In what is likely his final major initiative on domestic policy, President Trump last week signed an executive order aimed at reducing costs to Americans for certain Medicare drugs.
Dubbed “Most Favored Nation” pricing, the order caps the amount the U.S. government will pay for a medication at the lowest price its manufacturer accepts from any comparably well-off country.
For now, the president’s order is limited to drugs covered under Medicare Part B, which pays for medications that have to be administered under a doctor’s supervision, such as chemotherapy compounds. But many want to expand the principle to Medicare Part D, which covers the types of medicines picked up at the local pharmacy.
This would import European-style price controls that restrict patient access to critical therapies and stifle innovation. I support the president’s goal of making drugs more affordable. When I was in Congress, Republicans consistently safeguarded America’s scientists, recognizing that smart policies spurred innovation.
The results have been extraordinary. American scientists now invent two in every three new medicines. It’s no wonder why all the leading Covid-19 vaccine candidates originated in U.S. labs or partnered with U.S. research firms.
The United States also leads the world in ensuring access to new medicines. According to data from the FDA and its counterparts in Europe and Japan, fully 87% of new drugs developed between 2011 and 2018 were available to American patients with an average delay of no more than three months.
Canadians, by contrast, could access just 49% of those new drugs — with an average delay of 15 months. In most European countries, the percentage available was only slightly higher, with average delays ranging from 7 months in the Netherlands to 31 months in Greece.
In 2018, 92% of all new drugs developed anywhere in the world were launched in America first. Biotech companies debut their drugs here because of our comparatively free market. If the United States suddenly paid the lowest prices of any developed country, this unprecedented access would vanish.
These international disparities in access exist because government bureaucrats in many nations set drug prices by fiat and decide whether to make new treatments available to citizens. We can’t import the price controls of other nations without also importing their access restrictions.
New treatments for cancer, multiple sclerosis, and even blindness are among the most complex therapies ever developed. Biotech companies spend $2.6 billion, on average, on each new treatment that comes to market.
The president is right that America is being “ripped off” by European and Canadian freeloaders. Americans currently shoulder the lion’s share of the global research and development burden — and that’s unfair. Rather than adopting their price controls, we ought to be bargaining as a nation for a better deal on how much they pay.
In the long run, price controls will deprive biotech companies of essential revenue for R&D — ultimately leading to fewer treatments and therapies. After all, if companies’ revenues plummet in the world’s largest prescription drug market, they’ll have less funding to devote to new research projects.
I would encourage my former colleagues in Congress to work with the next administration to foster innovation, provide incentives for new cures, and lower prices. We’ve done it before, and we can do it without importing European-style price controls.
Lamar Smith, a former U.S. Congressman from Texas, chaired the Science Committee from 2013 to 2018.