What can the next president do to control drug prices?

by Daniel Hoffman

Published Oct. 27, 2016, 12:37 p.m. ET

One of the most important issues in the presidential election is the high cost of health care, particularly prescription drugs. Conversations with several health policy analysts and congressional staffers during the past week suggest that after inauguration, campaign bluster will be replaced by more sound and fury, and most of it will signify nothing.

The consensus: executive agencies (such as Health & Human Services, particularly its CMS division) and various congressional committees will pressure the pharmaceutical industry into addressing the cost crisis, but only marginal changes will come from the effort. Neither the profitability of pharma companies nor the gouging of drug prices will be substantially affected.

I'm hearing that these will be the major topics in 2017:

1. Value-based purchasing

Haltingly following the footsteps of private payers, Medicare and Medicaid, as well as the VA, Defense Department and various state programs, will insist that pharma companies price their drugs according to whether and how well they work.

Yet this seems unlikely to blunt increasing drug prices. Medicare is prohibited by law from negotiating prices and Republicans will aggressively block any efforts to repeal that government giveaway to pharma.

Besides, objective standards for what constitutes value do not exist.

2. Transparency

The industry keeps trying to justify its price gouging by claiming it faces enormous and rising research costs, a contention that has been widely disputed. Legislators in several states (including Pennsylvania) want to require pharma companies to open their books.

But even if that excuse is denied to pharma, it can offer up another handful, such as insisting investors must be rewarded with outsized profits to attract the capital needed for developing new drugs.

3. Congressional hearings of pharma execs

Congressional witch-hunts, if well orchestrated, can bring favorable publicity to a few office holders and provide some emotional catharsis for constituent groups. In the cases of some outlier companies such as Valeant, Mylan and a few others, some modest price retrenchment may actually occur.

Such public floggings, however, don't address the 10 percent, across-the-board, annual price hikes on entire product lines by giants such as Pfizer and Allergan, which are mainly responsible for making drugs less affordable.

4. Comparative effectiveness

This companion chant to value-based pricing holds that either a company would have to test a new compound against an existing therapy to gain regulatory approval, or would have to do such testing to secure payer reimbursement.

Many European countries do this, but here, it would take legislation to get the FDA or Medicare to change their mandated standards. Unless the Democrats win the presidency, a majority in the House and a filibuster-proof majority in the Senate, forget it.

5. A stronger, more aggressive CMS

If CMS had the authority to negotiate drug prices, that could slow their growth, but again, this would require a highly unlikely act of Congress.

6. Public option

Hillary Clinton said she wants to allow states to offer residents a public option plan when a lack of competition among private insurers makes premiums too expensive. Most members of Congress would correctly sense this as a big step toward a single-payer system and, together with pharma money, they will stand firmly against it. As Hillary Clinton saw her husband's first term torpedoed by her futile health care efforts in 1993-94, she is unlikely to go to the mat again this time.

7. Promoting competition by relaxing FDA approval standards

This may actually happen. Obama apppointed Robert Califf as FDA commissioner. He is a cardiologist from Duke University who is widely regarded by the industry as an advocate for its cause. But historically pharma has operated as a cartel in which putative competitors failed to compete on price. Making 2017 in pharma look like 1995 won't make medications more affordable.

8. Expanding Medicaid

This may also occur, as it would preempt some of the horror stories that would be especially damaging to pharma's public image without appreciably denting the industry's overall pricing power. California has a ballot initiative to limit state Medicaid drug prices at the VA's more moderate levels. If that succeeds and other states follow suit, pharma would take more of a hit. But U.S. consumers and taxpayers would still pay far more than the rest of the world for the same medications.

Add to all this: Gridlock. Republicans campaigning for Congress are promising to act as checks to a Hillary Clinton presidency. So expect opposition to any of her initiatives that carry a progressive label, even if they are really just pablum.

So the outlook appears grim, to be sure. As long as 55 percent of Americans remain blasé about health care because they mistakenly feel they are adequately covered through their work, the U.S. will continue to pay more per person for health care than other advanced nations and receive a worse system in return.