Opinion

Keep America Great: Don't Import Price Controls

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Posted: Jul 23, 2020 12:51 PM
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Keep America Great: Don't Import Price Controls

Source: AP Photo/Rich Pedroncelli, File

The Trump administration is reportedly considering an executive order that'd tie U.S. drug prices to the price of medicines in other western countries, where treatments are considerably cheaper. Details are scarce, but the order -- which is intended to save American patients and taxpayers money -- could come as early as this week.

The administration has the right goal, but the wrong strategy.

Canadians and Europeans pay less for drugs because their governments impose socialist price controls on medicines. Those price caps have snuffed out much of the pharmaceutical R&D that used to take place in those countries. American labs now invent over half of the world's new drugs, while European nations create just a third of new medicines -- proportions that were almost exactly reversed in the 1970s, before Europe ratcheted up its price controls.

Essentially, Americans fund and create the world's most innovative drugs, while foreigners enjoy the fruits of our labor. As President Trump has repeatedly -- and correctly -- noted, this status quo is deeply unfair.

But copying other nations' price controls wouldn't end the freeloading. It'd merely jeopardize Americans' access to state-of-the-art drugs. A far better strategy would be to hold Europeans' feet to the fire during trade negotiations -- and force them to finally pay their fair share for the medicines that come from U.S. labs.

Drug development is enormously risky. The FDA approves barely one in 10 experimental medicines that enter clinical trials. After factoring in the nearly 90 percent failure rate, the total average cost of developing a new drug approaches $3 billion.

Investors and scientists are willing to roll the dice on these experimental medicines only because they know that a single blockbuster drug can yield billions in profits -- at least in America's comparatively free-market economy. In price-controlled Europe and Canada, the rewards are often too small to justify the risks. As a result, many potential treatments and cures never receive funding.

And if drugs are invented, they're often not available to European and Canadian patients, whose governments set such low reimbursements that companies don't bother entering those markets. Britons can access less than 75 percent of oncology treatments created anywhere in the world over the last 10 years. Our Canadian neighbors, meanwhile, have access to only half of these novel therapies.

Americans, on the other hand, have access to almost every one of those drugs.

Tying U.S. reimbursements to the artificially low prices paid in Europe and Canada would upend the entire risk calculus undergirding America's drug development industry. Price controls would prevent American innovators' from recouping their R&D costs. Unable to profit or break-even, investors will stop putting money towards new medicines. That means no cures for deadly diseases like Alzheimer's. And it means fewer vaccines and treatments in future pandemics.

Also consider the impact on American workers. The biopharmaceutical sector is a major jobs creator; it supports the livelihoods of more than 4 million Americans and contributes over $1 trillion to the U.S. economy. We can ill afford to cripple this vibrant industry -- especially in an economy still reeling from COVID-19.

Fighting socialism with socialism will backfire, with devastating consequences for American patients and workers.

But that doesn't mean we should do nothing. President Trump is right -- Americans can't continue to shoulder a disproportionate share of the global R&D burden. Americans shouldn't pay substantially more at the pharmacy than other patients around the world.

Instead, the best way forward involves an unprecedentedly strict crackdown on foreign freeloaders.

For example, the president could appoint a special negotiator in the U.S. Trade Representative's office, tasked with forcing foreign nations to fairly value our medicines. This negotiator can use the threat of tariffs on everything from sports cars to maple syrup to artisan cheese until the governments in countries like Germany, Canada, and France agree to value American medicines at a fair price.

Past administrations tolerated foreign freeloading for far too long. President Trump is uniquely positioned to stand up for Americans and stop this abuse -- by denying those countries access to our markets unless they stop devaluing U.S. medicines.

In doing so, he'd ensure that American scientists have more resources to combat today's most complicated diseases. And American patients wouldn't have to pay so much for each prescription.

President Trump is rightly taking aim at high drug costs. But price controls are the wrong ammo. Let's hope the administration shelves its rumored executive order and instead empowers the USTR to hammer foreign freeloaders.