Market Institute President Charles Sauer warns that the Trump administration’s expansion of Most Favored Nation (MFN) drug pricing risks trading America’s pharmaceutical leadership for uncertain short-term savings.
In a new piece for RealClearMarkets, Sauer examines the administration’s push to tie U.S. prescription drug prices to the lowest prices charged in a group of foreign countries. While the policy is intended to address the higher prices Americans often pay for medicines, many of those lower foreign prices are themselves the product of government price controls.
That makes MFN, in practice, an attempt to import foreign price controls into the American health care system.
Sauer points to a recent modeling study examining MFN pricing in Medicare. While the initial estimates suggested potentially significant savings, those projections fell dramatically once exemptions negotiated between pharmaceutical manufacturers and the administration were taken into account.
But the larger concern goes beyond whether MFN produces the savings its supporters promise.
Price controls change incentives. Pharmaceutical companies can respond by withdrawing products from reference countries, raising prices abroad, restructuring rebates, or reducing investment in the research and development of new medicines. The Congressional Budget Office has previously warned that reductions in pharmaceutical manufacturers’ revenues would ultimately mean less R&D spending and fewer new drugs reaching patients.
That tradeoff is particularly consequential for the United States, which remains the world’s leading pharmaceutical market and one of the primary beneficiaries of medical innovation.
Rather than importing the price-control policies of other countries, Sauer argues policymakers should address the regulatory barriers that make developing new medicines extraordinarily expensive in the first place. Bringing a new drug to market can cost more than $2 billion, while a lengthy approval process delays patients’ access to potentially lifesaving treatments.
“Regulatory reform, not price controls, is the best way to ensure that Americans have access to affordable and effective prescription drugs,” Sauer writes.
Read Charles Sauer’s full piece, “Most Favored Nation Price Controls Disfavor Patients,” at RealClearMarkets.
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