Health and Science

To Lower Drug Costs at Home, Trump Wants Higher Prices Abroad

Robert Pear
Mike Mergen | Bloomberg | Getty Images

WASHINGTON — President Trump, poised on Friday to unveil his strategy to lower prescription drug prices, has an idea that may not be so popular abroad: Bring down costs at home by forcing higher prices in foreign countries that use their national health systems to make drugs more affordable.

On Tuesday, Mr. Trump rebuffed his European allies by withdrawing from the Iran nuclear deal. Threatened tariffs on steel and aluminum have strained relations with other developed nations. And now the administration is suggesting policies that could hit the pocketbooks of some of America's strongest allies.

"We're going to be ending global freeloading," Mr. Trump declared at a meeting with drug company executives in his first month in office. Foreign price controls, he said, reduce the resources that American drug companies have to finance research and develop new cures.

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The White House Council of Economic Advisers fleshed out the idea three months ago in a report that deplored the "underpricing of drugs in foreign countries."

The council said that profit margins on brand-name drugs in the United States were four times as high as those in the more regulated markets of major European countries and Japan. The United States, it said, needs to "address the root of the problem: foreign, developed nations, that can afford to pay for novel drugs, free-ride by setting drug prices at unfairly low levels, leaving American patients to pay for the innovation that foreign patients enjoy."

Mr. Trump plans to lay out his ideas on Friday. Alex M. Azar II, the secretary of health and human services, said in a speech on Wednesday that the administration would attack several problems, including high list prices set by drug manufacturers; rising out-of-pocket costs for consumers; and "foreign governments free-riding off of American investment in innovation."

Administration officials have raised expectations that the president's proposals will have a far-reaching impact. "Bold action is on the way," Mr. Azar said last week.

So is resistance.

"Canadian drug prices are among the highest in the world," said Tammy Jarbeau, a spokeswoman for Health Canada, the national health department. "Our plan is to bring down prices so they compare more favorably with those of other countries of comparable size and economic development."

And Democrats called it naïve to think that American drug companies would lower prices in the United States if they could increase drug prices abroad.

"There is absolutely no reason to believe that trade policies designed to raise prescription drug prices overseas will result in equivalent or any decreases in prices in the United States," six House Democrats, led by Representatives Jan Schakowsky of Illinois and Rosa DeLauro of Connecticut, said in a recent letter to Mr. Trump.

People who work in the industry said it was unlikely that consumers would go to the pharmacy counter and see a meaningful reduction in drug prices before the end of the year.

Mr. Trump is expected to criticize brand-name drug manufacturers for high list prices and maneuvers that delay the marketing of lower-cost generic drugs. He is also expected to go after middlemen known as pharmacy benefit managers, saying they profit from rebates paid by drug companies but do not share much of the savings with patients.

Dr. Peter B. Bach of Memorial Sloan Kettering Cancer Center in New York, an expert on drug prices, said: "Administration officials are talking about defects in the market that make some drugs unaffordable. The real question is whether the president will take on new brand-name drugs that have no competitors and cost hundreds of thousands of dollars a year."

The United States can pressure foreign nations through diplomacy and trade negotiations. In its annual report card on the protection of intellectual property rights around the world, the United States trade representative last month criticized the drug pricing and reimbursement policies of Canada, South Korea, Japan, India, Turkey, New Zealand and a number of European Union countries, saying they did not adequately recognize the value of innovative medicines.

America's trading partners must "contribute their fair share to the research and development of new cures and therapies," the report said, echoing Mr. Trump's contention that foreign price controls were "very unfair to this country."

The report said the Trump administration had recently secured a commitment from South Korea to revise its drug pricing policy to provide higher payments for certain innovative American-made drugs. But the administration said it was concerned about the way Canada sets price ceilings for many prescription drugs. An independent quasi-judicial body reviews drug prices in Canada to make sure they are not excessive.

Canadian officials say they have no interest in raising prices to allay the concerns of Trump administration officials or American drug companies.

File photo of a Walgreens pharmacy in Niles, Illinois.
Getty Images

But the Pharmaceutical Research and Manufacturers of America, the main lobby for drugmakers, welcomed the new emphasis by the Trump administration.

"In many countries, governments are the principal purchaser of medicines and effectively dictate prices," the group told the administration. Government price controls in Canada, Japan, Korea and other markets "substantially eliminate incentives to invest in the development of new medicines," the drug lobby said.

Mr. Azar said the administration would also tackle another problem: "government programs overpaying for drugs."

Seema Verma, the administrator of the Centers for Medicare and Medicaid Services, said Medicare and Medicaid, which cover more than 100 million people, account for nearly 40 percent of all drug spending in the United States.

"Being the largest payer of health care services," she said, "we will use our considerable influence" to move the market toward lower drug prices.

In advance of the speech by the president, administration officials have been targeting the role of pharmacy benefit managers, which negotiate with drugmakers to obtain price concessions in the form of rebates. The rebates are typically calculated as a percentage of a drug's list price, set by the manufacturer.

"All of the incentives are lined up for manufacturers to set higher and higher prices," Ms. Verma said. "When prices go up, patient cost-sharing also goes up."

The administration wants benefit managers and insurers to pass on more of the savings to consumers.

Dr. Scott Gottlieb, the commissioner of the Food and Drug Administration, sent a chill through financial markets last week when he asked what would happen if the federal government re-examined the "safe harbor" that provides legal protection for drug rebate payments.

"Such a step could help restore some semblance of reality to the relationship between list and negotiated prices, and thereby boost affordability and competition," Dr. Gottlieb said.

Administration officials say they know that drug companies have discovered cures for diseases that once killed millions. But, Ms. Verma said, "lifesaving treatments do not mean anything if patients cannot afford them."

"While it is wonderful news that there are hundreds of gene therapies in development," Ms. Verma said, two cancer therapies that have reached the market — Yescarta and Kymriah — "have been priced at $373,000 and $475,000, and a new gene therapy for certain forms of blindness" — Luxturna — "has been priced at an astonishing $850,000."