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Trump's losses in drug pricing battle should be a free market wake-up call to him

Key Points
  • The Trump administration lost two key battles in the span of 48 hours in its fight to get prescription drug prices down. But it can still win the war by getting back to its free market roots.
President Donald Trump
Jonathan Ernst | Reuters

The Trump administration lost two key battles in the span of 48 hours in its fight to get prescription drug prices down. But it can still win the war by getting back to its free market roots.

Earlier this week, a federal court nixed the Trump team's plan to force prescription drug companies to publish drug prices in their advertising.

Then on Thursday morning, the administration backed down from it push to eliminate prescription drug rebates after concerns grew that killing the rebates would adversely affect senior citizens.

The reasoning behind both policies was to improve price transparency, force companies into lowering prices and to increase competition in the sector.

But there was a fatal flaw in both of those policies; they were all stick and no carrot, even though the Trump administration's more natural posture is to use liberating incentives instead of coercive regulations.

President Trump has often flouted conservative ideology by interfering in the private sector, via his tariff policies and his frequent tweets lambasting major U.S. corporations.

But the administration has also pursued policies that have reduced government interference or pressure on businesses. The 2017 corporate tax reform law serves as the best example. Regulation cuts comes in as a close second.

Reduce government intrusion

When it comes to prescription drugs, I believe that reducing government intrusion, rather than increasing it, is the best way to get prices down and expand access to lifesaving treatments.

Reducing regulations doesn't necessarily mean catering to Big Pharma's whim.

Big Pharma generally loves government regulations that significantly discourage and slow generic drugs from coming to the market. Drug companies have worked hard to create and keep them in place.

Why? Because when generics do finally become available, they drive average prescription costs to about $6 per purchase, according to a study by the Association for Accessible Medicines (AAM), a generic drug industry trade group.

When now former FDA chief Scott Gottlieb first took office in 2017 he made a priority of reducing the approval process for lower-cost generic drugs. The FDA's efforts have resulted in mixed success.

But limited success is better than the Trump administration's total failure this week to improve price transparency.

Also moderately successful is a similar effort to get potential lifesaving drugs to terminally ill patients earlier on in the drug trial process. President Trump's personal support of the "Right to Try" law has resulted in numerous testimonials from individual Americans in recent weeks who say it has helped keep them alive.

Right to Try is not without its critics. But the bulk of that criticism is that the federal law hasn't sped up access fast enough, not that getting those experimental drugs to patients has led to dire medical circumstances or abuse.

More free market options

There are many free market other options that Big Pharma would probably support that would boost supplies of drugs and improve access to them. Chief among them is getting more drugs available over the counter.

Birth control medication and most heart disease-fighting statins are over-the-counter drugs in most of the world's developed countries, but not the U.S. Even if making those drugs OTC doesn't immediately drop sticker prices, at least it reduces the costs connected with having to go to the doctor every time you need a prescription.

OTC drugs also keep third-party insurance companies out the process entirely, also reducing costs and barriers to access.

The drug industry would surely like a deregulatory push when it comes to the ban on drug companies sharing information about new drugs with insurers, hospitals and private practice doctors.

That ban forces drug companies to spend a lot of money to get the word out about new drugs once they do gain approval.

Busy doctors don't usually have the time to follow the progress of those drugs as they make their way through trials. Removing the ban would allow the drugmakers to provide easier to digest updates along the way, thereby reducing and spreading the costs of informing medical professionals over a longer period.

These efforts have proven to be more practically and legally sound since they have been successfully launched or enacted. This week's setbacks should help convince the Trump team of one thing: embrace policies that adhere to the law of supply and demand.

Jake Novak is a political and economic analyst at Jake Novak News and former CNBC TV producer. You can follow him on Twitter @jakejakeny.

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