Over the first two years of his administration, President Trump has prioritized policies that promote American competitiveness and U.S. interests in trade deals as well as focus on lowering the cost of healthcare and the price of medicines.
Trump can make huge progress toward achieving these goals by ensuring the U.S. negotiates trade deals that get tough on foreign price-controlled medicines and allow innovation to flourish.
The development of new life-saving and life-improving medicines has enormous benefits to society by improving the health of individuals and the efficiency of the healthcare system. However, global medical innovation (and economic growth and job creation) is being damaged by the price controls imposed by foreign countries.
Foreign price controls force the U.S. healthcare system to shoulder most of the costs of innovation. On the other hand, others such as Canada, Japan, and the EU have such strenuous price controls that they pay about one-quarter what the U.S. system pays and this results in the U.S. subsidizing foreign trading partners.
In fact, while America represents one-third of the market for medicines in the developed world, the U.S. pays for roughly 70 percent of the costs, according to the White House Council of Economic Advisers (this is a rather expensive foreign aid to rich nations we also subsidize through our military spending).
While foreign government regulations and mandates lower the cost of medicines in the short term, they result in higher long-term costs to the healthcare system.
In many cases, the U.S. is the only free market for medicines, meaning most new medicines are developed in America (and most of the extensive R&D costs are borne by U.S. innovators). Creating new medicines is already a time-consuming and expensive process.
Manufacturers spend an average of $2.6 billion and a decade conducting research and regulatory approval, according to a study by Tufts University.
Foreign price controls in combination with these extensive costs therefore create a disincentive to innovation because the manufacturer requires a high rate of return from the investment to recoup costs.
Moving forward, Trump should negotiate trade agreements that ensure other countries pay their fair share for the cost of life-saving and life-improving medications.
Fortunately, Trump and Health and Human Services Secretary Alex Azar are focused on this challenge.
The administration noted in their “American Patients First” drug pricing blueprint that innovation-destroying price controls are putting the next generation of medicines at risk. The plan, which also includes proposals designed to strengthen free market tools that exist in Medicare Part D, create incentives to lower list prices and reduce out-of-pocket costs, and roll back Obamacare regulations and taxes, has already had some success.
Just 100 days since the administration rolled out their drug pricing plan, at least 15 manufacturers have committed to lowering drug prices. In this time period, there have been 60 percent fewer price increases, and 54 percent more price decreases.
Trump has since gone even further by saying he wants trade deals that have zero tariffs, zero trade barriers, and zero nontariff barriers — which should include no barriers to innovation.
While the administration is right to work toward this goal, they should also avoid misguided, market-distorting policies such as allowing for the importation of foreign medicines.
Even though this may initially sound like a free-market issue, importation actually opens the door to the unchecked importation of price-controlled medicines. Instead of solving the problem, importation would only exacerbate it as the freeloading off American innovation would intensify.
Importation is also highly unsafe. Officials with the Food and Drug Administration have repeatedly stated that there is no way to ensure the safety, authenticity, or effectiveness of imported drugs. Every FDA commissioner and HHS Secretary in the past 18 years has opposed importation for those reasons.
Rather than allowing importation of price-controlled medicines, the administration should ensure that other countries remove their innovation-destroying policies in the context of modernized free trade agreements.
Doing so would allow global innovation to flourish, ensure the next generation of medicines are developed, and ultimately reduce the long-term cost of healthcare and the price of drugs.
Grover Norquist (@GroverNorquist) and Alex Hendrie are contributors to the Washington Examiner’s Beltway Confidential blog. Norquist is president of Americans for Tax Reform. Hendrie is tax policy director at Americans for Tax Reform.
