President Donald Trump gave American drug companies an ultimatum last month.
Either they agree to adopt foreign-style price controls, or the administration “will deploy every tool in [its] arsenal” to do it for them.
More specifically, the president asked drug firms to base U.S. drug prices for a given drug on the lowest price offered elsewhere in the developed world — a policy known as “most favored nation,” or MFN, pricing.
MFN was a disastrous idea when Trump first advanced it during his first term. It remains so today. The administration’s strong-armed tactics only make this situation worse.
It’s generally true that drug companies sell novel medicines at lower prices abroad than they do in the United States.
That’s because foreign countries cap drug prices at levels below what they’d be in a conventional market.
The effect is that Americans provide roughly 50% of global pharmaceutical sales revenue and thus underwrite most of the research and development that happens globally, from which people of every nation benefit. President Trump has referred to this reality as “global freeloading on American pharmaceutical innovation.”
Low prices abroad come with a huge cost.
Foreigners gain access to novel drugs many months after Americans do — if they ever do at all. American patients had access to 78% of new drugs launched between 2012 and 2021 within a year of their debut.
People in G20 developed countries had access to just 16%, on average, of those new drugs within a year of their launch.
Just 38% of drugs launched in that time frame were available in the G20 developed countries, on average, as of October 2022. Compare that to 85% in the United States.
The only sensible response to global freeloading is to get other countries to pay their fair share of the world’s pharmaceutical research and development tab — especially when the fruits of that work originate in the United States.
That’s not what Trump is doing. Instead, he is calling for importing the price controls that have led to reduced access to drugs abroad.
Should the United States join the league of nations with price controls on drugs, pharmaceutical revenue will plummet. Research budgets will contract.
And drug innovation, an area in which America leads the world, will slow considerably.
There are better ways to make drugs more affordable in the United States — ones that won’t gut the biopharmaceutical research ecosystem.
President Trump has expressed support for one of them — “cut[ting] out middlemen and sell[ing] medicines directly to patients.”
The middlemen Trump has in mind here are pharmacy benefit managers, or PBMs.
These firms work with insurance companies to determine, among other things, which drugs a health plan covers and how much patients have to pay out of pocket for them. Just three PBMs — CVS Caremark, Express Scripts, and Optum RX — control 80% of the U.S. pharmaceutical market.
For too long, PBMs have abused their position to “steer patients toward pricier drugs, charge steep markups on what would otherwise be inexpensive medicines and extract billions of dollars in hidden fees,” as a June New York Times investigation put it.
By allowing patients to sidestep the PBM cartel and purchase medicines directly from drug firms, Trump could help patients get a better deal on medicines.
Drug firms are already moving in this direction.
In recent months, pharmaceutical giants Pfizer, Lilly, and Novo Nordisk have made significant investments in direct-to-consumer platforms.
These portals can allow manufacturers to offer consumers a better price than they may get through their insurer.
The choice before the Trump administration is whether to move forward with drug price controls that will sap the pharmaceutical sector of resources, energy, and ingenuity — or whether it will work to build a freer market for prescription drugs.
He should scrap the former as exemplified by MFN — and embrace the latter.
Sally C. Pipes is President, CEO, and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her latest book is “The World’s Medicine Chest: How America Achieved Pharmaceutical Supremacy – and How to Keep It.” Follow her on X @sallypipes. Read Sally Pipes’ Reports — More Here.
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