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Trump’s plan to lower drug prices: raise them for everyone else on Earth

A man was driving down the highway when he got a call from his wife. “Be careful!” she said. “I just heard on the news that there’s some crazy person driving the wrong way down the highway.”

“One crazy person?” the man said, “There are hundreds of them!”
This joke was the first thing I thought of when I heard President Trump and HHS Secretary Alex Azar talking about “foreign free-loading” when announcing the administration’s plan to lower drug prices. According to the Trump administration, other countries are using “socialized healthcare to command unfairly low prices from U.S. drug makers.”

It seems crazy to look at the international disparities in drug prices, and think that foreign countries are the ones doing something wrong. How can you see that a vial of insulin costs $35 in Canada, $50 in Mexico, and $285 in the US – and conclude that they’re the ones paying an “unfair” price? It’s like thinking that hundreds of cars are going the wrong way on the highway.

It’s true that centralized price negotiations in other countries keep drug prices down, although countries like Germany and Australia that have multi-payer plans and private health insurance would likely object to the label “socialized health care.” But there is no evidence that the price paid in the US is closer to the “fair” price, or that raising prices in other countries would lower them in the US. Drug prices in the US don’t seem to be based on how much it costs to manufacture the drug, nor how much the drug is valued (if that can even really be measured). The price is just whatever the market will bear. Making other countries pay more for drugs would not lower the ceiling on what we will pay for drugs, or what companies will charge.

But this rhetoric of “foreign freeloading” makes a lot of sense for Trump. He has to address drug prices to fulfill his campaign promise, but not alienate the drug companies themselves by actually harming their profits. Blaming the problem on middlemen and other countries is a perfect loophole.

That’s not to say that all of the elements of Trump’s proposal are bad ideas. Eliminating the “gag clause” that prevents pharmacists from telling patients that paying out of pocket would be cheaper; allowing Medicare Part D plans to negotiate lower prices for certain drugs; removing barriers to get more generic drugs to market; and making pharmacy benefit managers fiduciaries could be helpful.

But as other health policy experts have pointed out, Trump’s plan is mostly based on lowering the cost of drugs for consumers, not lowering the list prices of drugs. List prices matter because even when consumer out-of-pocket costs go down, the amount per prescription paid by insurers may stay the same or go up, and that means we all pay more in the form of higher insurance premiums. (It’s the same reason why drug coupons can actually fuel higher costs.)

If we want to lower the amount we spend as patients and as a nation on drugs, we have to lower the list price, not just the cost to patients at the pharmacy. But that would negatively impact pharma profits, something that Trump, for all his previous promises and populist rhetoric, is not willing to do.

This piece was originally published on the Lown Institute website.

Written by Judith Garber

Judith Garber, MPP is the Health Policy and Communications Fellow at the Lown Institute. She joined in the fall of 2016, after receiving her Master of Public Policy degree from the Heller School of Social Policy. She previously worked at the Aspen Institute Financial Security Program, the Midas Collaborative, and Pearson Education. She has a BA in American Studies and Political Science from Rutgers University. In her free time, Judith enjoys playing competitive ultimate frisbee and performing in musical theater.