Americans spend approximately 90 percent more for the medicines they use, as a percentage of income, than do citizens of the five largest European markets, according to a recent study by University of Southern California (USC) experts. This contributes to the high cost of health care in the United States and to chronic disparities in health outcomes. President Donald Trump on Friday unveiled a plan to tackle these high prescription-drug prices.
Its most provocative idea is its call to confront what Trump called “global freeloading” off of America’s pharmaceutical production and distribution. While framing the issue in characteristically incendiary terms, Trump is speaking the truth about it. Almost every other wealthy, developed country has a national health-care authority of some kind which negotiates drug prices on behalf of its population.
The authorities use that leverage, if not to “extort” U.S. drug makers as Trump put it, then certainly to prevent them from charging more to offset the high cost of developing drugs. Consequently, those costs are borne disproportionately by customers in America, where price controls are comparatively weak; the largest government health-care plan, Medicare, is statutorily forbidden to apply any.
The upshot, according to the study by USC health-policy researchers Dana Goldman and Darius Lakdawalla, is that the U.S. market accounts for 64 percent to 78 percent of global pharmaceutical profits.
If the United States were to adopt the playbook of its peer nations, and minimize prices, it would sacrifice some unknown, but probably significant, quantum of innovation: Today’s patients might benefit, but at the expense of future ones. If, on the other hand, the United States could persuade its trading partners to tilt their policies modestly in favor of higher prices, to stimulate innovation, they could help their future patients without unduly harming existing ones.
The optimum situation would be one in which both the United States and its trading partners moved somewhat toward the middle.
That can occur only through negotiation, and Trump announced that he will task U.S. Trade Representative Robert Lighthizer to start dealing with the issue immediately. Given that our trading partners have little incentive to change - why would anyone voluntarily quit “freeloading”? - the best way to make progress would be through broad negotiations in which the United States itself made compensating concessions in other areas.
Until Trump took office, there were two frameworks for such a discussion: the Trans-Pacific Partnership for Asia and Latin America, and the Transatlantic Trade and Investment Partnership for Europe. Trump rejected both, though he has at times hinted at reconsidering them.
Whether he realizes it or not, his speech Friday was full of reasons to do so.