I often disagree with Donald Trump on policy, but not on his drug price reform proposals
I am a Republican, but Donald Trump and I seemingly agree on very few things these days. But I am here to tell you that Donald Trump is exactly right on drug prices and his recent executive orders could be seminal events for drug price reform and healthcare reform more broadly in America.
Over the past many months, I have been writing about what I think are Trump’s populist credentials to be a leading reformer on drug pricing. I predicted that he would be bold. And by any measure, he has been.
In my April 21 blog, I praised Trump for his initial executive order on drug price reform. It was clearly well thought out and comprehensive. It showed a sophisticated and nuanced understanding of how drug markets work — or don’t work if you want to be technical about it. It covered the arcane subjects of patents, pay for delay, and Orange Book reform.
The latest drug executive order
Now, President Trump has come back with another drug pricing executive order specifically seeking to implement the strictest form of international reference pricing (IRP) known as most favored nation (MFN) status pricing. In short, Americans would receive the lowest price for a drug offered anywhere in the world (I assume in the developed world). What’s more, it appears that the proposal would be for all Americans – across Medicaid, Medicare, and commercial products. Trump said in a social media post that savings would be 30% to 80%. He later refined that range to an average of 59%. Trump said that the most expensive drugs would perhaps be attacked first.
A seminal event?
Why is this a major event? Because Americans pay many folds more (on average more than three times even on a net basis) for drugs than their counterparts in other developed nations. This leads to Americans pill-splitting or not filling drugs altogether. It exacerbates chronic disease states. Now a lot goes into overall healthcare costs and morbidity in the United States, but drug price and affordability play a big role.
I was a supporter of the Inflation Reduction Act’s Medicare drug price negotiations. That was odd for a Republican. But I viewed it as at least an incremental step toward alleviating high prices. The inflation caps in the law have helped with affordability by capping annual increases and requiring rebates to the government and lower cost-sharing for Medicare beneficiaries. I also supported the core negotiation provision, which began in 2024 for the initial set of ten drugs in 2026. Only modest concessions were logged – an average 22% reduction in the net price. This will still leave Americans paying many folds more. The small savings in year one is perhaps understandable, but the arcane and labyrinthine process will mean Americans wait years for true relief.
So that is where Trump steps in. His MFN proposal builds on a rule he attempted to implement for Medicare Part B medical drugs back in Trump 45. It was eventually rescinded by the Biden administration after being struck in court. While the idea was good, it did have many implementation challenges. At the time, Trump said he wanted to do the same for Part D retail drugs. Big Pharma panicked when the Part B proposal was made in late 2020. Brand makers were invited by Trump to offer an alternative and they came back with savings of over $100 billion over a decade. Trump viewed the proposal as miserly — it was; the IRA will save more than twice that in the same timeframe — but it showed how vulnerable Big Pharma really is.
A popular (populist) move
Consider what Trump and the administration pointed out and declared in announcing the initiative via two fact sheets/press releases:
“The United States has less than five percent of the world’s population and yet funds around three quarters of global pharmaceutical profits. This egregious imbalance is orchestrated through a purposeful scheme in which drug manufacturers deeply discount their products to access foreign markets and subsidize that decrease through enormously high prices in the United States.
The United States has for too long turned its back on Americans, who unwittingly sponsor both drug manufacturers and other countries. These entities today rely on price markups on American consumers, generous public subsidies for research and development primarily through the National Institutes of Health, and robust public financing of prescription drug consumption through Federal and State healthcare programs. Drug manufacturers, rather than seeking to equalize evident price discrimination, agree to other countries’ demands for low prices, and simultaneously fight against the ability for public and private payers in the United States to negotiate the best prices for patients. The inflated prices in the United States fuel global innovation while foreign health systems get a free ride.
This abuse of Americans’ generosity, who deserve low-cost pharmaceuticals on the same terms as other developed nations, must end. Americans will no longer be forced to pay almost three times more for the exact same medicines, often made in the exact same factories. As the largest purchaser of pharmaceuticals, Americans should get the best deal.”
Three quarters of profits. Purposeful scheme. Americans sponsor drug makers and other countries. The U.S. fuels global innovation yet pay the most. Foreign health systems get a free ride. Prices there are too low. Abuse of Americans’ generosity. Americans should get the best deal.
