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The Next Step in Entitlement Reform Should Not Get the Government More Involved

President Donald Trump recently said that he doesn’t like what’s happening with drug prices and that he will do something to fix it.

How? Hopefully through competition and better value versus government regulation and price controls.

Reflecting his hard-nosed negotiating skills, Trump was for the proposal to leverage Medicare’s big market presence to lower drug costs for seniors and the disabled.

That plan won’t end well for seniors. The Congressional Budget Office concluded that the government wouldn’t be able to win bigger price concessions than private health plans already get. The only way to achieve any savings would be to bar seniors from getting newer drugs — the ones that treat their diseases — from Part D plans. The only other way would be to restrict patient access to pharmacies.

Medicare’s drug benefit began in 2006 as an antidote to government price setting and interference. The program helps to make sure seniors and the disabled have the care they need at a cost they can afford.

By any measure, Part D is a success. Beneficiaries pick whatever plan they want and pay part of the total premium, and the government picks up the rest. The average monthly premium for a basic 2017 Part D plan has been about $34 a month for five years running — where else in health care can you claim that?

Numerous think tanks want the government to step in and negotiate price discounts on Part D medications.

This is a dumb idea. America’s seniors would lose access to medicines. Their health would worsen. And their healthcare costs would spike.

A better way would be to clear out the laws that discourage cheaper drugs. For example, Congress enacted a law in 1990 that requires drug makers to give Medicaid the best price in the market. Prior to the law’s enactment, hospitals, HMOs and others often got 50 percent off their drug prices. After the law was enacted, discounts shrank for those private payers. Rather than lowering drug costs, the law increased them.

Trump should also modernize the FDA and speed up approvals of medications to lower costs. FDA’s slow-motion approvals process means that new molecular entities wait many years before being introduced on the market. Currently, more than 4,300 generic drug applications await review and approval.

There ought to be a balance. As products are approved, more leverage points on prices are created. When the Hepatitis C drug Sovaldi was first introduced, many couldn’t afford the $1,000 a pill cure. A year later and three more drugs on the market, and no one is paying $1,000 a pill, they are paying half as much or less.

America has elected a president who is quick to take off his gloves and tap into the mounting frustration of an electorate that has grown impatient for change, including a desire to lower drug costs.

That is good. We just need to be smart about how we do it.

 

Joel White is President of the Council for Affordable Health Coverage.