Here is what Trump should do about the drug pricing problem
In a 2017 press conference, President Donald Trump said that drug companies were “getting away with murder.” Later this week, he’s going to offer a program for making drugs cheaper. Which policies should he endorse?
For branded drugs, patents exclude competitors and allow drug companies to set high prices. For generics, most pricing problems are also attributable to insufficient competition. When only a few companies make a drug, they can raise prices in tandem or play other pricing games. Our insurance-dominated payment system compounds these problems by eliminating any constraints on the prices drug companies can charge.
To fix the generic market, we need to change the Food and Drug Administration (FDA) policies on pricing. Congress should give the FDA the resources it needs to clear out the sizable backlog of applications from generic drug makers — the median length of the FDA approval process for generics was 47 months as recently as 2016.
One way to keep prices low would be to move applications for generics that have experienced price hikes to the front of the queue. When incumbent manufacturers realize that price hikes will result in new entry, they may be deterred from jacking up prices to begin with.
The FDA should relax its grip on market entry too. In particular, it should let manufacturers that qualify to sell generics in Canada, England, France, Israel and other developed countries automatically sell the same drugs in the United States — at least so long as the drug has already been approved by the FDA and the marketing exclusivity period provided by the Hatch-Waxman Act has expired.
These countries have the expertise needed to protect their citizens from excessive risks and the desire to do so. Waiving drug makers into the U.S. market will increase competition, reduce prices and prevent future price hikes.