The Trump administration is considering a plan to base what it pays for prescription drugs on what these drugs cost in other countries, which are often artificially lower than in this country.
Under this plan, Medicare drugs would come to be based on an establish an "international pricing index."
A Wall Street Journal editorial, published in October, when the administration announced the proposed rules, argued that foreign price controls for U.S. drugs would "put the world’s most innovative drug market at the mercy of what Greece is willing to pay for a cancer treatment."
The editorial explained:
The reason European countries pay less for drugs is because they run single-payer health systems and dictate the prices they’re willing to pay.
Don’t like it? They’ll then vitiate your patents and make a copycat. This is hardly a “voluntary” discount. Other countries have the luxury of extortion because the U.S. produces more drugs than the rest of the world combined. Mr. Trump mentioned these realities in his speech but blew past them to suggest importing the same bad behavior.
Since lowering drugs costs is cited as a top concern by six in ten Americans, it is not surprising that the administration is taking note.
However, a newly-released report based on federal data finds that U.S. spending on health care is already slowing, even without a draconian system that ties U.S. drug prices to artificially low international prices.
The New York Times reported yesterday:
For the first time in several years, health spending grew at about the same rate as the economy as a whole in 2017. So the share of the economy devoted to health care stabilized.
By contrast, over the past few decades, health spending has generally grown faster than the economy.
The report was was published in Health Affairs. It deals with health care spending for 2017.
Health reporter Rachel Roubein characterized the data in the report this way:
National health care spending grew at a slower pace for the second straight year in 2017, a deceleration largely attributable to slower growth in spending on hospitals, physician and clinical services, and retail prescription drugs, according to new federal data.
The 3.9 percent uptick in the nation's health care tab last year was on par with small increases seen during the years immediately following the Great Recession, and it's nearly 1 percentage point less than the spending growth rate in 2016, according to data from the CMS actuary published in Health Affairs. Overall, national health spending reached $3.5 trillion last year, up from $3.3 trillion in 2016.
Health spending accounted for 17.9 percent of the nation's economy, roughly the same as in 2016. It's the first time since 2013 its share of the GDP didn't increase. Economists have closely monitored that figure, which has implications for government budgets.
The new report shows health spending growth has eased since a slight two-year spike in 2014 and 2015. Health expenditures grew faster those years as millions gained health insurance under the Affordable Care Act and spending on prescription drugs increased.
Amid a major focus on drug prices in Washington and around the country, retail drug spending grew just 0.4 percent last year — the slowest growth rate since 2012. CMS actuaries said the slowdown was due to a shift toward less costly generic drugs and decreased growth in the volume of certain high-cost drugs, especially the pricey hepatitis C treatments that came onto the market about five years ago. The pace of prescription drugs dispensed also slowed, especially for prescription painkillers in the midst of the opioid epidemic.
In light of this news, the administration might consider hitting the "pause" button on proposals to tether U.S. drug reimbursements to artificially lower international drug prices.
An excellent piece by Cato's Roger Pilon outlined the potential drawbacks, including a damper on developing new drugs, of Trump administration price proposals.