President Trump is attempting to reshape America’s biotech industry with two primary objectives. He wants more medicines to be made in the United States. And he wants to ensure American patients get the lowest prices in the world.
Those are smart, common-sense objectives that will be very difficult to achieve. One strategy is to cap U.S. drug prices at the lowest price charged for the same medicine in other developed countries.
Before adopting foreign price controls, the administration should first lower drug costs by eliminating price controls and market distortions in government-run healthcare, thereby reducing the government’s involvement in drug prices.
The hard truth is we already have a host of government-dictated drug price control programs that don’t work well, partly because big corporations have figured out how to game the system by rigging federal rules to their advantage. This is one reason drug costs are so expensive, and why drug costs could come down considerably if we freed markets from well-intentioned, but poorly performing, government programs.
The first strategy is to trim the fat from the U.S. drug pricing system by “bypassing middlemen” — a suggestion already made by the White House. These middlemen, especially large hospitals, intentionally inflate patient costs.
Hospitals abuse the federal 340B program to purchase medications at mandatory discounts and then resell them to vulnerable patients at substantial markups — 1,000 percent or more. A comparison of 340B hospital prices showed markups can exceed international prescription medicine prices by as much as 700 percent. These monies should be passed back directly to consumers to help lower health costs.
Second, 92 percent of Americans have health coverage where a government or insurance company determines what patients pay out-of-pocket for drugs. Consumer angst with insurers is well-documented, partly due to prices not being transparent, and patients pay cost-sharing for drugs at the marked-up, pre-negotiation price. A rising industry of transparent and pass-through pharmacy benefit managers is giving patients access to prices and negotiated discounts at the pharmacy counter. When patients in this program fill a prescription at a pharmacy, they know the cost, and the pharmacy charges the negotiated discounted price for the medication. The administration should create incentives for these pro-consumer models and require all insurers to disclose prices and hidden discounts to consumers transparently. Prices paid by patients could decrease by 50 percent or more, according to industry estimates.
The second focus for U.S. leaders should be boosting investments in American biotech research and manufacturing to encourage competition. Competition lowers price; it is economics 101. The recent announcement by the Food and Drug Administration to create a priority review voucher framework for expedited drug approval is a significant first step. It will accelerate treatments to market while prioritizing Americans’ health needs, and it supports the administration’s goal of increasing domestic manufacturing.
Investing in homegrown research, development and manufacturing will allow us to stay ahead of China, which adopted accelerated regulatory approval in 2016. The market capitalization of Chinese drug companies increased from $3 billion in 2016 to $380 billion in 2021, with seven of the world’s 10 largest IPOs. The rapidly advancing Chinese drug industry now produces one of every four new medicines. Shortsighted pricing mandates, on the other hand, would undermine domestic innovation and cede technological and economic dominance to our largest adversary.
Finally, reducing the input costs of developing new medicines will lower drug prices significantly. The administration and pharmaceutical industry have shown interest in increasing the use of artificial intelligence in developing new treatments. AI is already radically expediting the drug discovery process, improving clinical trials and drug safety, speeding regulatory approval, and strengthening the supply chain. A joint investment in a National Institutes of Health data center to discover and develop drugs faster and cheaper through AI could propel American innovation and keep us ahead of China. However, there must be buy-ins from both sides.
All told, these changes could reduce the prices patients pay by 60 percent to 80 percent, bringing us on par with other nations without the limited access that patients in other countries experience.
The president is correct that the status quo — in which American scientists invent the majority of the world’s drugs, yet American patients, employers and taxpayers pay relatively higher prices for brand-name drugs than other countries — is unfair.
The answer isn’t to let a foreign government dictate what we pay at the pharmacy counter. We must drive better trade deals with these countries, invest in America’s future through innovation, address those entities that take more than they give, and create an environment that promotes healthy competition.
With smart, targeted reforms, we can accelerate our position as the world’s foremost leader in biopharmaceutical innovation while making medicines more affordable for patients at home.