Sad but true…
Trump’s efforts respond to rising popular discontent and people’s sense that the companies have been reaping unusually high profits. In recent years, at least 10 states have enacted laws intended to lower drug prices.
“As a group, these companies were significantly more profitable than your typical S&P 500 company,” said Fred Ledley, a professor of science and management at Bentley University who has reviewed the financial statements for the 21 public companies whose drugs are subject to Medicare Price Negotiations. “What we have concluded is that you can cut these drug prices without harming these companies.”
But any efforts to reduce company revenue must overcome the political might of the pharmaceutical companies, which bring to bear one of the nation’s best-funded Washington lobbying machines. The companies argue that lowering prices will stifle research and allow Chinese companies to overtake those in the United States. They blame high prices on insurance middlemen and say that the answer is not to lower U.S. prices but to raise prices in other countries so that they pay their “fair share.”
Source: Trump claimed a win on drug prices, but Big Pharma also scored (WaPo)
and
As is often the case, the Trumpian diagnosis contains a kernel of truth. Drug prices are indeed higher in America than elsewhere in the rich world. But the president’s two-point prescription upends a model that has long underpinned the highly globalised pharma industry, which could have unintended effects. It could leave Americans with fewer medicines but not cheaper ones, while in other countries drugs could be fewer and dearer. David Ricks of Eli Lilly, the world’s most valuable drugmaker, has warned that mfn pricing risks “the worst of two worlds”, importing Europe’s sluggish innovation while keeping American prices high.
America’s high drug prices have long exercised politicians on both sides of the aisle. According to a study by the rand Corporation, a think-tank, they were more than three times the average in other rich countries in 2022. As a consequence, America coughs up around 70% of global pharmaceutical profits from about half of global sales.
This is partly because of how the market is organised. The supply side is globalised. Most active ingredients are made in low-cost hubs such as India; much of the research and development goes on in America, Europe and increasingly China.
On the demand side, however, prices are set locally. In Europe and many other rich countries, drugmakers must negotiate directly with governments, which have hefty bargaining power and often link payments to cost-effectiveness. In America, by contrast, prices emerge from a decentralised and complex web of contracts connecting manufacturers to health insurers, employers and pharmacy-benefit managers (pbms), which negotiate between insurers, pharmacies and others.
Although America’s public-insurance schemes, Medicaid (for the poor and disabled) and Medicare (for the old), cover about half the population, they negotiate prices for only a few medicines. Joe Biden’s Inflation Reduction Act (ira) authorised Medicare to negotiate prices directly with manufacturers. But roll-out is slow: only ten drugs will be covered in 2026, 15 in 2028 and 20 in 2029. One pharma boss says they “take what they can get in Europe”, because returns are greater in America.
Patents help keep those American returns high. About 90% of the $490bn spent in America on prescription medicines last year went on branded (mainly patent-protected) drugs with no cheaper generic equivalents. Yet branded drugs made up only 7% of prescriptions.
Source: Donald Trump is waging war on sky-high drug prices. Can he win? (The Economist)