One of the hottest topics in the pharmaceutical industry is the rising cost of prescription drugs. President Trump has been vocal on the topic both during the campaign and in his early days in office. He mentioned drug pricing in a recent meeting with pharmaceutical company executives. To lower the cost of drugs, the Trump administration could allow the government to negotiate drug prices with manufacturers, reduce government regulations and or allow the price of a drug to be established based on its effectiveness.
The first possibility of a future action that could lower drug prices is granting the government more control over negotiating prices. Medicaid and Medicare are the largest purchasers of drugs in the U.S. and exert huge control over the health care market. Were they to set drug prices, they could affect the market greatly. This is the approach that has gotten the most attention.
A decrease in government regulation could offset the impact of drug price negotiation. If FDA regulations were relaxed in the future, pharmaceutical companies might be able to spend less time on R&D and clinical drug trials. This will mean that the pharmaceutical industry could bring innovative products to market quicker and, in turn, this could serve to make up a portion of revenues and profits lost to lower prices.
“One of the reasons drug costs are so high is the time it takes to get them to market,” said Lee Taurman, partner in Grant Thornton’s Life Sciences practice and its national advisory leader. “If you streamline the FDA approval process, you get products to market faster. If you could couple bringing products to market faster with pricing models that reward innovation, you could really see positive change,” Taurman said.
In order to lower prices while continuing to reward innovation, the administration could facilitate the shift to value-based pricing. This means that the drug price would be based upon the effectiveness of the drug. The current model is largely based on volume, and pharmaceutical companies are incentivized to sell as many pills as possible, at the highest price.
Yet, value-based drug pricing is gaining prominence. Using metrics and electronic records, the healthcare industry is moving towards measuring outcomes and the quality of care. Some of this movement toward value and digitization was spurred by the ACA, but significant barriers still exist. If a replacement of the ACA removed these barriers, manufacturers of innovative products with a high clinical value would continue to be rewarded based on their ability to help patients and to lower overall healthcare costs.
While measures under the new administration could influence the pharmaceutical industry in a positive way, they could also affect the industry dramatically. For example, if Trump established a model that gave the federal government the ability to control drug prices through direct negotiation without corresponding regulatory relief or incentives for innovation, the impact could be very negative.
“This would likely affect the industry and potentially the patients they serve,” Taurman said. “It would impact the industry’s profits, could lead to a reduction in spending on R&D, and even impact the supply of some medicines to markets. It could have a dramatic effect on drug companies and patients both here and abroad,” Taurman said.