Drug companies get tax windfall, but they're not reducing prescription prices Drug company tax windfalls offer a chance to help Donald Trump keep his campaign promises to reduce prescription prices. But so far shareholders are getting the money.

Andy Slavitt | Opinion columnist

Drug prices are a top pocketbook issue for Americans. President Trump understood that and campaigned on promises to bring down the cost of prescriptions. You’d think the massive tax cut he signed into law in December would be the perfect opportunity for drug companies to take some of their windfall and bring down those prices. But a new analysis shows that so far, you'd be wrong.

Not being able to afford medication is unlike wrestling with any other expense. Our lives are governed by our chronic conditions, from diabetes and high blood pressure to depression and many forms of cancer. For most of us, the quality of our lives — and our longevity — depend on prescriptions to manage these conditions.

As many as one in four Americans report difficulty paying for their medicine. When the price goes up, their illnesses go unmanaged. Drug companies know this, of course, but have been sticking to business as usual. Since Trump took office in January 2017, the prices of over 2,500 drugs have increased by at least double digits and almost 40 have increased by triple digits or more, according to the new analysis released by Sen. Cory Booker, D-N.J.

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Booker’s office examined the 10 largest U.S. based pharmaceutical companies — Pfizer, Merck, Johnson & Johnson, Gilead, AbbVie, Amgen, Bristol-Myers Squibb, Eli Lilly, Celgene and Mylan — and how they plan to use their tax windfalls. The study, based on 4th quarter earnings calls, press releases and public statements, shows that in its early days, the new tax law has been almost entirely a boon to shareholders. Five drug companies alone have announced $45 billion in stock buybacks — accounting for 21% of the largest stock buybacks announced this year.

Like other companies, drug companies saw a permanent tax rate cut from 35% to 21%. But they also benefited disproportionately from the significant reduction in the taxes on repatriating foreign cash held overseas. Five of the top 10 companies on the S&P 500 with the most overseas cash in 2016 were pharmaceutical companies.

So these companies reaped major windfalls from the new tax law and they could be spending it any way they want — keeping it for shareholders, reinvesting in research and development or, in a rare opportunity to help consumers without hurting shareholders, reversing this trend of constant price increases. The quickest way to reward shareholders is to announce stock buybacks, and for the most part that’s what they did.

What about drug prices? Booker’s analysis suggests that nothing has been done. None of the 10 companies said they planned to make any pricing reduction announcements in the wake of the tax law. In fact, drug prices continue to climb. One survey of pricing data showed 116 price increases by Pfizer alone. Pfizer’s CEO, Ian Read, told shareholders on their most recent earnings call, “I don’t see that the pricing risk has dramatically changed from where it was 10 years ago or five years ago.”

The Booker study calls the stock buybacks a discouraging snapshot of a moment, and suggests the issue should be carefully monitored going forward. And drug companies, obviously, are not the only culprit. A Byzantine system of middlemen and rules to delay prevent competition are also part of the problem.

But no matter the cause, Americans by a wide margin say helping make drug prices more affordable is the single most important action government could take on health care. More than half now say that passing legislation to bring down the price of prescription drugs should be a “top priority” for Trump and Congress. This is not a fanciful idea. The U.S. is an outlier when it comes to controlling drug costs. We’re the only country among our economic peers that doesn’t regulate to make prescriptions more affordable.

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Trump clearly understands the political potency of this issue. “One of my greatest priorities is to reduce the price of prescription drugs,” he said in his first State of the Union Address. Over a year later, other than providing the drug companies with a tax windfall, nothing has changed. And most Americans don’t trust that his administration will take action.

Democrats have long viewed affordable access to medicine as a core economic justice issue and a strong message in a campaign. You can bet as election season gets nearer, we will start hearing more and more about drug prices from the Trump administration.

The reality is that drug companies have a political war chest that is the envy of the K Street lobbying industry. So Ian Read of Pfizer could be right: With single party control, talk of lower drug prices may be little more than rhetoric and prices may continue their unabated rise. Then again, drug prices may become a pocketbook issue as potent as gas prices were in the late 1970s — right before one of the last seismic political shifts.

Andy Slavitt, board chairman of United States of Care, ran Medicare, Medicaid and the Affordable Care Act during the Obama administration. Follow him on Twitter: @aslavitt