America Needs to Stop Subsidizing Europe and Canada’s Prescription Drugs
Health care can be especially complicated – Veterans Health, TRICARE, Medicare Parts B and D, hospital billing, open enrollment, Obamacare, insurance co-pays, Medicaid reimbursement, generics, patents, and on and on. President Trump recognized this complexity early in his term when he noted in frustration the “big league” density of the nation's health laws.
The president is right. The regulations, rules, and laws that govern our health system are byzantine. However, the cause for America’s high drug prices is as simple as the rest of the health system is complicated.
The Europeans and Canadians (as well as the rest of the world) are free-riding on the back of American medical innovators. European countries and Canada – our trading allies – impede access and set artificially low prices for prescription medicines. If U.S. companies refuse to acquiesce on prices, these foreign governments threaten to steal their patents by using compulsory licensing. It’s that simple: Europe and Canada refuse to pay their fair share forcing Americans to pay more.
Americans pay the highest prices for prescription drugs in the world. In 2016, U.S. spending on pharmaceuticals totaled more than $450 billion – a rate that’s two to six times higher than the world average.
The reason boils down to “compulsory licensing.” As the World Trade Organization explains, this is when “a government allows someone else to produce a patented product or process without the consent of the patent owner or plans to use the patent-protected invention itself.” These foreign governments put U.S. biopharmaceutical companies in a proverbial “gun-to-the-head” situation – i.e., sell us the drugs at the bogus price we demand, or don’t and we’ll just take it.
In his 2018 State of the Union speech, President Trump affirmed that one of his highest priorities is to reduce the price of prescription drugs:
“In many other countries, these drugs cost far less than what we pay in the United States. That is why I have directed my administration to make fixing the injustice of high drug prices one of our top priorities. Prices will come down.”
The president has done what few elected officials actually do. He’s governing as he said he would during the campaign – from moving the U.S. Embassy in Israel to Jerusalem to pulling out of the Iran nuclear deal to enacting tax cuts and forging new trade agreements. So, what is he to do about the injustice of foreign governments forcing American patients to pay the highest drug prices in the world?
The answer is two-fold:
The United States must crack down on European/Canadian/foreign government freeloading by taking the threat of compulsory licensing off the table. If a government threatens American intellectual property rights, the administration must respond in kind. The world already knows full well that President Trump’s “big guns” on trade policy are sanctions and tariffs. And contrary to what the media has reported, he’s winning on trade: In March, China offered lower farm, chemical, and auto tariffs in response to Trump’s “America First” trade policy. It’s past time to bring the “big guns” to the drug pricing crisis.
The president must hold America’s bio-pharmaceutical industry accountable by admonishing them to stop selling their medicines abroad at artificially low prices. He must use his bully pulpit to persuade America’s drug companies to stop playing victim and start playing hardball … and let them know he’ll have their back.
President Trump’s instincts are right when it comes to this issue. The question is: What will he do? Will he go the way of “The Swamp,” or accomplish what’s necessary -- what previous administrations have failed to do? Thus far, the president has given mixed signals. For instance, while he gets it right on reconstructing our trade policy to better protect America’s economic interests and intellectual property rights, he gets it wrong when he rails against U.S. drug companies and calls for “safe” importation of drugs from Canada.
“We want our drugs to be made here. When you talk prescription drugs, we don’t like getting them from foreign countries. We don’t know what’s happening with those drugs – how they’re being made.”
Even though both political parties agree that Americans are paying too much for their medications, very little has been done over the past two decades to solve the problem. President George W. Bush had a Republican Congress, yet his administration did little to bring market reform to the crisis of rising prices. Though President Barack Obama enjoyed a Democratic supermajority for the first two years of his first term, he squandered this opportunity to address rising drug costs. Instead, Democrats leveraged their majority to jam through Obamacare.
The Trump administration has been pressing foreign governments to stop pilfering our intellectual property. Now is the time for the president to do more than merely challenge our trading partners to open up their markets to America’s biopharmaceutical industry. It’s time to ratchet up the pressure and put America first, i.e., bring in the “big guns” to force Europe and Canada to pay their fair share for prescription medicines.
In April 2018, the Office of the United States Trade Representative issued its 2018 Special 301 Report, including a new section highlighting barriers to access within the biopharmaceutical market. The report details the myriad obstacles America’s pharmaceutical and biotechnology innovators are forced to confront in countries around the world, including our largest trading partners, such as Canada. These barriers to market and threats to intellectual property are the key drivers of high costs here in the United States.
The USTR report states:
“In order to promote affordable healthcare for Americans and the innovation to preserve access to the cutting-edge cures and therapies, USTR has been engaging with trading partners to ensure that U.S. owners of IP have a full and fair opportunity to use and profit from their IP.”
The report also makes clear that the Trump administration is working to “ensure robust IP systems and reduce market access barriers to pharmaceutical products and medical devices.” The goal? To ensure “trading partners contribute their fair share to the research and development of new cures and therapies.”
Perhaps most importantly, the report highlights the administration’s concerns regarding unfair uses of compulsory licenses — i.e., foreign governments stealing patents from America’s biopharmaceutical companies. It’s the threat of compulsory licensing that forces American companies to sell their products at price-controlled levels in foreign markets, which, again, drives up costs for Americans. The reason why drugs are so cheap in Canada, for instance, is because if an American company refuses to sell its medicine in Canada at the artificially set, government-mandated price, the Canadian government will just take the patent.
President Trump’s resetting of trade policy is the key to making prescriptions in the U.S. more affordable. But legalizing drug importation would be a big mistake – importing artificially set drug prices will hurt patients and stifle medical progress.
First, importation would indirectly impose price controls on the U.S. drug market, undermining medical progress and limiting innovation — slowing the pace for new cures. Second, counterfeiting of drugs has exploded over the last 10 years making importing prescription medicines extremely dangerous. America’s opioid crisis is largely driven by drug dealers targeting American patients — particularly those suffering from cancer. There are enormous amounts of counterfeit fentanyl and other imposter medications flooding across our southern border. Importation would only make the crisis worse.
With the USTR’s 2018 Special 301 Report, the Trump administration is showing a bipartisan way forward on drug prices. President Trump could accomplish what both Presidents Bush and Obama failed to do: put forward a bipartisan effort by leveraging trade agreements to help Americans get greater access to the medicines they need at prices they can afford.
The right medicine at the right price at the right time. This is good health care policy that all sides can support.