President Trump is trying to make good on a campaign promise to ease the financial burden Americans face when paying for prescription drugs, but a leading policy expert says one Trump strategy is right on target while another could lead to disaster.
Americans pay the highest prices in the world for prescription drugs by a wide margin, and American Commitment President Phil Kerpen says it’s because other nations are taking advantage of us.
“Pretty much all of the other rich countries have some form of government price controls. So they set prices far lower what a market-clearing price would be through government policy,” said Kerpen, who says American pharmaceutical companies do not have the option of not dealing with those other nations.
“If you try to do that, the other country will typically just try to steal your patent and have a local company produce it without compensating you or compensating you even lower,” said Kerpen.
As a result, the Trump administration is pressuring developed nations to ease price controls on prescription medications through trade negotiations. Kerpen says Canada and Mexico are already on board with paying higher costs through the new trade deal that will soon replace the North American Free Trade Agreement.
Kerpen believes trade negotiations are the best way to address the problem and says the best argument for raising costs abroad is that the additional revenue will lead to more effective treatments for many ailments.
“If the other rich countries gave up their price controls, two things would happen. We would get a lot more new cures developed because we’d get a lot more research and development. There would be a lot more incentive to invest in it.
“The best research shows we’d get 10-13 new drugs per year if they loosen price controls in the other rich countries, but we’d also get lower prices in the U.S. through more competition,” said Kerpen.
The prices Americans pay for drugs provides the bulk of the funding for research and development. Kerpen says bringing a new drug to market costs $2.5 billion to $3 billion when factoring in the cost of compliance with government regulations and all the resources spent on drug projects that fail.
While pushing hard on the trade side, Health and Human Services Secretary Alex Azar is exploring price controls here in the U.S. Kerpen says Trump needs to abandon that effort or else innovation could be strangled.
“[It] feels good in the near term. We’re paying less. That seems good, but that would completely undermine the incentives for R&D in developing new cures. Instead of the rest of the world free-riding on us. There would be no one to free ride off of. There would be no place to earn a market return.
Listen to the full podcast to hear Kerpen’s full diagnosis of the high prescription drug costs we face and why he says the Trump administration must abandon the domestic price controls if it hopes to win trade concessions from developed nations.