Prescription drugs are roughly three times more expensive for Americans than they are for Europeans. Americans, by and large, do not like this state of affairs. And since the discrepancy’s fundamental cause is straightforward — European governments impose price controls on drugs, while Uncle Sam mostly doesn’t — U.S. politicians have long faced pressure to emulate the policies of their peers across the Atlantic.
Over the years, liberal Democrats have periodically met that pressure with proposals for price controls or drug reimportation. And each time, conservatives pushed back with variations on the same basic counterargument: If Americans’ paid European-level drug prices, then pharmaceutical companies would lack the resources and incentives necessary for sustaining research and development into new cures.
Center-right economists would concede that the status quo arrangement was unfair: Americans should not have to shoulder the burden of propping up Big Pharma’s R&D, while the residents of other OECD countries get a free ride off the resulting innovation. Nevertheless, it was in America’s enlightened self-interest to sacrifice on behalf of the global good, even if other countries took advantage of our largesse. As future Trump White House economic adviser Kevin Hassett wrote in 2004, “The U.S. market has been large enough relative to the rest of the world that it has been able to support research despite [Europe’s] intrusions” into prices — but “there could be devastating effects should our policy environment change.”
This argument hasn’t aged well (and not merely because the case for using monopoly patents to finance drug research is substantively weak). Few nuggets of conservative economic orthodoxy are more at odds with Trumpism than “if Europe won’t pay its fair share for drugs, American seniors should pick up the slack.”
“The American senior and the American patient have been too long been asked to overpay for drugs to subsidize the socialist systems of Europe,” Health and Human Services Secretary Alex M. Azar II said this week. “It’s time for the American patient to stop propping up the socialism of Europe.”
In fact, the Trump administration thinks it may be time for the American government to start emulating the socialism of Europe. As the New York Times reports:
[Donald Trump] has hinted that he is focusing in on a more audacious proposal, especially from a Republican president. It would tie some drug prices to those set by European governments, an idea that is tantamount to price controls and opposed by members of his own party. Yet Mr. Trump is said to be particularly taken with the idea because it fits with his “America First” approach.
… A pilot program announced last year has struck fear among drugmakers, who, like some Republicans in Congress, have described it as akin to foreign price controls. That project, unveiled in October, would tie the price of some drugs administered in medical offices like many cancer treatments to an international index of prices. The test program, under final review at the Office of Management and Budget, would last five years.
Senator Chuck Grassley of Iowa, the powerful Republican chairman of the Senate Finance Committee, denounced the idea last month, saying it could discourage research investments for new treatments. Conservative groups like Freedom Works and Americans for Tax Reform have been campaigning against the idea, too.
The president’s consideration of this “audacious” proposal comes after two of the White House’s more modest ideas for lowering drug prices fell apart. Earlier this year, the Department of Health and Human Services issued a rule requiring drug companies to disclose the price of their pharmaceuticals in advertisements, a regulation intended to ultimately reduce the cost of drugs by heightening consumer awareness and sensitivity to extortionary pricing. But this week, a federal judge struck that down.
Days later, the administration abandoned another, wonkier plan to deliver America’s seniors relief at the drug counter. In the U.S., pharmacy benefit managers (PBMs) act as middlemen between insurers and drug companies. Leveraging the market power of pharmacies, PBMs negotiate discounts from drug companies in the form of a rebate. Theoretically, the PBMs are supposed to pass the lion’s share of these discounts onto consumers. But critics argue that the firms plow much of their rebates into profits.
Since pharmaceutical companies are already forking over those rebates, one way to lower drug prices for Americans — without running afoul of Big Pharma — would be to cut out the middleman, and redirect the rebates directly to consumers. Thus, the Trump administration had planned to require PBMs to do just that for Medicaid and Medicare beneficiaries.
But the Congressional Budget Office found that this scheme would ultimately raise drug-plan premiums for Medicare recipients, and cost the federal government $177 billion over the next decade. So the White House backed off.
This development has Big Pharma sweating, because if the pharmacy benefit managers aren’t sacrificed on the altar of public outrage over drug prices, their industry’s profit margins might be thrown to the lions instead.
Historically, it’s been safe to assume that the Republican Party would not put the interests of its voters above those of any major U.S. industry that feeds its campaign coffers. But on the issue of drug prices, this time may be different.
Today’s GOP is overwhelming reliant on the votes of older Americans. In 2016, Donald Trump commanded the support of only 28 percent of voters under 30, according to Pew Research. His disapproval rating among Americans under 35 currently hovers around 70 percent. And millennials’ antipathy for our Republican president isn’t personal; the Fox News grandpa-in-chief might be especially unappealing to the rising generation, but the kids don’t have much use for the GOP’s kinder, gentler reactionaries, either. Less than 30 percent of millennials wanted Republicans to retain control of Congress last year. And in broader measures of generational opinion, both millennials and Gen-Zers evince higher levels of support for liberal ideological premises and policy proposals than any older cohorts.
In order to remain competitive as these younger generations enter the electorate, Republicans will need to retain their outsize share of the senior vote. And it won’t be easy to do that if the GOP’s only counter to Democratic plans for lowering drug prices is a small-bore executive order here and a lecture about the importance of innovation there.
It might take some time for congressional Republicans to unlearn their aversion to government interventions in the drug market (besides those that artificially raise prices through patent monopolies). But the GOP needs older Americans’ votes more than it needs Big Pharma’s cash. A change in “the policy environment” may be coming.