As President Trump seeks to lower drug prices, he should consider introducing an export price floor on foreign drug sales.
That course of action would allow U.S. drug manufacturers to earn higher revenue on their foreign sales and thus offset the exorbitant prices they charge U.S. consumers. But an export price floor would also offer a moral market correction.
After all, the current U.S. export market for drug sales is neither fair on U.S. consumers nor reflective of free market forces.
That’s because the vast majority of foreign export sales by U.S. drug companies are made not to individual insurance companies as in the U.S., but rather to foreign governments. And offering access to a large population as a single market doorkeeper, those governments have a strong hand to drive a hard bargain.
Negotiating power is the key here. At present, foreign governments know U.S. drug companies will budge at the margin to get market access. Yet both sides also have a shared interest in bargaining at lower levels because they know the U.S. market carries the research and development burden.
What does this bargain look like?
Well, put simply, much cheaper drug prices for Europeans. The Wall Street Journal encapsulated this reality in a 2015 report contrasting prices paid by Medicare here at home and foreign governments abroad for the same drugs. As the chart below shows, the British and Norwegian governments pay as little as 25 percent of what the U.S. government pays for the same drug.
So here’s a thought: Why doesn’t Trump push for a regulation that puts a price floor on what U.S. drug manufacturers must charge in selling their products abroad?
This floor wouldn’t need to be so crazy that it lost business for U.S. firms, but could perhaps come in at around 50 percent of Medicare prices. That level would allow foreign consumers to help pay more of their fair share of the research and development burden of top drugs, while also encouraging U.S. manufacturers to offset their added foreign revenue with U.S. price reductions.
Trump could then warn the drug companies that if they simply pocket the difference, new regulations would follow.
Regardless, American consumers are currently paying exorbitant drug prices to subsidize the health of those in wealthy nations.
An export price floor would offer a fairer deal.
