Pills, prices, and promises

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MARY REICHARD, HOST: It’s Thursday, the 29th of May.

Glad to have you along for today’s edition of The World and Everything in It. Good morning, I’m Mary Reichard.

MYRNA BROWN, HOST: And I’m Myrna Brown.

First up: bringing down the cost of prescription drugs.

Last week, the Department of Health and Human Services set new price targets for drug manufacturers. The goal? To bring US drug prices more in line with those in other wealthy countries. It’s part of President Trump’s “most-favored nation” executive order.

REICHARD: WORLD’s Mary Muncy reports on what this could mean for the pharmaceutical industry.

MARY MUNCY: Dee and Jean Vandergiesen are scrolling through their prescription app in Walmart in Sioux Center, Iowa.

DEE VANDERGIESEN: Blood pressure, for stomach, he has one for Crohn's.

JEAN VANDERGIESEN: Parkinson’s I take 19 pills. That's too many.

They have health insurance. But between the two of them, paying for their prescriptions is a solid chunk of their monthly budget.

JEAN VANDERGIESEN: Been retired for 14 years, and when we did that, then I. It looked like you had very sufficient amount. Now it don't look so good, because we could buy groceries in for about $60 a week. Now it's $120.

They’re not sure how much they pay each month because:

DEE VANDERGIESEN: When you need it, you need it, so you pay the price.

The Vandergiesens think drug prices are too high, and they’re not alone.

Last week, the Health and Human Services department started implementing President Donald Trump’s plan to lower American drug costs.

Trump says other countries put price controls on drug prices, and that that’s forcing drug companies to charge Americans more.

TRUMP: They were making us pay– They set a price and they said here’s what we’re going to pay… and anything else, charge America.

Trump’s “most-favored nation” policy is supposed to change that. The policy orders several departments to work together to ensure other countries don’t undercut American prices. Part of that is forcing manufacturers to sell pharmaceuticals to Americans at the same price they sell to other countries and cut out “middle-men.”

The Health and Human Services Department took the first step by outlining price targets for manufacturers to hit.

But some are worried the policy needs more thought.

JEREMY COUNTS: We are relying a lot on foreign governments to negotiate these prices with Most Favored Nations.

Jeremy Counts works with Pharmacists United for Truth and Transparency. He says Trump’s policy is a good first step, if it’s implemented correctly.

COUNTS: we could bring down drug costs over here, or we could see it skyrocket because they are negotiating kickbacks that they don't have to report back to the United States government, and so we get our drug prices tied to an inflated number.

Others worry the policy will artificially lower prices in the US.

JEREMY NIGHOHOSSIAN: For the most part, drug prices in other countries are set from the top down by the government.

Jeremy Nighohossian is an economist with the Competitive Enterprise Institute.

NIGHOHOSSIAN: They tend to set lower prices than what a market would determine.

And he says that means other countries experience shortages, or a delay in manufacturers introducing a drug in their country.

NIGHOHOSSIAN: In Japan and France, they have phrases for this, drug lag and drug loss that are completely foreign to American consumers, because one of the benefits of paying a market price is that shortages are not something we really have to worry about.

These price controls have also stifled other countries’ research and development, or R and D.

STEPHEN EZELL: The important thing to understand about America's life sciences industry is that it is the most R and D intensive industry in the entire world.

Stephen Ezell works with the Information Technology and Innovation Foundation.

He says US life science companies reinvest a quarter of their revenues into innovation.

EZELL: The reality is that if we want to pay the Greek or the Portuguese price for medicines, we're going to end up with the amount of drug innovation that comes out of places like Greece or Portugal, and that is very little.

Ezell says the real problem may not be the cost of the actual drug. While Americans often pay higher prices for brand-name drugs, they typically pay less for generics. Meaning that once a patent expires, the free market is able to balance out the system.

EZELL: From 2008 to 2023 over that time, American’s expenditures their total health care expenditures increased by 107% but their expenditures on drugs increased by only 23%.

Ezell believes trying to create transparency within the healthcare system may be a more effective route, and he wants to start with Pharmacy Benefit Managers, or PBMs.

PBMs bill themselves as a wholesale buyer, able to negotiate a lower price from drug manufacturers by buying in bulk. Then they pass those savings on to consumers. PBMs say they keep a small profit for themselves, but Ezell and other critics say there’s nothing small about it.

EZELL: Only 49 cents on every dollar that Americans spend on drugs actually goes to the companies making them.

How PBMs actually affect prices is hard to determine. They don’t publish much data, and the data they do publish is often hard to understand.

Economist Nighossian says in general, more transparency is better, but it's not unheard of for industries to keep their prices under wraps, or for intermediaries to work on behalf of another industry.

NIGHOHOSSIAN: Profits at PBMs are are not very high. Which is, which is a good sign. that they're not, you know, taking that they're not cheating anyone, that they're not overpricing or underpricing.

For now, it’s unclear how the government will enforce Trump’s “most-favored nation” policy, but innovation researcher Ezell says they should think carefully about how they incentivize drug companies.

He says there is a strong link between how much a company earns and the creation of new drugs, so the challenge is to build a system where consumers and companies can benefit from innovation.

EZELL: We can have price controls. We can pay less for drugs. But the choice is not between lower drug costs and lower drug company profits. The choice is between lower drug cost and fewer or not as good solutions for our children.

Reporting for WORLD, I’m Mary Muncy.

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