STEPHEN MOORE: Foreign drug price controls are a hidden tax on Americans

The United States spends far more on healthcare, on a per capita basis, than any other country in the world. There are many reasons why, including health insurance companies. But one reason has been largely overlooked: foreign governments maintain pricing systems that limit what they pay for drugs. The difference has been absorbed in the United States, with the result that Americans cover a disproportionate share of the world’s drug costs.

These pharmaceutical pricing systems need to be called out for what they are: trade distortions. And the Trump administration should treat these distortions just as it would treat any other trade distortion: with the remedies that are available under U.S. trade law, starting with an investigation of discriminatory measures.  

Countries such as Germany, France, and Japan impose government pricing mandates, mandatory rebates, and strict market controls that cap what they pay for medicines well below U.S. market prices. That puts manufacturers in a bind. They can either accept the punitive terms these countries have established or find their products shut out of these countries. 

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Predictably, the manufacturers have accepted the terms, with the result that the United States has had to cover a greater share of global research and development costs. Those costs are embedded in the prices American patients pay.

Recent developments in Germany show how quickly this dynamic is accelerating. In April, the German government advanced a sweeping cost-containment proposal. The plan would expand mandatory rebates tied to public insurance growth, tighten price-volume rules with automatic increases triggered by sales, and allow selective contracting across entire classes of patented drugs. 

The practical effect is to compress pricing further and limit reimbursement to the lowest-cost option within a category. Now France, Japan, and Switzerland are pursuing similar approaches. This is a broader trend across major U.S. trading partners, and Americans will once again be getting the shaft.

The countries maintaining these distorted pricing systems typically characterize them as nothing more than domestic healthcare policy, designed to limit costs and foster budget discipline. But when governments impose controls on prices that are below levels that would prevail in a market-based system, they reduce global revenues that support innovation. They also shift cost recovery onto markets that do not impose those constraints. The United States has become that market.

These policies amount to non-tariff trade barriers, and they can be addressed through U.S. trade law. There is one measure in particular.

Section 301 of the 1974 Trade Act authorizes the United States to investigate and respond to foreign government practices that are unreasonable or discriminatory and that burden or restrict U.S. commerce. It has been applied to a wide range of non-tariff barriers, including intellectual property regimes and digital services taxes. Pharmaceutical pricing systems that suppress global revenues, and shift costs onto American consumers, clearly fit within that framework and warrant formal examination.

It’s time for pharmaceutical pricing to be treated as a core issue in trade negotiations. And the Trump administration has been moving in that direction. Voluntary Most Favored Nation pricing arrangements aim to rebalance what American patients pay without imposing domestic price controls. The administration is reportedly considering Section 301 action, which suggests a growing willingness to move beyond just domestic enforcement. That can’t happen soon enough. 

America’s trading partners should be pressed to adopt more balanced approaches that reflect a fairer distribution of pharmaceutical development costs. A Section 301 investigation would establish the evidentiary foundation needed to pursue that outcome and signal that the status quo is no longer acceptable.

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There is also broad public support for action. Recent polling shows that a large majority of Americans believe other countries should pay a fairer share for medicines. That sentiment reflects a basic principle. A system in which one country consistently subsidizes global innovation is not sustainable.

For decades, the United States has been a leader in drug innovation, improving lives for millions of people throughout the world. But there’s no guarantee this will continue. And it might not if U.S. companies are forced to subsidize innovation. It’s time for the Trump administration to use the tools available to remedy the balance and help ensure that pharmaceutical innovation continues. 

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