were plenty of other companies offering virtually the same product at different prices to let the laws of supply and demand determine a price optimal for the market. However, due to patent laws in the U.S., the manufacturer who patented the drug has the right to be its sole manufacturer for a minimum of 20 years. In other words, it’s impossible for supply and demand to reach an equilibrium price — there’s only one supplier.
A common way to increase options available to the consumer and fix this single-supplier problem after the patent has ended is through the production of generic drugs. However, the Food and Drug Administration has had historically long delays in approving generic manufacturers to produce drugs no longer protected by patents. As often happens in our oversized, glacial federal agencies, the policy is well intentioned but poorly executed.
Addressing this problem of rising prescription drug costs, the Trump administration has taken action to correct every pain point on the road to transforming the drug-pricing system. FDA generic drug approvals have skyrocketed since 2017, thanks to efforts to simplify and expedite approval processes. Targeting unconstrained price-setting on the part of patented drug manufacturers, the Department of Health and Human Services under Secretary Alex Azar finalized a rule requiring that drug manufacturers disclose the sticker price of their drugs in television commercials. Although hitting a slight legal snag following a lawsuit by three very upset drug manufacturers, the Trump administration is not stopping in its efforts to achieve drug-price transparency for the American people.
In addition to further litigation, the Trump administration is exploring the possibility for Medicare to create an “international pricing index,” tying drug prices in the U.S. to the cost of identical drugs abroad. In the private space, the administration is studying the feasibility of importing lower-priced drugs from outside the U.S. into the country to save money for the American consumer.
In targeting the most ludicrous parts of the drug-pricing system, the Trump administration is ensuring that, at the end of the day, the American people are getting a fair deal on the lifesaving medications they need.
For the first time in a long time, endless debates over levels of government intervention and robustness of the free market have been replaced with swift, targeted action focused on nonpartisan results. Promises made, promises kept, has been the theme of this administration — and as the data is beginning to show, President TrumpDonald TrumpCheney challenger wins Wyoming Republican activists' straw poll We must do more to protect American Jews 6 in 10 say they would back someone other than Biden in 2024: Fox News poll MORE is keeping a promise to the American people met by no president before.
Corey R. Lewandowski is President Trump’s former campaign manager. He is a senior adviser the Great America Committee, Vice President Mike Pence's political action committee. He is co-author with David Bossie of the book, “Trump’s Enemies,” and of “Let Trump Be Trump: The Inside Story of His Rise to the Presidency.” Follow him on Twitter @CLewandowski_.