The Trump administration's Council of Economic Advisors (CEA) headed by Kevin Hassett published a report in October of 2018 highlighting the substantial decline in drug prices because of new policies to approve more generic drugs.
The report cites free market entry and robust competition as a pathway to lower drug prices.
While drug prices have seen a decline reflected in consumer price indexes and other measurements, the CEA’s own analysis shows that the drug price decline doesn’t appear directly related to increased approval of generics.
The drug price decline began at the onset of the Trump administration in January of 2017: substantially before generic drug approvals had taken place and even further before those new drugs had made it to market.
Following the CEA report, stories in the Washington Post and Associated Press critiqued the CEA’s claims, with the Post noting that generic drug approvals started during the Obama administration.
While the Obama administration did begin approving generic drugs at a higher pace than before in 2015, the Trump administration has accelerated that process and prices have fallen the most in numerous decades.
But the Obama administration’s generic approvals didn’t seem to make a dent in prices through 2016. It was only with the beginning of the Trump administration that prices stopped increasing.
The CEA notes the effect of generic approval on drug costs compared to branded drugs, and generic drugs are commonly substantially cheaper than branded drugs.
But a branded drug needs at least two generic competitors to substantially reduce the average generic price, and then additional competitors only reduce the price modestly after that, according to analysis by the Food and Drug Administration.