KEY POINTS

  • Biden must address the cost of health care and needs a broad approach to total health care costs.
  • A study by Thomas Abbott and John Vernon found that "cutting prices by 40 to 50 percent in the United States will lead to between 30 and 60 percent fewer R and D projects being undertaken in the early stage of developing a new drug."
  • The real problem with medicines is the high out-of-pocket costs that the sickest Americans pay because of the way insurance policies are designed.

With the 2008 election over, President George W. Bush sent a firm warning to his appointees -- me among them -- not to burden the incoming administration with decisions that would be tough for the new White House to change. Our turn was over. For the nation's sake, the next president needed the chance to succeed.

Times have changed. President Trump is going out the door with the opposite approach, using his "last days to lock in policies and make Biden's task more difficult," as the New York Times put it.

One of Trump's tactics is to enact presidential directives which present political dangers for President Biden to disrupt. One example is speeding up withdrawal from Afghanistan. Another is the executive order from Nov. 12 barring Americans from investing in certain Chinese companies. To change these policies, Biden risks being seen as a war-mongering interventionist or as softie on a country that routinely violates human rights.

In this same spirit, on Nov. 20 Trump made what he called a "big announcement" -- indeed, "the biggest ever, concerning drugs and drug pricing." He pointed out correctly that Americans pay more for drugs than patients in other countries, and "to address this unfairness and to lower prices for Americans, we're finalizing the Most Favored Nation rule. Remember that name."

The rule would require U.S. drug manufacturers to price certain Medicare drugs no higher than the lowest price in other rich countries, where the government acts as a monopsonist or single buyer and effectively sets prices. In other words, Trump wants us to import price controls from abroad. The president, tacitly admitting there actually will be a new administration, said, "I just hope they keep it. I hope they have the courage to keep it."

Like the pullout from Afghanistan, imported price controls are hardly a new idea for the Trump administration. But until now, in the closing days of a chaotic tenure, he hasn't managed to pull the trigger -- perhaps because he knows that Most Favored Nation (MFN) is opposed by many of his allies and at odds with his own ideology and sloganeering. "Biden is a Trojan horse for socialism," said Trump on accepting his party's nomination in August. In the case of the president's new drug-pricing rule, however, no horse is required.

Biden would be making a mistake to let MFN -- as well as the rest of Trump's last-minute policy changes -- remain in effect. The new president can revert to the status quo ante with orders of his own. Certainly, Biden must address the cost of health care. But he needs to do so without panic or edict, but through carefully considered legislation that will last.

Trump's May 2018 blueprint, "American Patients First," actually made a good argument against MFN. It cited a 2013 World Health Organization paper that said that government-mandated "price controls, combined with the threat of market lockout or intellectual property infringement, prevent drug companies from charging market rates for their products, while delaying the availability of new cures to patients living in countries implementing these policies."

A study by Thomas Abbott and John Vernon, published by the prestigious National Bureau of Economic Research, found that "cutting prices by 40 to 50 percent in the United States will lead to between 30 and 60 percent fewer R and D projects being undertaken in the early stage of developing a new drug."

Imported price controls would, for example, cut revenues by an estimated one-third for New York-based Regeneron's popular Eylea, an injectable treatment for macular degeneration, which leads to blindness. Funds generated by Eylea go to develop new Regeneron medicines, including a treatment for COVID-19. In fact, Regeneron put 81 percent of its profits into R&D in the most recent quarter.

That investment is paying off. The  FDA on Nov. 21 granted emergency use authorization to Regeneron's cocktail of two antibodies, administered to President Trump when he came down with the virus. But would potentially life-saving medicines -- not just for COVID but for many other diseases -- even be developed if an MFN rule slashes future revenues?

No doubt, other countries should be paying more for medicines, but killing innovation is an unacceptable price to pay. A Biden administration could address the disparity by negotiating with other countries to relax, or end, price controls. Rich nations could still provide tax credits or other subsidies to their citizens to ease the burden of higher prices, but Europe setting prices for American medicines is no different from the U.S. setting prices for European cars. 

The new president needs a broad approach to total health care costs. Retail prescription drugs represent only about one-tenth of health spending. Hospitals represent one-third, and drugs reduce or eliminate costly hospital stays, as we've seen dramatically with heart medicines and are seeing now with COVID therapies.

The real problem with medicines is the high out-of-pocket costs that the sickest Americans pay because of the way insurance policies are designed. Some states have already enacted caps on monthly spending by patients, and an improved Obamacare could do the same. It could also put an annual limit on Medicare Part D spending by beneficiaries and change regulations to speed specialty biosimilar (that is, generic-like) drugs to market, increasing competition and lowering prices.

Trump is trying to put Biden in a bind with his last-minute executive orders. But, in the case of drug pricing, Biden would be foolish to keep those orders in place. It's time for a fresh, comprehensive look at health care costs by a new administration.

James K. Glassman, former Under Secretary of State for Public Diplomacy, advises health care companies and non-profits.