Wall Street Journal
Republicans are worried about their re-election prospects in 2020, and one result is a frenzy to “do something” on high drug prices. Yet two of the latest ideas are standbys of the left: foreign importation and pricing penalties, which are more about politics than results for patients.
The Trump Administration says it intends to explore ways “to allow safe importation of certain prescription drugs to lower prices and reduce out of pocket costs for American patients,” as Health and Human Services said in a press release.
This idea polls well because Americans are annoyed that drugs are cheaper in Canada, which controls prices. Bernie Sanders recently joined a caravan of Americans crossing the northern border to buy insulin. Florida has proposed importing prescription drugs from Canada, which requires federal signoff, and HHS says it may approve such projects.
One problem: Canada. The country is disinclined to siphon off its drug supply to American patients. By one analysis, if merely 20 percent of U.S. prescriptions were filled in Canada, the country’s drug supply would be exhausted in less than 200 days. Reuters last month obtained documents showing the Canadian government discussing how to stop U.S. importation that could create shortages.
Savings would be illusory in any case. HHS excludes from importation: controlled substances, biological products, infused drugs, intravenously injected drugs, drugs inhaled during surgery and certain others. As the American Action Forum puts it: “In other words, everything except the expensive treatments can be imported.” Generics are already cheaper in America.
The Trump Administration thinks it can find ways to import drugs at no risk to the safety of the drug supply, but maybe not. It isn’t obvious how drugs labeled for sale in other countries could conform with a 2013 “track and trace” law, which is still being implemented. The purpose was to prevent counterfeits and diversion by tracking a packaged drug at every step of the supply chain.
Meanwhile on Capitol Hill, Republican Senator Chuck Grassley ‘s Finance Committee has passed bipartisan drug-pricing legislation with provisions that include capping out-of-pocket costs for seniors in Medicare Part D, the prescription drug benefit. The point is to reorganize the benefit’s structure in more rational ways, and much of it is worthwhile.
Yet there are a couple ideas that deserve a scrub before the bill reaches the floor. Nine Republicans voted no in committee, which probably means the draft needs a rewrite to pass with a majority of Republicans. The White House appears amenable to the current iteration but shouldn’t be.
One problem involves Medicaid. Drug manufacturers by law owe Medicaid steep rebates_for most patented drugs, 23.1 percent of the average manufactured price or one prescribed by a formula, whichever is higher. Drug makers pay an additional rebate if the drug’s price increases faster than inflation. Total rebates are capped at 100 percent of the average manufactured price.
Drugs for diabetes, oncology and other maladies have hit this rebate maximum. Congress is now proposing to increase rebate limits to 125 percent of the average manufactured price. In other words, for Medicaid to cover a drug, some companies would have to pay the government. These losses would be recouped by higher prices in commercial markets. A bigger rebate won’t help Medicaid beneficiaries, whose out-of-pocket drug costs are capped at a few dollars for a prescription.
The Senate bill would also apply bad principles to Medicare. A provision championed by Democrat Ron Wyden of Oregon proposes adding a penalty in Medicare for drugs whose prices increase faster than inflation. That will cause companies to launch drugs at higher prices. Former FDA Commissioner Scott Gottlieb has pointed out that companies could react by treating inflation as the floor and ceiling of politically acceptable price increases. In other words, companies might increase prices every year up to the point of inflation, regardless of market realities.
These arguments haven’t stopped Congress for two reasons: One is that the penalties raise revenue that Congress can spend elsewhere. The second is that both parties want drug companies as a punching bag. Drug companies deserve criticism for abetting ObamaCare and some pricing excesses, but much of the recent assault is demagoguery.
Neither importation nor penalties will have a discernible effect on drug markets before politicians face voters in 2020. The importation announcement is an “action plan,” meaning the Administration hasn’t started making a rule. The penalties in the Senate bill aren’t paid until 2021 and 2022.
The question is why Republicans are so afraid to run on their good record on generic drug approvals and drug-price increases, which the White House rightly notes have fallen below the pre-inauguration trend. The party should promote more intense industry competition and other initiatives as a down payment on more progress. Instead Republicans risk abetting more government control over health care.