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Trump's proposed executive orders on drug pricing may hinder R&D and drug development

The proposals, made during a global pandemic, will likely have little political support and may stifle innovation, experts say.

Jeff Lagasse, Associate Editor

Recently, President Trump proposed four different executive orders aimed at lowering drug prices in a move that some see as calculated to secure votes from seniors in the run-up to November's presidential election. There's no doubt that drug prices have become a challenge for many Americans, but as finer details of the executive orders have yet to emerge, it's unclear whether they would have the intended effect if enacted.

The broad strokes are there. One proposed executive order would eliminate rebates from drug companies that go to pharmacy benefit managers, the middlemen who negotiate with drug companies on behalf of insurers. One would allow the importation of drugs from Canada. One would reduce the price of insulin. The last would introduce an International Pricing Index for prescription drugs.

According to Wayne Winegarden, director of the Pacific Research Institute's Center for Medical Economics and Innovation, two of these proposed executive orders in particular – drug importation from Canada and the International Pricing Index  – essentially amount to price control.

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Price control for prescription drugs isn't an entirely unpopular idea among American lawmakers. The political left in particular has remained open to the idea as a possible avenue for reducing drug prices for everyday Americans. But the concept runs squarely against GOP orthodoxy, and it's a curious move by Trump as the ramp-up to the election begins in earnest.

"If you import a drug from Canada – and let's ignore all the safety problems – you're trying to implement Canada's prices here," said Winegarden. "Same with overseas: You're bringing over that price control. You're talking about, by stealth, implementing price controls on drugs here in the U.S. If you do that, you're not effectively addressing the issue. You're bringing over additional problems."

One potential problem is tying a drug price to a country when said country doesn't have access to the drug in question. In that scenario, the executive order would become meaningless in application.

The main sticking point for Winegarden, though, is the effect it would have on research and development and innovation. Treatments for problematic ailments such as muscular dystrophy may be sidelined, and existing medications that have harsh side effects may not see any improvement in future development due to the effect the executive order would have on R&D costs.

Newer, cutting-edge medications mitigate increases in healthcare costs, according to Winegarden. Less money for R&D translates to fewer new and innovative medications. Healthcare costs elsewhere could also go up, according to him.

"You're going to start impacting the rest of the healthcare system," he said. "You would end up with more price controls to address the lack of affordability. The healthcare affordability issue is something that's beyond just drugs. You're not addressing the root of the problem."


Sally Pipes, president and CEO of the Pacific Research Institute, agrees that these proposed executive orders could be problematic, particularly the one that would tie U.S. drug prices to Canada's.

"Canada's a huge country, but has few people," said Pipes. "A lot of the drugs that are available in the U.S. aren't available in Canada, because they haven't been approved at the discounted price by the review board. Even liberal (Canadian) politicians have said they don't have enough drugs for the people in Canada, so they can't supply people in the U.S. without harming their own population.

"I just don't want to destroy research and development," she said. "The Congressional Budget Office said with price [controls] it would really mean that the pharmaceutical industry would lose about $1 trillion over 10 years, with a major reduction of $200 billion in the money they spend on R&D."

The proposed executive order on PBMs makes more sense, she said, because consumers would stand to benefit directly.

"PBMs have been making a lot of money off the rebates they get," she said. "Why not give the rebates to consumers? Consumers should have access, and we shouldn't be lining the pockets of the PBM."

"PBMs manage formularies for insurance plans," said Winegarden. "Some are part of insurance plans because of consolidation, and they control the formularies. Manufacturers want to have a good place in the formularies, and can do it by giving discounts. Discounts are handled through the PBMs. The list price goes up quickly and the net prices aren't going up fast. Patients are getting hammered in all of this, because their coinsurance is connected to that list price."

Winegarden and Pipes agree that the proposed executive order mandating rebates for insulin and epipens makes sense from the perspective of trying to get discounts to patients. But Winegarden noted that a similar attempt was made in 2019 and then abandoned. Politically, he doesn't see a way for that to be enacted, at least not with the current makeup on Capitol Hill.

Pipes sees the proposals as more political in nature than anything else.

"This is a reckless distraction that distracts from our ability to respond to COVID," she said.

Twitter: @JELagasse
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