Ever the populist, President Donald Trump has made some huge promises to reduce pharmaceutical drug prices. He frequently claims the pharmaceutical industry is “getting away with murder” and charging “astronomical” prices. This commitment is welcome considering the problem many Americans face in paying for their medical treatments. However, Trump’s promise to increase competition through less government involvement is misguided. The current regulatory system makes any sort of competition over drug prices incredibly difficult, and paradoxically it is time for the government to get involved and ensure that there are real markets for prescription drugs.
Trump’s rhetoric has shifted considerably on the issue; having originally touted a plan to negotiate cheaper prices directly, he now focuses on easing the burden pharmaceutical companies face with R&D costs. Theoretically, lower R&D costs and faster drug approval will mean these companies are less likely to pass costs on to consumers. However, R&D costs are already more than covered by the prices charged for drugs today, leading us to question why this hasn’t translated to the lower prices we were promised.
The problem is, the very nature of the pharmaceutical economy in the United States is antithetical to competition. As Medicare is prevented from negotiating drug prices by law, and as new drugs are guaranteed a period of “market exclusivity” where they can’t be challenged with generic alternatives, it is hard for prices to be undercut. If no one can develop cheaper generics, it is exceedingly difficult to punish the companies that choose to overcharge. As a result, steady and sometimes incredibly steep hikes in drug prices are not surprising. The process of price-gouging, where essential drugs are made far more expensive, has become commonplace — one egregious example was the case of Turning Pharmaceuticals, which raised the price of the life-saving drug Daraprim by 5,000 percent.
This gives us strong reason to doubt that Trump’s proposals for drug prices will have any demonstrable effect on the consumer. Making the drug industry’s R&D cheaper will not force them to charge less when no one is allowed to offer a cheaper product. The fact that lawmakers and the public have had to resort to shame campaigns against price-gouging shows how little competition functions in the current system. In other words, it is absurd to rely on the logic of competition when not much of it seems to exist right now.
If the White House wishes to pursue a policy ensuring drug price “competition,” it must start with a serious push to change the way the system works. There are many methods, such as making it easier to import drugs from abroad, that could enable generics to compete with exorbitantly-priced drugs sold here. We should not, however, expect competition to automatically appear as a result of industry-friendly tax cuts. A market solution actually requires a real, competitive market, which is something that we must work to build through reasoned policy.
In the end, confronting the companies that “get away with murder” requires making policies that they won’t like. As a result, Trump can’t have it both ways. He can’t fulfill promises to the American people about lower drug prices while at the same time making laws at the behest of the ones doing the overcharging. Guaranteeing the kind of competition Trump wants will require a government policy that will ultimately be unpopular with the industry — the question is whether or not our government has the desire to pass that policy.