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The United States spends far more on health care on a per capita basis than any other country in the world. There are many reasons for this, including health insurance companies. But one reason has been largely ignored: Foreign governments maintain pricing systems that limit payment for drugs. This gap has been narrowed in the United States, resulting in Americans covering a disproportionate share of the world’s drug costs.
These pharmaceutical pricing systems need to be exposed for what they are: trade distortions. And the Trump administration should treat these distortions the same way it would treat any other trade distortion: starting with an investigation of discriminatory measures, followed by remedies available under US trade law.
Countries such as Germany, France, and Japan impose government pricing mandates, mandatory rebates, and strict market controls, resulting in prices for drugs significantly lower than U.S. market prices. This puts manufacturers in trouble. They can either accept the punitive conditions established by these countries or move their products out of these countries.
HHS sec Robert F. Kennedy Jr.: American patients pay more so others can pay less – it’s now stopped
Disabled male patient sitting in a wheelchair being vaccinated by a female doctor at his home (iStock)
As anticipated, manufacturers accepted the terms, resulting in the United States bearing a large share of global research and development costs. Those costs are built into the prices paid by American patients.
Recent developments in Germany show how rapidly this dynamic is growing. In April, the German government put forward a comprehensive cost-control proposal. The plan would expand mandatory rebates tied to public insurance increases, tighten price-volume rules with automatic increases due to sales, and allow selective contracting across entire categories of patent drugs.
The practical effect is to further compress pricing and limit reimbursement to the lowest cost option within a category. Now France, Japan and Switzerland are also adopting similar approaches. This is a broader trend among major US trading partners, and the Americans will once again have the edge.
Countries that maintain these distorted pricing systems usually describe them as nothing more than domestic health care policy, designed to limit costs and promote budget discipline. But when governments impose price controls that are below the levels prevailing in a market-based system, they reduce the global revenues that support innovation. They also shift cost recovery to markets that do not impose those constraints. The United States has become that market.
These policies are similar to non-tariff trade barriers, and can be addressed through US trade legislation. There is one solution in particular.
Closeup of man pouring capsule from pill bottle into hand. Senior persons are taking medicines daily. Close-up of male hands taking daily dose of medicine. (iStock)
Section 301 of the 1974 Trade Act authorizes the United States to investigate and respond to foreign government practices that are unfair or discriminatory and that burden or restrict American commerce. It has been applied to a wide range of non-tariff barriers, including intellectual property regimes and digital services taxes. Pharmaceutical pricing systems that suppress global revenues, and shift costs onto US consumers, clearly fit within that framework and warrant formal examination.
Now is the time to consider pharmaceutical pricing as a core issue in trade negotiations. And the Trump administration is moving in that direction. The voluntary most-favoured nation pricing arrangement is intended to rebalance the amounts paid by US patients without imposing domestic price controls. The administration is reportedly considering Section 301 action, which suggests a growing desire to move beyond domestic enforcement alone. It can’t happen so soon.
America’s trading partners should be pressured to adopt a more balanced approach that reflects a fair distribution of pharmaceutical development costs. A Section 301 investigation will establish the evidence base necessary to pursue that outcome and signal that the status quo is no longer acceptable.
senior man holding medicine in palm (iStock)
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There is also widespread public support for the action. Recent polling shows that most Americans believe other countries should pay a fair share for drugs. That sentiment reflects a fundamental principle. A system in which one country continually subsidizes global innovation is not sustainable.
For decades, the United States has been a leader in pharmaceutical innovation, improving the lives of millions of people around the world. But there is no guarantee that this will continue. And that can’t happen if American companies are forced to subsidize innovation. Now is the time for the Trump Administration to use the tools available to strike a balance and help ensure that pharmaceutical innovation continues.
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