OHE responds to the Trump administration’s Executive Order on Drug Prices

Earlier this week, President Donald Trump signed an Executive Order to bring the prices Americans and U.S taxpayers pay for prescription drugs in line with those paid by similar nations.

Commenting on the Executive Order, Professor Graham Cookson, Chief Executive of the Office of Health Economics, said:

“President Trump believes the rest of the world are “free riding” on the US, with American patients effectively “subsidising” global access to innovative medicines.

It appears that this Executive Order aims to reallocate the burden, advancing a narrative similar to that made about NATO burden-sharing. In this case, others are expected to contribute more fairly to global pharmaceutical innovation by paying higher prices.

Given US voters’ very real dissatisfaction with high drug prices, this executive order may make sense politically but is almost certainly bad economics.

At this stage, it is unclear whether the EO will deliver its intended price reductions for US patients. There is a lot of uncertainty about how domestic pricing reform will be enacted, and the operation of any Most Favoured Nation approach will depend on how pharmaceutical companies and individual countries respond to the multitude of policy factors put forth by the US government.

This is compounded by overall shortcomings of reference pricing as a model – it imports international value assessment from countries with very different health care systems and opportunity costs. Reference pricing also overlooks the issue of confidential price negotiations between the pharmaceutical industry and individual governments.

This isn’t the first time the Trump administration has looked towards reference pricing to bring down US drug prices. What is different this time is the myriad of policy levers the administration intends to employ towards this end, including reference pricing, tariffs, trade agreements, and the Section 232 investigations. Whether they will ultimately work in harmony or in conflict remains to be seen.”

Notes to Editors

For interviews and further comment, please contact lramanayake@ohe.org