With New Drug Pricing Order, Trump Flirts with Socialism
By Merrill Matthews
President Trump's recent executive order on drug prices gets almost everything right -- except the solution.
It's true, as the order says, that "Americans pay more per capita for prescription drugs than residents of any other developed country." And it's unjust that Americans disproportionately "finance much of the biopharmaceutical innovation that the world depends on."
But it's not true that the order would fix these problems. It'd only further stack the deck against American patients.
The order would forbid Medicare from paying more for drugs than the lowest price available in any member country of Organisation for Economic Cooperation and Development, after adjusting for per capita income.
The order claims those nations enjoy low drug prices because they "negotiate" with pharmaceutical manufacturers. But what the order describes as a negotiation is more akin to a hostage-taking -- with their own citizens held to ransom. Bureaucrats in those nations' socialized medical systems simply refuse to cover drugs unless manufacturers sell the medicines for pennies on the dollar, far below fair-market prices.
In Canada, for example, just 46 percent of new drugs approved worldwide between 2011 and 2018 are available to patients. The average delay between approval and availability in Canada is 15 months.
Those are months -- and in some countries, years -- that patients go without access to treatments. Some drugs are never made available at all. Of the 98 new cancer medicines approved since 2011, nearly half remain unavailable in most OECD countries.
The U.S. government doesn't treat its people so callously. Medicare covers virtually every FDA-approved medicine, and it sets reimbursements based on prices in the commercial market. This market-based pricing ensures that doctors, not government gatekeepers, decide which drugs to prescribe.
It's a shame that the president has adopted the "if you can't beat 'em, join 'em" approach to foreign freeloading. Because he has already shown that holding other nations to a higher standard is possible.
When the president took office, he saw that our NATO allies were not paying their fair share toward the alliance's mutual defense. America of course, did not respond to this inequity by swearing we would only spend as much as our stingiest ally.
Instead, the president -- successfully -- exhorted our allies to increase their contributions to our mutual defense, which was in everyone's interest.
With medicines, too, our allies don't pull their weight, content to let U.S. patients and taxpayers carry the load. If Europeans paid 20 percent more for drug costs -- hardly closing the gap -- Americans and Europeans would gain a combined $17.5 trillion benefit in overall welfare over 50 years, according to an analysis from University of Southern California researchers.
New drugs -- which cost an average of $2.6 billion each to develop -- are paid for by the revenue from current treatments. If we cut that revenue stream, it'll lead to less R&D and fewer innovative treatments in the future.
When friends and allies engage in self-destructive behavior, the correct response is not to emulate their mistakes, but to help them choose a better path. Today, the majority of new drugs invented globally are invented in America. The president should keep it that way, and demand our allies fall into line.
Merrill Matthews is a resident scholar with the Institute for Policy Innovation in Dallas, Texas. Follow him on Twitter @MerrillMatthews. This piece originally ran in The Hill.
