The Trump Administration has announced there will be certain changes to the pharmaceutical drug market in the US. The aim is to reduce the prices paid by consumers. This will work even if we’re being told that it won’t. Clarity about pricing usually does lower prices and that’s what is being insisted upon here. Further, removal of legal privilege reduces prices and that’s also what’s happening here.
But there’s a much simpler argument or proof to be used here. The drugs companies themselves are likely to argue against the change. Why would they do so? Because it will reduce their revenues. And what is the synonym for reduced revenues? Cheaper prices – you’ve got it.
A new proposal from the Trump administration is targeting secretive rebates between drug manufacturers, insurers and pharmacy benefits managers as a way to lower drug prices for Medicare. A proposed rule released Thursday would scale back the legal protections and eliminate some of those rebates. The proposal could completely upend the way prescription drugs are purchased.
Sounds nice but will it work?
Generally, a drug company pays a rebate so a pharmacy benefit manager — the third-party administrators of prescription drug programs — will make its product the only one of its kind on the list approved for reimbursement or so that the co-pay for its product is less than the co-pay of competing products.
So, why do they do that? Why don’t they just cut the price of the drug itself? The answer being that this system enables them to gain greater overall revenues than just cutting prices would. Which is why they use this system. So, if we stop them from using this system of gaining greater revenues, what happens?
Yup, you’re right, lower revenues to the drug manufacturers is indeed consumers gaining lower prices. Remove that legal privilege and we’ll get lower prices. The Trump Administration is suggesting going to remove the legal privilege, we’re going to get lower prices.
Now, whether lower prices is a good thing is another matter – good profits on today’s drugs are what incentivises the investment on the new drugs that will save us all tomorrow. But if you want to reduce prices now then this will do it. This is one to judge by who opposes it….