"We are not allowed to negotiate drug prices. Can you believe it? We pay about $300 billion more than we are supposed to, than if we negotiated the price. So there's $300 billion on day one we solve."
Donald Trump, remarks at Plymouth State University, Holderness, N.H., Feb. 7, 2016
"So I said to myself wow, let me do some numbers. If we competitively bid drugs in the United States, we can save as much as $300 billion a year."
Trump, remarks in Manchester, N.H., Feb. 8
Reining in the cost of prescription drugs has become a major issue in the 2016 presidential campaign.
Both former secretary of state Hillary Clinton and Sen. Bernie Sanders, D-Vt., have proposed detailed plans to control prescription-drug prices, with both calling for Medicare to negotiate directly with prescription-drug companies to get lower prices - something currently prohibited by law. Republican candidates have also decried high prescription-drug costs, though generally their policy proposals have been thinner.
Developer Donald Trump may be the Republican front-runner but, like the Democrats, he also says he wants to allow Medicare to negotiate directly with drug companies. In fact, he makes the bold claim that he would save $300 billion a year. Is this even remotely possible?
To put Trump's $300-billion-a-year claim in perspective, let's first note that Sanders cites a 2013 estimate from the Center for Economic and Policy Research that negotiated drug prices would result in savings to Medicare of between $230 billion to $541 billion over 10 years.
So for virtually the same policy, Sanders is claiming savings averaging $38 billion a year - and Trump is promising a figure eight times larger. (Clinton offers no estimated savings.)
What's going on here? It's unclear, because as usual the Trump campaign refuses to respond to any queries about Trump's numbers.
CEPR based its estimates by comparing the per capita cost of drugs in the United States with the costs in Canada (which pays about 70 cents for each dollar spent in the United States) and Denmark (35 cents). CEPR then applied the difference to the anticipated costs of Medicare's prescription drug program between 2013 to 2021. Thus Canada represents the low range of the estimated saving ($230 billion over 10 years) and Denmark the high end ($541 billion over 10 years).
Why would these numbers be so much lower than Trump's estimate? Well, for one thing, total spending in Medicare Part D (prescription drugs) in 2014 was $78 billion. So Trump, in effect, is claiming to save $300 billion a year on a $78 billion program. That's like turning water into wine.
It's possible that Trump is being sloppy and when he discusses Medicare, he really means to say he would force government-led pricing on all prescription drugs. But the numbers don't add up that way either.
In fact, depending on the source you consult, total annual spending on prescription drugs in the United States is between $298 billion a year to $423 billion. So that would mean Trump is claiming that he can eliminate virtually any cost to prescription drugs. It would suddenly be free!
We should note that Sanders says that his single-payer plan would result in annual drug savings of $241 billion a year, a figure that was reduced after Vox pointed out that his original estimate would result in negative drug costs. At least Sanders responded to criticism.
Sanders' broader plan is for overhauling the entire health-care system to a government-run model. Warren Gunnels, his senior policy adviser, says Sanders also would eventually set up a system under which the government buys patents from drug companies as soon as new drugs are produced, so generic brands can be immediately produced.
As far as we know, Trump has not said he would impose such radical changes on the health-care system. He just pledges to replace the Affordable Care Act with "something terrific."
Whether the government bargaining for Medicare drugs would even yield savings of $38 billion a year is certainly debatable. There could also be unintended consequences. Kenneth Thorpe, chairman of health policy at Emory University's School of Public Health, says that the United States currently subsidizes the world's drug research, since European and Canadian price controls have discouraged investment and research. He worries a similar system would lead to less innovation.
Dean Baker, who wrote CEPR's report, disputes that analysis. "Much of the research now being undertaken goes to developing copycat drugs," he said. "If drug prices were structured so that a breakthrough drug carried a high price and copycats were priced much lower, we would see far less research of copy cat drugs, but possibly the same or more of breakthrough drugs. . . . As an economist, I find it utterly absurd that we are paying thousands of dollars for drugs that might sell for $10 or $20 a prescription in a free market."
Baker agreed, however: "Clearly the Trump numbers do not make much sense."
Once again, we are confronted with a nonsense figure from the mouth of Donald Trump. He is either claiming to save four times the entire cost of the Medicare prescription drug system - or he is claiming to make prescription drugs free for every American. Neither is possible.