Trump’s proposal has a distinct populist appeal. It is something the American public can understand and get behind. It is simpler than the Biden IRA law and resonates with consumers.
Big Pharma attacks
Big Pharma immediately attacked the proposal, arguing that it will cost brand drug makers $1 trillion over a decade. But in many ways that figure supports Trump’s argument that Americans subsidize multinational brand drug makers’ pockets. Remember, up to 75% of their profits come from America.
Trump also had good answers to some other Big Pharma talking points. When asked about price controls, the White House argued the policy is just designed to fix the market and give price relief to the American people. Other countries will be expected to pay more and contribute to research and development. Trump correctly notes that drug makers’ arguments on R&D and innovation have turned out to be false narratives.
What does the order do?
First, the order says that the administration will report on the MFN prices for drugs within 30 days.
Second, it expects significant progress over the next few months in terms of concessions from drug makers and that they will pay the MFN price of each drug.
Third, if that does not occur, the government will take a number of steps, including issuing a rule implementing MFN and taking other aggressive measures to significantly reduce the cost of prescription drugs and end anticompetitive practices. This would include expanding importation and reimportation to begin to reduce costs.
Fourth, the order also raises the prospect that trade officials will investigate and take enforcement steps if they find that:
- Foreign countries are engaged in purposefully and unfairly undercutting market prices and thereby driving up prices in America.
- Americans are paying a disproportionate amount of global pharmaceutical research and development, including by suppressing the price of pharmaceutical products below fair market value in foreign countries.
Fifth, the order contemplates a system will be set up where Americans can buy direct-to-consumer from manufacturers. This could throw out the whole gross vs. net system, where rebates play an unseemly role between brand drug makers and pharmacy benefits managers and have historically disadvantaged the consumer, government prorgams, and employers.
The complications
As much as I support what the president is doing, there are some major issues and barriers.
- Lawsuits will be filed by Big Pharma on numerous fronts; most of them dubious, but some of them centered on Trump’s executive authority to rewrite drug pricing rules throughout the nation. Let’s say Big Pharma does not negotiate away enough in the next few months, these suits become key in drug makers’ defense of the ugly status quo. In a post-Chevron world, it is doubtful that the administration can implement such a far-reaching rule administratively. It was dubious the executive branch had the authority even in Medicare under Trump 45. It is even more doubtful for self-insured employer coverage and other commercial products. Indeed, the Medicaid rebate laws and IRA Medicare drug negotiations are clear examples of the legislative branch having cognizance over such issues.
- It also may be suspect that trade officials have the authority to force price changes.
- Threatening other imports if countries continue artificially low prices would further complicate tariff issues.
- Importation and reimportation would be messy and complex. Consider Canada’s reaction to existing waiver authority in place for some states.
- An IRP MFN system is not perfect. There are deliberate choices that need to be made on access to drugs and low price. I believe most European nations have found ways to ensure life-saving drugs are available for a low price, but this is not always the case. There are some challenges when it comes to the most expensive cancer drugs as an example. And there are differences between the theoretical availability of new treatments between America and other developed nations.
- Drug makers argue that other developed economies have stronger negotiation positions given their centralized healthcare systems. Perhaps, but so much more goes into Big Pharma’s soaking Americans, employers, and government programs.
- Other opponents argue that drug makers simply could adopt a list/rebate/net approach in other countries to get around the MFN target in America. I suppose so. Big Pharma has been scheming alone and with others to defraud the public, other healthcare entities, the government, and employers.
Will Congress act?
Ultimately, Congress will implement many of Trump’s initiatives to reform the drug channel and bring transparency. What comes of MFN pricing is unknown, however. You see my party has been doing the bidding of Big Pharma for years. They have been the bulwark against radical drug pricing changes save for the IRA’s Medicare provisions. Most GOP lawmakers tend to be willing lap dogs for brand makers.
Many of these lawmakers fail to even study the drug system in the United States. Their position is knee-jerk — “this is price control and we should not interfere in the free market!” But the drug market is not a free market and there are great examples of Republicans like Teddy Roosevelt standing up against cartels, monopolies, and oligopolies. Their position, too, is influenced by sinister campaign money. In 2024, Big Pharma and related groups spent almost $300 million on lobbying. Most studies put them Number 1.
