Trump’s fight with drugmakers will not solve healthcare crisis
The US needs a health secretary with the mettle to enact painful industry reforms
David Crow
When Pfizer reversed price rises on 100 products last month, the drugmaker handed Donald Trump a clear-cut win that vindicated his strategy of using Twitter as a modern bully pulpit.
The US president had said Pfizer should be “ashamed” of the move, prompting the drugmaker to make an unprecedented U-turn.
Since then, other pharma companies have been tripping over themselves to promise restraint on US prices, and Mr Trump has declared victory in his long-running campaign to stop the industry “getting away with murder”. But the president should not be fooled. While Pfizer’s climbdown will hurt sales, most of the pledges from drugmakers are weasel words.
Take Merck, which recently announced a series of rollbacks, including a 60 per cent price cut for Zepatier, a medicine for hepatitis C. The only catch here is that the company does not sell any of the drug in the US, where there are much better alternatives, and actually recorded $10m in negative revenue for the product in the second quarter. The total saving for patients and the healthcare system is going to be zero.
If Merck had enacted meaningful price cuts, it would not have been able to raise forecasts for full-year profits last week. The same is true for Novartis, which said it had cancelled a series of planned increases in a sop to Mr Trump, while leaving its sales guidance unchanged. Other companies have constructed tortured pricing pledges that would make even the most tricksy lawyers blush.
They all go something like this: “We will limit net price increases across our portfolio to [insert a percentage that sounds low]”. Translation: we were going to have to reduce the price of some medicines anyway, because they have lost patent protection and must now compete with cheaper generic rivals. But we have worded our pledges very carefully so that we can keep raising the price of our lucrative blockbuster drugs.
Pharma executives say price gouging is limited to a few bad actors such as Martin Shkreli, the recently convicted fraudster who raised the price of an Aids and cancer medicine by more than 5,000 per cent. In truth, the practice is rife.
Celgene, a US biotech group, is among the drugmakers that recently promised moderation. But the price of its cancer treatment, Revlimid, has gone from $247.28 per pill in 2007 to $695.48 today. Nor is Revlimid a particularly innovative medicine: it is a derivative of another decades-old drug, thalidomide, which was withdrawn from the market in 1962 after it was found to cause birth defects. Robert Hugin, the former Celgene chief executive who signed off most of the Revlimid increases, is now a Republican candidate for the Senate. For some reason, he has escaped Mr Trump’s wrath.
The president might not care if prices really come down, as long as drugmakers keep up their obsequious pretence; he prefers looking like a winner to enacting complex, meaningful reforms. But it would be a shame if he thinks he has won this battle. High drug prices are one reason that the US spends more per capita on healthcare than any other developed nation, but has much worse outcomes.
Mr Trump’s health secretary, Alex Azar, has shown no interest in the types of radical policies that might bring prices down. A former official in the George W Bush administration, he spent the Obama years working as an executive at Eli Lilly, the Midwestern drugmaker, where he was put in charge of the company’s US division. During his tenure there, the price of various Lilly medicines rose substantially.
Mr Azar favours a plan that would squeeze companies known as pharmacy benefit managers. These middlemen are a quirk of the US system and work on behalf of employers and insurers to wring discounts and rebates from drug companies. PBMs like to cast themselves in a Robin Hood-like role, but critics say they use the rebates to boost profits for themselves and their clients rather than lowering costs for patients.
Targeting PBMs while going easy on drugmakers is not the answer. Last year, the two largest PBMs, CVS Caremark and Express Scripts, generated $10bn of combined operating income. Even if Mr Azar’s reforms were to wipe their profits out entirely, the savings would not cover the cost of the US’s top-selling medicine, Abbvie’s anti-inflammatory drug Humira, which generated $12.36bn in sales last year.
Instead, Mr Azar should revive an idea Mr Trump once supported: allowing the government to directly negotiate drug prices. Medicare, the state-funded health programme for retirees, is the world’s largest buyer of prescription medicines but, absurdly, it is forbidden from cutting deals with drugmakers due to a law passed in 2003. Allowing the government to use its immense bargaining power to secure a better deal would deflate prices.
Mr Trump has been right to home in on this issue, where his populist instincts are shared by voters across the political spectrum. But he needs a health secretary with the mettle to implement reforms that will be painful for the pharma industry. Otherwise drugmakers will keep charging whatever the market will bear.
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