Bravo to President Trump for putting America First when it comes to paying for prescription drugs. The same way we’ve been played as patsies by NATO members failing to pay their fair share, or by China imposing huge tariffs on our exports while we welcome theirs, American consumers have been paying inflated prices for their prescriptions in order to subsidize consumers in Europe and beyond.
Past presidents and Congresses recognized this unfair scenario, and talked tough about changing it, but ultimately would always cave to the enormous pressure from the pharmaceutical Industry.
So why do pharmaceutical companies charge us more?
The simple answer is: because they can get away with it.
European nations place limits on how high prices can be set, and the insurance companies acquiesce, in large part because they know they can inflate the U.S. prices accordingly. It is the U.S. consumer who foots the bill for the pharmaceutical ads and the research and development that goes into the next breakthrough.
There is something inherently unfair about Europeans paying less for prescriptions due to their price controls, yet still being able to enjoy the benefits that come with the innovative new drugs paid for by the surcharge placed on the American consumer.
And the scenario is likely to continue unless and until someone says "stop."
President Trump just did.
A Brookings Institute study reported that:
- U.S. consumers spend roughly three times as much on drugs as their European counterparts. Sweden spends the least for pharmaceuticals per capita, at $351, while the U.S. spends the most at $1,011, according to the Commonwealth Fund.
- Even after accounting for higher U.S. incomes, Americans spend 90 percent more as a share of income.
- If American prices dropped to overseas levels, global profits would fall by $134 billion. Thus, 46 to 96 percent of global profits ($134 billion of global profits ranging from $139 to a $290 billion) can be attributed to higher prices in America.
- The United States market accounts for 64 percent of global profits.
- A European price increase would lead to $10 trillion in welfare gains for Americans over the next 50 years.
Meanwhile, the average annual cost of brand-name drugs has more than tripled over the course of a decade, jumping from $1868 in 2006 to $6798 in 2017, according to the AARP public policy Institute.
There are multiple reasons for these pricing discrepancies:
1.) European Nations Impose Price Controls on pharmaceuticals, while such government intervention in the US is foreboden.
2.) Europeans Also Ban Marketing costs being passed onto consumers, or ban ads altogether.
3.) Middlemen and Lack of Transparency.
The U.S. market utilizes middlemen between the producer and the consumer.
These intermediaries charge their own distribution fee, thereby bulking up the final retail price to the consumer.
As noted by journalist Beth Daley in her expose' in the academic magazine, The Conversation:
"When you pick up a drug at the pharmacy, you often don’t know what its real price is — that is established between the manufacturer and your insurer. You just pay the agreed-upon copay rate. Today, insurance companies rarely negotiate prices directly with drug manufacturers. Instead, most insurers work with pharmacy benefit managers, who negotiate rebates and discounts on the company’s behalf."
4.) Prohibitions on Competition.
Many of our institutions, including Medicare and Medicaid, are prohibited by law from negotiating prices. The Veterans Administration does have the ability. As a result, it pays 80% less for brand name drugs than Medicare Part D pays, according to a 2015 report by Carleton University in Ottawa, Ontario, and Public Citizen. On the other hand, Medicare and Medicaid, must cover almost any drug approved by the FDA, even if a cheaper, equally effective drug is available.
In the midst of the debate over crafting Medicare Part D in 2006, drug companies successfully pressured Congress to reject granting Medicare the authority to negotiate on the counterintuitive theory that it would somehow equate to price controls.
Earlier in his term, President Trump laid out a plan to tackle a number of these problems. Ironically, Trump was more aligned with Democrats in the House than the Republican Senate, which grinded the reforms to a halt. Trump’s plan included requirements that Medicare compare its prices to international costs, and that prescription ads include the price of the drug. It also suggested eliminating some rebates paid out by drug companies that obscure the price of drugs.
The executive order Trump unveiled last week contained four specific proposals:
One order would allow for the legal importation of cheaper prescription drugs from Canada and other countries.
A second order would require discounts from drug companies presently kept by middlemen to be passed on to patients
The third seeks to curb escalating insulin costs.
A fourth would require Medicare to purchase drugs at the same price that other countries pay.
He might want to add a fifth, which would tax pharmaceutical companies if they continue to discriminate against American consumers vis-a-vis purchasers of prescriptions in Europe.
It’s true that we don’t want to inhibit investment for the next big thing.
Pressuring Europeans to pay their fair share is the best way to level the playing field while still maintaining incentives for research and development.
At this point it’s too soon to know how effective these measures will be, but it’s enough to applaud the fact that someone is finally trying something to end the discriminatorily high prices imposed upon American consumers.
That’s what America First is all about.
Steve Levy, former New York state assemblyman, Suffolk County executive, and candidate for governor, is now a distinguished political pundit. Levy's commentary has been published in such media outlets as Washington Times, Washington Examiner, New York Post, Albany Times, Long Island Business News, and City & State Magazine. He hosted "The Steve Levy Radio Show" on Long Island News Radio, and is a frequent guest on high profile television and radio outlets. Few on the political scene possess Levy's diverse background. He's been both a legislator and executive, and served on both the state and local levels — as both a Democrat and Republican. Levy published "Bias in the Media," an analysis of his own experience, after switching parties, with the media's leftward slant. Levy is currently Executive Director of the Center for Cost Effective Government, a fiscally conservative think tank. He is also President of Common Sense Strategies, a political consulting firm. To learn more about his past work and upcoming appearances, visit www.stevelevy.info. Read Steve Levy's Reports — More Here.
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