Healthcare

Prescription Drug Prices Are Falling at Historic Levels Thanks to Trump Administration Policies

3 minute read

While the media continues to claim prescription drug prices are rising, a recent Council of Economic Advisers (CEA) paper shows the opposite: Under President Trump, prescription drug prices are decreasing at rates not seen since the 1960s.

In the eight years prior to President Trump’s inauguration, prescription drug prices increased by an average of 3.6 percent per year. Fast forward to today, and prescription drug prices have seen year-over-year declines in nine of the last ten months, with a 1.1 percent drop as of the most recent month. In June 2019, the United States saw the largest single-year drop (2.0 percent year-over-year decline) in prescription drug prices since 1967.

The media’s narrative about rising drug prices, while perhaps true for individual drugs or certain classes of drugs, is not true for general drug prices due to limitations in frequently cited reports. These misleading reports make broad claims even though they consider only narrow measures like list prices, brand name drugs, or drugs with recent price increases. Additionally, some reports use unknown methodologies (see the Appendix of CEA’s paper for more details about other reports’ flaws).

List prices do not reflect actual costs because drug manufacturers can increase list prices while simultaneously decreasing costs for insurers and consumers through discounts and rebates. Similarly, exclusively focusing on brand name drugs misses the cost savings equally effective generic drugs offer. And only measuring the average price of drugs that recently increased in price completely and conveniently ignores any drugs that had prices remain constant or decline.

To avoid these common mistakes and accurately measure average prescription drug prices, CEA relies on the prescription drug component of the Consumer Price Index (CPI-Rx), which is the best available measure of overall price changes for retail prescription drugs. The CPI-Rx and the broader CPI are produced by the Bureau of Labor Statistics, an independent government statistical agency, using fully transparent and extensively studied methods. Additionally, the broader CPI is a widely accepted measure of overall inflation. Even though CPI is the preferred method for measuring inflation, it still has some flaws. If anything, CPI-Rx overstates price growth because it does not fully capture the value that newer and more effective drugs provide patients. The current magnitude of this shortcoming is unknown, but it has previously been estimated to be as high as two percentage points per year.

Enhanced competition from generic drugs is an important factor behind falling prescription drug prices. Generic drug approvals reached a record high last year, due in part to FDA reforms, even though patents are expiring at a lower rate. Lower-cost generic versions of many brand name prescription drugs are widely available, and generic drug prices often decrease over time. Moving forward, additional generic drugs entering the market will continue putting downward pressure on drug prices.

Government data on prescription drug prices clearly show that the Trump Administration’s policies are helping drive historic, much-needed cost decreases. Lower prices mean American patients are better able to afford the medication they need, which should improve health outcomes. But there is more work to be done, and the Trump Administration is working on additional reforms to further lower prescription drug prices. As debates over making prescription drugs more affordable continue, it is critical that the public and policymakers understand what the most reliable data show.