“Other nations have been freeloading on U.S. innovation for far too long,” President Trump recently wrote. “It is time they pay their fair share.”
He’s right about that. Foreign countries with government-run health systems underpay for American-made pharmaceuticals.
That’s because they put the heavy hand of centralized government on the scales in talks with innovative drug companies. In other words, foreign bureaucrats “negotiate” drug prices with American drug companies like the mob “negotiates” when shaking down business owners, dictating what they’ll pay in “protection money.” The playing field is tilted to favor foreign governments.
What’s the best solution for ending this unfair disparity? President Trump should use the bully pulpit and trade tools, just as he’s done to force European allies (most of which have socialized medicine and freeload on American medical innovation costs) to pay more for their defense costs.
The administration must employ more robust trade policies and tactics designed to cudgel foreign freeloaders to pay their fair share for U.S. medicines – and pay actual market value.
As it stands, well-off foreign nations deliberately undervalue highly valuable pharmaceuticals in setting artificially low prices. Those countries employ methodological sleight of hand; delay making available cutting-edge new medicines by 18 months on average and use other ulterior means. This result is Americans paying a 26% “freeloader tax.”
“This is more than a pricing disparity – it’s a nontariff trade barrier,” National Review says. “European firms can sell their drugs in the U.S. at market-based prices. American firms, by contrast, are forced to sell in Europe at artificially low prices – and often only after long delays. This is a massive U.S. subsidy to foreign countries, sustaining innovation they benefit from but do little to finance. No other major industry faces such global price fixing by government-run systems.”
We may not be able to force our trading partners to scrap their single-payer, government-run health systems, but we certainly can enforce trade agreements crafted to end their non-tariff barriers.
We can demand that they stop gaming the system; use legitimate, up-to-date data for determining cost-effectiveness and market value; and streamline regulatory hurdles to speed coverage decisions. Their failure to comply could be met by unleashing the U.S. trade representative on freeloading socialized medicine nations.
Remedies that punish the freeloaders instead of American innovators could include tying the amount of U.S. medicines sold to a socialized health system to their U.S. private market price. This would require foreign single-payer systems to pay the U.S. market-based price.
We can make government-run health systems either spend the same amount they currently do, but receive fewer of the U.S. products (having to pay the U.S. private market price for the lower quantity) or have to pay more to obtain the same amount of pharmaceutical product they now buy at an artificially below-market price.
Congress could require that a high-ranking U.S. diplomat accompany U.S. drug firm negotiators, upon their request, to official proceedings in any government venue or agency, including in negotiations with a socialized medicine bureau. These officials should be authorized to intervene in such meetings on behalf of the American company.
These diplomats should ensure fair treatment of and good-faith negotiations with the American entity. U.S. authorities should be able to invoke sanctions for trade reciprocity – for instance, limit U.S. market access on certain goods the country sells or seeks to sell in our country – on the spot. Any foreign bureaucracy that disrespects U.S. drug representatives or the official U.S. advocate standing with the U.S. business, or is recalcitrant and uncooperative in the dealings would cause swift, sure consequences.
These approaches would achieve actual reciprocity, with foreign countries negotiating honestly and paying market-based prices. For this to happen, Uncle Sam must have the backs of U.S. firms, force negotiations on a level playing field and deliver meaningful trade sanctions against governments that persist in defying reciprocal trade.
Some 18 U.S. senators and 33 U.S. representatives have signed letters urging the administration to pursue trade remedies to force freerider countries to pay their fair share of the value of American biopharmaceutical innovation that benefits the world.
President Trump has brought an end to NATO countries’ freeriding on the United States’ back for Europe’s defense. There’s nothing stopping his achieving the same outcome for trade of American medical innovations, except the administration’s misguided fixation on importing foreign socialist price controls.
Most-favored-nation-style reference pricing would cost the world 167 to 342 new approved drugs over 20 years and up to 326 million lost life years. Every $1-2 billion in foregone research and development leaves one fewer cure.
This threat comes as the United States leads the world in life sciences, supporting 5 million jobs, operating over 1,500 manufacturing facilities and contributing more than $1.6 trillion to the economy. Recent commitments to U.S.-based manufacturing exceed $215 billion, but will disappear if most-favored nation pricing takes hold.
The answer is to strong-arm foreign freeloaders, using trade tools to end their cheating, while preserving and protecting America’s global-leading, domestically advantageous pharmaceutical industry.
