Trump’s Drug Plan Has the Right Idea

(The Bloomberg View) -- President Donald Trump has announced his first potentially strong action against America’s inordinate prescription drug prices — the first that could meaningfully lower Medicare drug spending. The idea is to narrow the gap between U.S. prices and those of other countries.

The plan is far from finished, and pushback from the pharmaceutical industry will be fierce. But to drive U.S. drug prices down, a move of this kind is going to be needed.

The strategy concentrates on drugs administered by doctors — mainly the newer, very expensive biologic drugs that treat cancer and chronic conditions such as arthritis and macular degeneration. Medicare’s prices for these drugs are nearly double the average paid in Europe, Japan and Canada. To close the gap, the Trump administration would benchmark Medicare payments to the average foreign price.

Trump blames America’s higher prices on “freeloading” foreign countries. “For decades other countries have rigged the system so that American patients are charged much more — and in some cases much, much more — for the exact same drug,” he said in announcing the plan on Thursday. He’s right — except that it’s the U.S. that has done the rigging, by arranging things so that the anomaly of high U.S. prices can continue.

Under the system he’s proposing — assuming it’s actually introduced — you wouldn’t expect U.S. prices to fall all the way to where foreign prices now stand. As producers adjusted to the rules, foreign prices would presumably rise. And they’d need to, if global profit margins and R&D budgets were to be maintained. The outcome isn’t certain: Other countries are adept at driving hard bargains, and they typically provide shorter patent protection than the U.S. allows, so competition from generics and biosimilars would continue to press down on their prices.

Nonetheless, Trump’s plan would let Medicare co-opt some of those advantages — in effect, clawing back a subsidy paid to foreign buyers — at considerable savings for the U.S. If Medicare had benchmarked its prices for 27 top doctor-administered drugs in 2016 (and foreign prices had stayed the same), the Department of Health and Human Services estimates it would have saved $8.1 billion.

The proposal would also end Medicare’s policy of paying a 6 percent premium to doctors for administering drugs, an absurd convention that encourages them to choose the most expensive treatment. The premium would be changed to a flat fee. That’s another good idea — and again, the companies will push back. (A similar effort by the Obama administration failed in 2016.)

Bear in mind, the plan isn’t yet fully worked out. It’s being advertised early, no doubt, to strengthen the Republican position on health care before the midterm elections. As it stands, the plan is for a pilot project covering half the country, to be phased in over five years. Even if it happens, drug prices at the pharmacy counter will stay high as long as the U.S. maintains its strong patent system and refuses to give Medicare the power to negotiate.

All that said, Trump’s plan is a refreshing change: an idea for lowering drug prices that might actually work.

Editorials are written by the Bloomberg View editorial board.

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