On January 31, there were two articles about Donald Trump that had him saying two diametrically opposed things. The topic was whether or not Medicare should be able to negotiate the price of drugs bought for the Part D insurance program. Under the 2003 law which set up Medicare Part D, Medicare is explicitly barred from negotiating drug prices with their suppliers. The Veterans Administration, by contrast, is permitted to do so and saves about 40% compared to Medicare, Part D. For details see “What if Medicare’s drug benefit were more like the VA’s” at http://theincidentaleconomist.com/wordpress/what-if-medicares-drug-benefit-was-more-like-the-vas/
Trump has repeatedly stated that drug prices are too high and that he is in favor of letting Medicare negotiate drug prices.
For example, at his January 11 press conference he had this to say:
“Pharma has a lot of lobbies, a lot of lobbyists, and a lot of power. And there’s very little bidding on drugs. We’re the largest buyer of drugs in the world, and yet we don’t bid properly. And we’re going to start bidding and were going to save billions of dollars over a period of time.” [quoted in “ Trump on drug prices: Pharma companies are ‘getting away with murder’.”Carolyn Johnson, Washington Post, January 11, 2017 at https://www.washingtonpost.com/news/wonk/wp/2017/01/11/trump-on-drug-prices-pharma-companies-are-getting-away-with-murder/?utm_term=.7b850f9a1b55]
Then, he went ahead and met with executives from those large pharmaceutical companies and immediately seemed to reverse himself. Here is what he said after that meeting
“I’ll oppose anything that makes it harder for smaller, younger companies to take the risk of bringing their product to a vibrantly competitive market. That includes price-fixing by the biggest dog in the market, Medicare, which is what’s happening.”
[For details on the flip flop see: http://www.chicagotribune.com/business/ct-trump-drug-costs-20170202-story.html and http://nymag.com/daily/intelligencer/2017/01/trump-seems-to-flip-flop-on-drug-prices-after-pharma-meeting.html.]
There are a number of important “tells” in this quote. First, let us note his reference to “smaller, younger companies…” This is a favorite line of businesses and business lobbyists. It conjures up the young Steve Jobs in his garage starting Apple with just an idea and pluck and effort. However, the main beneficiaries of the government’s largesse with the pharmaceutical industry are giant well established multi-billion dollar corporations.
The next line is that these companies “take the risk of bringing their product to a vibrantly competitive market.” There is nothing “competitive” about the market for prescription drugs. By taking out a patent on any new drug, these companies have a government guaranteed monopoly during which time they can charge as high a price as they want. The argument that these monopoly profits are the only incentive available given the long period of research the companies have to do in order to develop new drugs has been effectively rebutted by a book now over ten years old – Merrill Goozner’s The $800 Million Pill, The Truth behind the Cost of New Drugs (University of California Press, 2005). Much drug research is already financed by the federal government and because of the existence of patent laws, much research is copy-cat research to find a pill that does the same thing as an existing drug but is chemically different enough to warrant its own patent. There are many alternative ways incentivize new research without granting multi-year monopolies.
Next we turn to the words “price fixing.” Over ten years ago, in a commentary -- I quoted from a Senator who claimed that giving Medicare the right to directly negotiate drug prices was “price fixing.”
Medicare with its 57 million strong membership would definitely be in a strong position to bargain over the prices it pays, if it were allowed to. It is rather interesting that Walmart’s model of how to get low prices to its customers is celebrated. How does Walmart do it? It bargains with its suppliers. Has anyone ever accused Walmart of “price fixing?” However, if a government entity were to do it, that would be price fixing.
Donald Trump, apparently persuaded by the last people he spoke with, parroted their lines. He called the pharmaceutical industry competitive – worried about the high costs for new small “young” companies as they developed new drugs – and promised to do nothing that smacked of “price fixing.”
Buyers negotiating discounts for high volume purchases is a well-known practice that students learn about in principles of economics courses. It is not the same as price fixing (as when a public service commission tells a Utility the price it may charge for electricity.) and no repetition by Donald Trump of the talking points from pharmaceutical executives will change that.
