With its commitment to free-market values, America produces more lifesaving medications than any country. In fact, more than half of all the drugs in the world were invented here. More investments are made, and more R&D is conducted.
Europe once stood alongside America and played a vital role in biotech innovation, but through overregulation, centralized planning and the imposition of stringent price controls, European governments have choked the life science industry out of the continent. It is not an accident that many European companies have fled to the United States, where innovation and long-term risk-taking are encouraged.
In many cases, this is the only way many European healthcare systems can stay afloat. For years, they have tied their price controls to “health-technology assessments” that value a year of human life at less than $40,000. These assessments chronically undervalue individuals with disabilities and certain illnesses. If such assessments were honest, they would have changed. Instead, the figure has not been adjusted for inflation.
European health-technology assessments are not based on science. They are reverse-engineered by state-run healthcare monopolies to justify artificially low prices.
Right now, the United States is paying for Europe’s mistakes. Yet, the problem would be worse if we actively participated in a failed system. Most Favored Nation (MFN) pricing, which was considered by the first Trump administration, promised to reduce costs by tying Medicare drug payment rates to prices set by European governments. Instead of reforming markets in the United States to make them more efficient, MFN copied the work of bureaucrats in Geneva, Brussels and Berlin. It also undermines the two primary reasons for America’s global dominance in life science — innovation and competition.
Even worse, it would embolden our most dangerous adversary. No one wants to see China become the new global leader in healthcare innovation. However, this is a delicate moment in history. If the United States effectively abdicates its leadership position, China can and will take our place.
Some think MFN drug pricing will compel companies in the United States to act in solidarity, demanding higher prices from the rest of the world. The MFN model, however, operates under the mistaken assumption that individual companies have leverage compared to foreign governments. This is not the case. In practice, such an action would violate European Union anti-competition law and potentially allow the companies’ patents to be revoked under Article 5 of the Paris Convention for the Protection of Industrial Property.
Yes, the push for MFN pricing is driven by good intentions, but we have gone down a similar path before with unfortunate results. The Inflation Reduction Act was a hodgepodge, a reconciliation bill that had little to do with reducing inflation. The Biden administration claimed that it would create “Medicare negotiation,” but in reality, it was a “Medicare ultimatum” that has raised premium costs, led to fewer Medicare plan options, and narrower pharmacy networks. Many pharmacies say they won’t participate in the program.
When the Trump administration proposed MFN pricing in 2020, the idea was opposed by free-market conservatives and biotech innovators. The time has come once again to put better ideas on the table. For example, the president should continue negotiating international trade agreements to pressure other governments to pay their fair share. The president pressured NATO members to spend more on the military and could take a similar approach with drug pricing. Furthermore, he could demand that health-technology assessments in other countries be raised to account for the value of the lives of individuals with disabilities and chronic diseases and adjusted for inflation in accordance with common sense.
On the domestic side, the administration should focus on Pharmacy Benefit Managers (PBMs), the “middlemen” in the prescription drug supply chain. PBMs have a role to play; for example, they negotiate discounts with manufacturers and pharmacies while helping provide medication access. Yet, they have been widely accused of driving up costs by placing their interests above those of patients. Trump attempted to advance PBM reform in 2020 through a regulatory proposal, only to have it be shelved by the Inflation Reduction Act.
Congress must work with the administration to get the bipartisan PBM bill over the goal line. Such efforts would be consequential and well-received.
Let’s not import failed European policies. Instead, we need to double down on investment, innovation and competition. We need to manufacture more and conduct more research and development. We need to keep finding cures for chronic and deadly diseases. If the United States leans on its strengths, other countries will benefit alongside us, not as freeloaders but as part of a wealthier, more productive, and, above all, healthier global community.
