Tying U.S. Drug Prices To Foreign Markets Risks Innovation And Lives

Earlier this month, President Donald Trump signed what he called “one of the most consequential Executive Orders in our Country’s history.”

The order is essentially an updated version of his administration’s 2020 “Most Favored Nation” policy. It directs pharmaceutical companies to tie the U.S. prices of their drugs to the lower prices that other developed countries pay.

It certainly seems unfair that Americans pay more for drugs than foreigners. So the president’s insistence that drug companies offer Americans the best deal they provide worldwide has intuitive appeal.

But the economics behind this proposition are much more complicated. The higher prices that Americans pay for drugs cover a disproportionate share of the research and development efforts from which the entire world benefits.

Like it or not, we have become the world’s medicine chest. Pegging drug prices here to those in other countries would yield minimal savings for the United States and devastate funding for biomedical research. In the long run, pharmaceutical companies would develop fewer novel lifesaving drugs. And that would consign Americans and foreigners alike to undue suffering.

Other countries pay less for pharmaceuticals because their governments forcibly cap prices. If drug companies want to sell their wares within that country’s borders, they have to assent to the foreign government’s price.

That strategy has trade-offs. For starters, manufacturers prioritize markets where they can garner higher returns. So they tend to delay launching their drugs in countries with price controls.

Across the G20 group of middle- and upper-income nations, just 38% of new medicines launched between 2012 and 2021 were available as of October 2022.

In the United States, 85% of those novel drugs were available.

Even in our peer countries, foreign patients lack access. Just 61% of those drugs were available in Germany, 59% in the United Kingdom, 45% in Canada, and 34% in Australia.

One study found that European countries with their own versions of “most favored nation” policies experience delays of up to one year for new drugs. Such launch delays reduce life expectancy for patients in these countries.

Drug companies prioritize markets where they can charge higher prices—like the United States—because drug development is risky and expensive. It takes about $2.6 billion and more than a decade, on average, to bring a single new drug to market. And roughly 90% of drug candidates fail to gain approval.

The attractiveness of the U.S. market to drug makers has also resulted in significant benefits for our economy. Currently, two out of three new drugs are developed in the United States.

Where will that drug research go if the United States imports foreign price controls with a “most favored nation” policy? It will likely go to China—if it does not disappear entirely.

Already, the outlook for drug research in the United States is growing bleaker. The price controls established in Medicare by the Democrats’ 2022 Inflation Reduction Act are projected to result in the development of 139 fewer drugs by 2035.

That could include cures for rare cancers or Alzheimer’s. But even if the drugs that go undeveloped would simply offer moderate improvements on chronic diseases, sacrificing them is still too high a price to pay for potential short-term price reductions.

And about those “reductions.” Should the Trump administration successfully implement a most favored nation policy, drug companies are likely to respond by raising prices in other countries—or pulling them from the market there altogether.

According to a 2022 study by researchers from UCLA, Stanford, and France’s University of Toulouse Capitole, “reference pricing induces a substantial increase in the prices charged in reference countries but only a modest decrease in the prices charged in the US.”

Poorer countries are ill-equipped to handle higher prices. So Americans may save figurative pennies—while foreigners lose access to lifesaving drugs entirely.

There are better ways to lower drug prices in the United States.

Pharmacy benefit managers and other middlemen claim roughly half of every dollar spent on prescription drugs in this country. Congress and the administration can rein in their market-manipulating abuses that drive up prices for consumers.

The administration can also insist that other countries pay prices commensurate with the value of new medicines as a condition of striking trade agreements with the United States. Doing so would help ensure that foreign countries pick up a bigger share of the globe’s research and development tab.

The laws of economics are stubborn things. If the Trump administration really wants to do the most good for patients in the United States and worldwide, they’ll scrap this most favored nation order.