Just to muddy the waters even more, the same day that the flip flop was reported, January 31, the White House released a statement that Trump was still in favor of negotiating drug prices with Big Pharma. Here is it: https://www.whitehouse.gov/the-press-office/2017/01/31/president-trump-works-make-drugs-more-affordable-create-jobs
If we take that press release as a commitment to figure out a way to negotiate drug prices down – what Trump was promising on January 11 – and couple it with Trump’s flip flop after meeting with the executives, we have a situation where Trump is no longer lying about what he believes and/or what he will do. He is instead promising two diametrically opposed policies.
As always, it is essential that we citizens try not to be distracted by the shiny objects before us. We can dissect Trump’s tweets for lies. We can be angered by his outrageous statements indicating his contempt for American democracy. We can gnash our teeth at examples of his extreme ignorance (one of my favorites is his question to General Flynn as to whether it was better for the US dollar to be strong (expensive in terms of Euros or British Pounds which means American tourists can travel overseas on the cheap and American companies can buy foreign assets cheaply) or weak (cheap to foreigners so US exports are more competitive overseas). But if we do, we will be taking our eyes of the ball. Those atrocities Trump commits daily are not the most important things going on in the US government today – in fact if Trump were smart enough, he might be doing all of that on purpose so we wouldn’t focus on the crucial issues.
We citizens have to recognize what is going on away from shiny objects on TV every night. During the Presidential election campaign, House Speaker Paul Ryan predicted that, despite the obvious distaste he personally felt for Trump, the election of Trump would give the Republicans their best shot at achieving the domestic agenda that had been stymied by the eight years of the Obama Presidency. That policy includes continuing to prohibit Medicare from negotiating over drug prices as they turn the entire Medicare benefit into a voucher program. The new head of Health and Human Services, Tom Price, is certainly going to oppose anything that reduces the incomes of members of the medical complex. His entire career both personally and politically was to make sure that high earning medical professionals and institutions get even richer.
Let us remember other cabinet appointments --- We have Scott Pruitt a climate denier to head the EPA. --- Andrew Puzder, a man opposed to unions and the minimum wage to head the Labor Department, --- Jefferson Sessions, a man opposed to Civil Rights and in favor of Voter Suppression to be Attorney General, --- and finally Elizabeth DeVos, a woman who has dedicated her life and inherited fortune to undermining public education, as Secretary of Education. These appointments and policy actions down the road are what we must focus on.
Trump got a lot of support from ordinary Americans by promising to “drain the swamp” in Washington where there was a revolving door of government officials in and out of the businesses they were previously regulating. Checking out his cabinet – those confirmed and those just nominated --- we see that far from draining the swamp his nominations represent an introduction of a whole generation of alligators.
Yes, there was some populist sounding rhetoric during the campaign. However, since taking office it appears that Speaker Paul Ryan’s gamble is paying off. Donald Trump is emerging as a rubber stamp for the Republican led effort to roll back, not just Lyndon Johnson’s Great Society – with privatizing Medicare and voter suppression among the most dramatic examples -- but Franklin Roosevelt’s New Deal as well.
ADDENDUM: February 14, 2017
A case in point of a “shiny object” which should not divert us is the resignation of General Michael Flynn. Yes, there is the troubling issue of some kind of Russian connection in both the Trump campaign and the Trump Administration. And, yes, it is good that the dangerous Michael Flynn will no longer be making national security policy for the United States. But the weakening of Trump’s ability to conduct a quixotic “pro-Russian” foreign policy actually helps strengthen the more dangerous aspects of the Trump Administration --- namely Paul Ryan’s Congress and the various Cabinet Secretaries. Trump promised during the campaign to protect Social Security, Medicare and Medicaid. He will not be able to stand up to Paul Ryan’s Congress which wants to change Medicaid to block grants and privatize Medicare and Social Security if he needs them to back off from investigating his entanglement with Russia. Similarly, when Trump’s HHS Secretary supports immediate repeal of the Affordable Care Act with a “replacement” that is a sham, Trump will go along. When his Education Secretary takes steps to further drain federal money from public schools he will go along. His populist rhetoric – which arguably is what got him the votes of many (white) working people in rust belt states – will fade away as he clings to power at the pleasure of a Republican Congress emboldened by the weakness he has shown. The rest of us need to focus our outrage not on the latest Trump atrocity but on the actual policies that will come at us from Congress and the various cabinet secretaries.
Michael Meeropol is professor emeritus of Economics at Western New England University. He is the author (with Howard Sherman) of Principles of Macroeconomics: Activist vs. Austerity Policies.
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