President Trump: Competition Is the Solution to High Drug Prices

Change drug prices by changing the market.



Today President Donald Trump recognized that the increasing competition, not price controls, is the way to lower prescription drug prices. All companies seek to set their prices by the rule "whatever the market will bear." The best way to change prices, therefore, is to change the markets. Imposing price controls would lower prices, but at the cost of creating shortages, developing fewer new drugs, and—ultimately—compelling Americans to lead sicker and shorter lives.

In his remarks at the Rose Garden today, the president asserted that his administration is "increasing competition and reducing regulatory burdens so drugs can be gotten to the market quicker and cheaper." The Food and Drug Administration (FDA) approval process is currently too slow, too costly, and too precautionary. This induces caution in drug companies, who constrict their development pipelines to less risky "sure thing" therapies. The high regulatory costs also keep smaller companies from entering the market in the first place.

Alas, the president did not suggest how his administration would reduce regulatory burdens on drug manufacturers. So here's a suggestion: He should dramatically modernize the FDA drug approval process so that new treatments become available to patients once they have made it through the Phase II safety testing. Patients who choose the new treatments would essentially be enrolled in Phase III efficacy trials. This would encourage new entrants and drastically cut the time and expense it takes to get new medicines to people.

The president did point out that under a new commissioner, Scott Gottlieb, the FDA is already spurring competition by speeding the approval of generic drugs. An FDA study has found that as the number of competing manufacturers for a drug goes up, the price falls dramatically. When two companies compete, the price falls an average of just 6 percent; when there are nine competitors, the price drops by an average of 80 percent. Another important reform that the president proposed is to "speed up the approval process for over-the-counter medicines so that patients can get more medicines without prescription."

Trump also denounced the ways Big Pharma companies regularly abuse the regulatory process to prevent generic drug companies from competing with medicines that have come off-patent. For example, big companies often restrict the supply of their medicines so that generic manufacturers cannot make the required comparisons to make sure that their products are similarlly efficacious. "Our patent system will reward innovation, but it will not be used as a shield to protect unfair monopolies," Trump declared. Brand name companies get 18 years of patent exclusivity, and that is enough.

One proposal the Trump administration has discussed that will not likely lower prices in the U.S. is somehow trying to force foreign countries to pay more for medicines developed in the United States. Such a move would have the salutary effect of providing drug companies more money they might spend on research, but higher prices abroad is no incentive for companies to lower prices at home beyond what competition in the marketplace will force.

But the good news is that the president recognizes that the solution to high drug prices is the same thing that encourages lower prices in any market: competition.