But times could be changing. Two senators, conservative Josh Hawley, R-MO, and progressive Peter Welch, D-VT, have introduced legislation to lower prescription drug prices. The bill would prohibit pharmaceutical companies from selling drugs in the U.S. at prices higher than the international average. This is IRP. Sen. Bernie Sanders, I-VT also is a long-time champion of lowering drug prices. At a recent hearing, Health and Human Services (HHS) Secretary Robert F. Kennedy Jr. told Sanders he would be willing to work with the senator on IRP and MFN.
Further, more and more, populism and anti-corporate welfare is taking over the GOP. The traditional business focus is taking a back seat. Reportedly, the GOP leadership pushed back on Trump’s proposal to make MFN part of the budget reconciliation package. But how long can the party hold this position given public sentiment about drug prices and Trump’s initiative (if he stays focused and does not lose interest — a big if given his past behavior)?
Trump should push on
Regardless of major roadblocks, Trump should push on here. The public policy debate is critical and I think Trump can build some legislative consensus on the issue. Hawley’s openness is telling in the GOP caucus.
Yes, part of the order has a series of proposals and threats that might be labeled extortion. We see this approach in other Trump policy announcements, too. But in this case, it may be called for. Is there any doubt that brand drug makers have been extorting the American people for decades.
And yes, politicians have failed to act and they deserve blame, especially in my party. But this cannot go on. The pill-splitting, the fear of approaching the pharmacy counter, the emergency room visits, and the premature death and morbidity need to end.
Trump is right to seize the day on this issue and prod, mold, cajole, threaten, and even extort change. Biden attempted to break the juggernaut with the IRA and that was a good reform. Trump’s MFN proposal or some other approach or major Big Pharma concession short of that would be more progress in bringing sanity to the drug market. Anything that comes out of the saga will be better than we have now. As I noted, when Trump was less serious on drug price reform, Big Pharma put over $100 billion in 10-year savings on the table. Imagine what they might do now in the face of the recent proposal, growing bipartisan support for reform, and the rise of populism in the GOP.
At core, there is no reason why private healthcare in America could not leverage a national drug net price list across lines of business. Indeed, it might also adopt a national or regional price list on other medical services across lines of business. If we were to establish standardized drug pricing and national or regional medical pricing, we would see a lowering of the cost of care and administrative costs. Private health plans would then innovate and compete on quality outcomes, benefit design, and member satisfaction.
While drug makers and academic critics of Trump argue the U.S. drug price system is fundamentally different than others and therefore an IRP MFN proposal will fail, we do have clear examples of such coordinated and centralized price-setting: (1) The retrospective national rebate law in Medicaid; (2) the new Medicare drug price negotiations law rolling out; and (3) various federal drug discount programs such as the federal supply schedule (FSS) and 340B. It is important to note that the first two of these are bigger than some nations’ total drug spend. And there is no reason we cannot find ways to police against the inevitable skuldugerry and scheming of Big Pharma in other countries to undermine the lowest-price concept.
And back to the issue of the pros and the cons of IRP and MFN. In America, the healthcare system affords those with strong insurance and/or those who are well-heeled access to any drug. But the majority of Americans face the grim prospect of not being able to access many drugs because prices are so prohibitive. Chronic disease costs and outcomes would immediately benefit from lower prices. And to answer critics regarding the difference in new treatment availability between America and other nations, I think we can craft a middle ground that ensures wider access and affordability. At any rate, it is hard to argue that the American status quo is better than even some compromises on access and new treatment availability. America’s much lower healthcare outcomes prove this.
So, Trump should drag his party kicking and screaming to enact as much drug price reform as possible. Any change would be positive for everyday Americans. It would also be a major reform for our beleaguered healthcare system. It could also ignite price reform in other areas.
And while I have issues with the president’s extortive and extreme approaches on some public policy issues, call me hypocritical but in this case I like the no-holds-barred, mixed-martial-arts Donald Trump on drug price reform.
#brandrugmakers #trump #congress #drugpricing #ira
— Marc S. Ryan
