Trump’s new policy to tackle sky-high drug prices makes sense — sort of

Today, the Trump administration revealed its most comprehensive policy direction on tackling the problem of prescription drug prices — in a brief blog post by the Food and Drug Administration chief Scott Gottlieb.

Gottlieb outlined the administration’s “Drug Competition Action Plan,” which will focus on increasing the competition among cheaper (off patent) generic drugs.

“Innovation in pharmaceutical development is essential because it creates new and sometimes life-saving therapies,” he wrote. “But access to lower-cost alternatives, once patent and exclusivity periods lapse, also is critical to the nation’s health.”

While the FDA’s job is to ensure drugs are safe and effective before reaching American consumers — with no role in setting drug prices — Gottlieb said the agency will be looking to identify regulations that are being “gamed” by pharmaceutical companies in ways that delay generic drug approvals.

The administration is also planning to coordinate with the Federal Trade Commission “in identifying and publicizing practices that the FTC finds to be anti-competitive.”

As the first step, Gottlieb announced a public meeting, to be held on July 18, 2017. There, the FDA will ask for feedback on where the agency’s procedures block generic access.

Needless to say — the blog post was thin on details, but the policy direction isn’t entirely misguided.

On average, Americans shell out more than $1,000 per year for their drugs — $300 more than Germans or Canadians do. And total US drug spending has more than tripled in the past 15 years, from $121.2 billion in 2000 up to $425 billion in 2015, squeezing both payers and insurers alike.

Increasing competition among generic products is one of the ways experts say we can bring drug prices down. It’s also an approach Gottlieb has long favored and advocated for.

The rationale behind this approach is simple. After a drug gets FDA approval, its manufacturer enjoys a period of monopoly through patent protection — which means it can generally demand higher prices. Once that exclusivity period is over, generic drugmakers can enter the market, offering low-cost copycats.

These drugs are drastically cheaper than their brand-name counterparts, mainly because generic drugmakers piggyback on all the research and development that was done by the original drugmaker. This means generic manufacturers don’t bear the same R&D costs. They also don’t spend much on marketing — a massive cost for pharma.

For instance, six tablets of the brand-name antibiotic Zithromax cost $150 — while the same amount of the generic version azithromycin costs about $10. (Generics are also chemically identical to name-brand drugs, which means that medically speaking, they’re likely to work just as well. With a few exceptions, it’s usually smart to buy generic versions of drugs whenever they are available.)

When brand name alternatives — such as various types of hepatitis C treatments or even different insulin therapies — come on to the market, drug prices don’t budge dramatically.

When competition from interchangeable generic products increases, though, prices drop. As this recent report from IMS Brogan found, “Generics that entered the market between 2002 and 2014 reduced the price of medicines by 51 percent in the first year and 57 percent in the second year following loss of exclusivity.”

Bringing more generic alternatives to market would also decrease the cost of generics, which have seen prices surges in recent years — a trend stakeholders say is also driven by a lack of competition.

So if the FDA found ways to make it easier to bring more generic options on to market, it’s not inconceivable that we’d see a parallel dip in drug prices.

“It’s a good step for FDA to be taking,” said Josh Sharfstein, associate dean at the Johns Hopkins School of Public Health and former deputy commissioner of the FDA. “But it solves a part of the problem [of high drug costs], not the whole problem.” He also warned that success will require coordination with FTC, since the FTC is the agency focused on regulating anti-competitive business practices.

Indeed, the Trump administration’s approach doesn’t tackle a major cost driver in the system: the price of new, branded drugs.

Recent increases in drug spending have largely been fueled by new brands, according to a 2016 report by the research firm QuintileIMS. Spending on patented specialty medicines — to treat hepatitis and cancers — also doubled over the past five years, driving more than two-thirds of the overall medicine spending growth between 2010 and 2015.

These new drugs don’t yet have generic alternatives ready because they aren’t off patent yet. And the Trump administration so far hasn’t signaled how they’ll deal with this cost driver, though a recently leaked draft executive order on drug pricing suggests he may announce changes that are more favorable to drug companies than American consumers.

Setting new drug prices is also completely out of the FDA’s jurisdiction.

Drug companies in the United States do what any other profit-maximizing company does — they try to get the highest prices possible without going so high that no one will buy them. And they do this because they can.

In countries with single-payer health systems, governments exert much more influence over the entire health care process. These governments usually create an agency that negotiates directly with pharmaceutical companies. The government sets a maximum price that it will pay for a drug, and if the company doesn’t agree, it simply loses out on the entire market.

This puts drugmakers at a disadvantage, driving down the price of drugs. It also allows these countries’ regulators to more closely scrutinize the relative quality of the drugs they’re covering, which also drives costs down.

The US is exceptional in that it doesn’t do any of these things. Instead, America has long taken more of a free market approach to drugs. Pharmaceutical companies haggle separately over drug prices with a variety of private insurers across the country.

Meanwhile, Medicare, the government health program for those over 65, which is also the nation’s largest buyer of drugs, is actually barred from negotiating drug prices. Instead, Medicare is required to cover almost every drug the Food and Drug Administration approves for the market. That gives pharma much more leverage, and it also means there’s no quality control over which drugs get covered and which don’t.

“Drug companies in the US set the prices at whatever the market will bear,” said Aaron Kesselheim, an associate professor of medicine at Brigham and Women’s Hospital.

One way to fix this would be to allow Medicare to use its vast bargaining power to negotiate drug prices, which would have a ripple effect on the rest of the market. On the campaign trail, Trump originally proposed to do just that. But he’s also now signaled that this fix won’t be happening either. And with the GOP consumed with negotiations to repeal and replace the Affordable Care Act, Gottlieb’s humble offer may be the best Americans can get.