Insurance Reform, Not Executive Orders, Is the Best Tool to Protect U.S. Patients and U.S. Pharmaceutical Innovation

Peter Kolchinsky, managing partner, RA Capital

With today’s Aug. 24 deadline looming, it’s important to explain how President Trump’s “most favored nations” executive order to purportedly lower drug prices would actually backfire, and hurt patients both at home and abroad.

The order, which ties prices for certain drugs paid for by Medicare to the lowest prices paid in other countries, including Canada and much of Europe, also conspicuously ignores the real problems faced by the American healthcare system.

Trump says that “Americans are funding the enormous cost of drug research and development for the entire planet,” which is why he doesn’t like that other countries are getting lower prices.

The trouble is that the president is wrong. Right now, other countries do pitch in – and his new order isn’t going to make other countries pay their fair share for pharmaceutical R&D.

Instead, it’s going to result in them paying no share at all.

Even a bad roommate that chips in a bit of money here and there helps defray the cost of a mortgage. For drug companies, some profit from Europe and elsewhere is better than nothing. In the meantime, Americans continue to benefit as Europeans, Canadians, and many others defray at least some cost of paying off the mortgage on pharmaceutical innovations that American patients need.

But instead of ensuring that Americans pay less for drugs, Trump’s order – while intending to “import” prices from abroad – would actually force companies to “export” U.S. prices for drugs to other countries in an attempt to protect their most important market. And when European and other countries refuse to pay, patients suffer the world over.

Turning Europe and Canada into entirely untapped markets would mean that instead of benefiting from other countries pitching in for, as President Trump has said, “the enormous cost of drug research and development,” Trump’s order will leave America standing by itself to shoulder those costs.

The downstream impact is obvious: because he doesn’t seem to understand basic economics, the president’s “favored nations” order would literally cost Americans more.

The dynamic is pretty simple. To make up for the loss of revenue in Europe, Canada and elsewhere, pharmaceutical companies would respond by raising US drug prices higher than they already are. And given our dysfunctional healthcare system, this would translate directly into higher out-of-pocket drug costs for the people that Trump claims to be fighting for.

Other nations have demonstrated that they’re willing to deny life-saving medicines to their citizens on the basis of cost. They have demonstrated that they’re willing to wait longer for access to new, lifesaving drugs – even when they do eventually decide they’re worth paying for.

Those kinds of price controls are simply un-American and mistakes we do not want to import or normalize.

Nevertheless, since President Trump’s orders do nothing to lower out-of-pocket costs, Americans would still be saddled with high deductibles and copays.

Some might be inclined to just fall back on blaming the drug industry, mistaking high drug prices for large profits. But the drug industry’s collective profits are only 10-12% of revenues when the successful companies are combined with all the unprofitable biotechs still investing tremendous amounts of money, at risk, on developing new drugs, including treatments and vaccines for COVID-19.

Because drugs eventually go generic, in order to stay in business, drug companies have to invent new drugs that Americans need. If they don’t invent, they die.

Meanwhile, insurance companies invent nothing. Insurance companies generated greater profits when COVID-19 struck because they were able to continue collecting monthly premium payments while patients stopped going to doctors and getting treatments. Even in the pandemic when so many people had to sacrifice so much, insurers  still had the gall to reject coverage for COVID-19 testing and care when people got sick.

The diagnosis for what ails America is clear – our health insurance plans.

What the president could do – but hasn’t done – is push for all Americans to have insurance with low out-of-pocket costs. He might also consider eliminating out-of-pocket costs for drugs when there is no clinically equivalent, inexpensive, high-quality, generic alternative.

This, however, would require an acknowledgement of a simple but elusive truth: what makes any aspect of healthcare affordable for patients is a function of the insurance they have. If an insurance plan sticks patients with massive out-of-pocket costs, then treatment is expensive and inaccessible. If an insurance plan covers treatment fully, treatment is accessible.

The bottom line: America needs insurance reform. We need our next president and Congress to reform health insurance so that Americans’ insurance plans actually offer what they advertise – affordable access to healthcare.

Peter Kolchinsky, a biotechnology investor and scientist, is Managing Partner of RA Capital Management, L.P., and author of The Great American Drug Deal.

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