Trump wants cheaper drugs like Europe has. How it works.

Mint

2 days ago

President Donald Trump doesn't just want to bring down prescription drug prices for Americans. He wants European countries to raise them to make up the revenue that drugmakers would lose from his policy.
Trump is proposing a so-called most-favored-nation pricing model, which would set U.S. drug prices at the lowest level in other wealthy countries.
But the pharmaceutical industry isn't buying into tying drug prices in the U.S. to prices in Europe—at least not knowing the details of the president's proposal.
More details about the government's pricing model could come this week. On May 12, Trump directed government health officials to benchmark drug prices to international standards within 30 days.
The lobbying group PhRMA, with members including U.S. pharma giants Eli Lilly, Pfizer, Johnson & Johnson, and AbbVie, has argued there are two reasons why U.S. drug prices are high: foreign countries not paying 'their fair share" for medicines, and middlemen such as pharmacy-benefit managers.
Today, U.S. drug pricing is largely market driven. It involves negotiations between drug manufacturers, pharmacy-benefit managers, healthcare insurers and providers.
European countries do it much differently. Each has its own way of determining drug prices, but most follow one of two broad approaches.
The first approach, which Germany and France use, considers the overall clinical effectiveness of a new medicine. How does the new treatment compare to existing ones? Does it have added therapeutic benefits? If the new drug is substantially better, its price would reflect that.
A second approach, used by the U.K., the Netherlands, and Sweden, analyzes cost effectiveness. This model not only compares the new drug to existing ones but also assesses the incremental value that the medicine brings to the health system.
After the assessments, negotiations between drugmakers and the countries begin. Because many European countries have national health systems, they are in a strong negotiation position. If government negotiators think a medicine is too expensive for its effectiveness, they won't recommend its use.
How Trump's MFN policy would work in practice isn't clear. Drug prices would probably be based on list prices in Europe since the prices paid by national health systems, or net prices, are confidential.
The president's open-ended directive, laid out in an executive order, has many wondering how the U.S. could raise prices in Europe. Trump has made clear he wants to close the gap between U.S. and international prices, and has suggested he would use tariffs and export controls to achieve his goal.
In theory, drugmakers could set list prices higher in Europe as long as it doesn't affect net prices, health policy expert Dr. Huseyin Naci told Barron's.
In the U.K., for example, a higher list price could still lower the prices in other European countries.
'So that would still not be an acceptable approach to many other European countries," said Naci, who is associate professor of health policy at the London School of Economics.
Overhauling Europe's decades-old pricing approaches would require fundamental changes to their pricing regulations—and there will be 'little appetite or ability" to alter them, Naci added.
Cost is another complicating factor. 'Pharmaceutical spending is already one of the top categories of spending in many countries in terms of healthcare expenditure, so there's little room to accommodate higher prices and spending for pharmaceuticals in Europe," according to Naci.
How Trump is planning to make Europeans pay more for drugs is the big question. He could use tariffs and trade negotiations as leverage.
In early April, the president said a 'major" tax on pharmaceutical imports is coming 'very shortly," however nothing has been announced yet.
In a trade agreement with the U.K. a month later, there is a provision on pharmaceuticals that states the U.K. will 'endeavor to improve the overall environment for pharmaceutical companies."
What that means in practice still isn't clear.
Write to Elsa Ohlen at [e-mail]