When releasing his plan to reduce drug prices earlier this year, President Trump promised his administration would get tough on foreign price controls. Instead, the administration is proposing a rule that will adopt them.
Last week, Trump and Health and Human Services Secretary (HHS) Alex Azar announced the proposed creation of an “International Pricing Index.” This index injects foreign price controls into the payment system for Medicare Part B physician administered medicines.
Under the plan, a price control will be imposed on Part B medicines based on the price-controlled medicines in 16 other countries: Austria, Belgium, Canada, Czech Republic, Finland, France, Germany, Greece, Ireland, Italy, Japan, Portugal, Slovakia, Spain, Sweden and the United Kingdom.
Ironically, the administration identified the damage that foreign price controls have had over medical innovation in their “American Patients First” Blueprint:
“…foreign, developed nations, that can afford to pay for novel drugs, free-ride by setting drug prices at unfairly low levels, leaving American patients to pay for the innovation that foreign patients enjoy…. If the United States had adopted the centralized drug pricing policy in other developed nations twenty years ago, then the world may not have highly valuable treatments for diseases that required significant investment.”
Undoubtedly, this policy will harm U.S. competitiveness. The U.S. is currently a world leader in research & development with a majority of new medicines developed and launched in America. In addition to health benefits, this innovative environment also means more high-paying jobs and a stronger economy.
This advantage does not come from nowhere. It exists because the U.S. (usually) opts for free market policies that stand in stark contrast to the socialist policies utilized by most trading partners.
Typically, foreign developed countries impose extensive foreign price controls on medicines. While these policies lower the short term cost for drugs, they have the long-term cost of suppresing innovation, the creation of high-paying jobs, and the development of life-saving and life-improving medicines which make the healthcare system more efficient.
This disparity means that the America ends up paying a high price for these medicines — currently the U.S. pays as much as 70 percent of the costs of medicines, even though America is only one-third of the market.
Rather than having the U.S. adopt distortive price controls, as the administration’s International Pricing Index proposes, the solution should be having foreign countries pay their fair share.
If the U.S. adopts the same innovation destroying policies that exist in other countries, there will be fewer medicines developed in the U.S. and fewer medicines entering the market. This will result in worse health outcomes and will harm American jobs and investment. The Trump administration should reconsider this rule in place of policies that promote innovation and American competitiveness.