Member Article

A recent report published by the White House Council of Economic Advisers (“CEA”) on drug pricing in the United States of America has put the cost of medicine and the access thereto by the poor, firmly back in the spotlight. And on a global scale.

In the CEA report, President Donald Trump’s administration argues that the USA pays higher prices for pharmaceuticals because other developed countries have systems in place to actively force down drug pricing. Some countries even force negative pricing on pharmaceutical manufacturers meaning that certain drug prices are adjusted downward each year, irrespective of increased input costs.

The argument from the CEA, as we understand it, goes like this: pharmaceutical companies charge high prices and achieve high margins on sales to support the massively expensive research and development activities to discover new drugs; the US, which has no real form of universal healthcare, basically rely on free market principles to regulate the pricing of its medicine; other developed countries, particularly those with strong forms of universal healthcare, use the economies of scale and its bargaining power of a central (government) purchaser to negotiate lower drug prices; this means that, in the opinion of the Trump Administration, the US taxpayer and patients need to make up the shortfall to ensure enough funds remain available for the R&D activities.

The report states that:

“…Lower prices obtained by single-payer systems have the effect of undermining the original purpose of patent policy for prescription drugs: creating a strong financial incentive for innovative R&D…”

The report uses emotive language to describe the above, referring to these counties as “free-riders”, stating that:

“…Stringent government underpricing in foreign countries has substantially increased foreign free-riding on the United States...” .

Some examples from the report mention that the UK pays a mere 34% of US prices, while Canada (35%), France (42%) and Germany (43%) all make an appearance.

On its face, the findings of this report appear to be driven towards maintaining pharmaceutical industry margins and presumably the associated tax benefits for the US. To complicate matters, President Trump has recently stated his support for certain interventions aimed at lowering drug prices in the US, even voicing his support for a bipartisan bill aimed to achieve this.

Making pharmaceuticals is an expensive business. Developing new drugs even more so.