How President Trump could save the U.S. billions on prescription drugs

Just as President Donald Trump signed an executive order on extreme vetting recently, he also could sign an executive order to make a small dent in drug spending.

Though  President Trump — and most consumers — think Medicare should be permitted  to negotiate drug prices, it's unlikely that will happen. The pharmaceutical industry holds too many members of Congress  in its back pocket. 

But there is something the president could do to constrain prices.

When Medicare Part D (outpatient drug benefit) began in 2006, pharma companies benefitted from a switch in the way medication costs would be covered for “dual eligibles,”  people whose low incomes mean they can enroll in both Medicare and Medicaid. Suddenly, Medicare was covering their drug costs, and that boosted pharma profits since Medicare pays more for drugs that Medicaid.

Private insurers, on average, pay 75 per cent of  list price for drugs in the U.S., while Medicare pays 70 percent, and Medicaid pays 50 percent.

The Congressional Budget Office calculates that moving dual eligibles drug coverage back to Medicaid -- which the president can do without Congress' permission -- would save $116 billion over the next 10 years. 

Which of course is a lot of money -- though even saving more than $11-billion a year represents less than 4 percent of the country’s total pharma spending estimate. 

Also worth noting: Most Americans wouldn't pay any less for their own drugs. More than 60 percent of Americans are covered by private payers and rising drug prices would still squeeze these people with high deductibles and co-payments. 

According to a Wall Street Journal report last week, privately insured Americans pay between two and seven times more for medications than similarly insured residents of Switzerland, Spain or the UK. 

The private market in the U.S. remains unlikely to provide affordable medications, even though that approach works effectively in Switzerland, the Netherlands and some other countries. That is because health insurance in those European countries works more like public utilities, with mandated coverages and premiums established by the various governments. 

The U.S., by contrast, refuses to tariff premiums or prevent payers from circumventing their coverage obligations with high deductibles and co-payments. At the same time, the government here has tied the hands of public payers such as Medicare, so even market competition cannot hold back exorbitant prices.

This effectively means that the system for delivering medications in the U.S. could be improved by making it either socialist, with government price controls, or more truly capitalist. Either one would provide benefits compared to the currently rigged approach that confers monopoly rights on pharma companies and then stifles a competitive market. 

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