Trump White House Releases Biopharmaceutical Pricing Reform White Paper

The White House Council of Economic Advisers recently released a report titled, “Reforming Biopharmaceutical Pricing at Home and Abroad.” [Report]  The Report points to basically two problems: 1) overpricing in the United States; and 2) underpaying outside the United States.  The Report states:

U.S. patients and taxpayers alike have mainly financed the returns on R&D investments to innovators. Unlike other developed countries with single payer systems, which nearly all impose some sort of price controls on pharmaceuticals, the U.S. drug market is less financed by the public sector and more open to private market forces. In a free market, prices of products reflect their value as opposed to prices in government-controlled markets, which reflect political tradeoffs. CEA estimates that because of the American market system, more than 70 percent of OECD patented pharmaceutical profits come from sales to U.S. patients even though the United States only represents 34 percent of OECD GDP at Purchasing Power Parity (OECD 2016). Thus, innovators across the world rely heavily on Americans paying market prices to underwrite the returns on investments into products that improve their health because governments abroad use their monopsony power to set prices below market-levels. The United States both conducts and finances much of the biopharmaceutical innovation that the world depends on, allowing foreign governments to enjoy bargain prices for such innovations. This indicates that our current policies are neither wise nor just.  Simply put, other nations are free-riding, or taking unfair advantage of the United States’ progress in this area. In addition, prices paid by Americans for many drugs are too high, particularly so when paid for in government programs. This is the result of poorly designed reimbursement policies and regulations that inhibit price competition, and it is therefore a poor use of taxpayer money. 

The Report further notes that, “The U.S. market makes up 46 percent of OECD sales of brand name innovative drugs, funds about 44 percent of world medical R&D, invests 75 percent of global medical venture capital, and holds the intellectual property rights for most new medicines (BMI 2017; Moses et al. 2015; TEC 2017). Furthermore, publicly funded medical research in the United States has produced two-thirds of the top-cited medical articles in 2009, underlying the university research that often leads to medical breakthroughs (Moses et al. 2015).”

The Report points to issues regarding Medicaid, including opportunity for pharmaceutical companies to game and artificially raise prices.  The Report further provides suggestions concerning Medicare as well as the Pharmacy Benefit Manager Market.  Notably, the Report fails to address biosimilars in very much detail, but notes that there may be two more years before final regulations concerning interchangeability are issued.  This delay is raised as a potential reason why interchangeability approval may be slow.

This Report could drive the Trump Administration's approach to dealing with the high cost of health care.