I braced for the worst, but Trump's move to lower drug prices takes right approach | Opinion
President Trump's new executive order starts the process of lowering prescription drug prices for Americans. But there is still work to do.
President Donald Trump’s new executive order aims to reduce prescription drug prices by addressing a meaningful area for change. It's not a perfect attempt, but it should be supported.
While the order doesn't legally force drug companies to do anything, Trump has threatened consequences for companies that don't comply. These consequences surprisingly follow a free market approach, which is uncommon in the second Trump administration.
It's a good start.
Conservatives, like me, who were bracing for price controls should be cautiously optimistic about this Trump executive order. Americans pay more for prescription drugs than people in other countries. This might help.
Trump threatens drug companies with deregulation on prices
The order gives administration officials 30 days to create price targets that are meant to “communicate most-favored-nation price targets to pharmaceutical manufacturers to bring prices for American patients in line with comparably developed nations.”
At that point, if “significant progress” has not been made toward those price targets, the administration is threatening to take regulatory action against drug companies.
One such possibility listed in the order is allowing Americans to "import prescription drugs on a case-by-case basis from developed nations with low-cost prescription drugs." This is a surprisingly free market-oriented approach from Trump, who has favored government intervention thus far in his presidency.
Libertarians have suggested for years that America eliminate import bans for drugs approved by the Food and Drug Administration, allowing Americans to purchase drugs on the international market.
Permitting Americans to import the same medications the FDA has already approved would bring prices closer to what they are in other nations.
However, such a policy should be the standard rather than a negotiating tool. Import bans on drugs that have already been FDA-approved from other developed nations, with stringent approval processes, force the free market to standardize prices.
Whether other nations allow their drug supply to be used up by Americans is another question, but there is no reason that the United States should be the one limiting its citizens' access to cheap drugs.
Trump is right that these import restrictions only serve to protect drug companies, not consumers.
Drug market needs more competition to bring prices down
Trump’s suggestions are warmly welcomed compared with the policies that many were bracing for over the weekend. When news came out that Trump was looking to attack prescription drug prices, I was nervous that the policy would come in the form of socialist price controls.
Price controls artificially reduce the incentive for companies to create a certain product, which inevitably leads to shortages. In the case of drugs, these shortages come in two forms: the actual supply of existing drugs and the research for innovations.
Drug manufacturers have a high regulatory burden to bring a drug to market in America, making not just the cost of bringing a new drug to market expensive but also the cost of even attempting such an endeavor, given that 90% of drugs don’t end up making it to market.
It can cost as much as $4.46 billion to bring a new drug to market.
Cutting away red tape is the easiest way to reduce the cost burden on medical research companies and, in turn, the consumer. Corporate greed is a constant, but despite what socialists may claim, corporations don't become greedier just because their costs are lower. But those lower costs can help people.
Another reason America has such high drug prices for brand-name drugs is the lengthy patent protections for drug manufacturers. These protections are a double-edged sword, as they allow manufacturers to recoup their immense sunk costs through exclusive production rights for a set term.
They also give them the authority to charge artificially high prices over that duration due to the lack of competition. Addressing this problem is another market approach the administration could take.
Drug companies have lobbied against market-based approaches that eat into their bottom line, including lifting import restrictions and reforming drug patents. Trump claims he is a man who cannot be bought, and if true, that makes him a perfect vessel to usher in policies that drug companies hate.
What worries me is that Trump will get flustered when pharmaceutical companies don't meet his price targets. I wouldn't be surprised to see him target pharmaceutical companies using any number of executive branch agencies if he doesn't get what he wants. While I have little sympathy for Big Pharma, Trump's tendency is to use more government to get his way, not less.
In addition to opening up drug imports, the Trump administration should look to other free-market solutions to bring down drug prices. More competition, rather than less, would be a great place to explore. Cutting red tape, lifting import restrictions and examining the terms of drug patents could bring drug costs more in line with those of other nations over the long term.
For now, his executive order at least starts that conversation.
Dace Potas is an opinion columnist for Paste BN and a graduate of DePaul University with a degree in political science.