How Trump’s pharmaceutical plan threatens Europe: Higher drug prices and delays in new therapies

Donald Trump’s demand that drugmakers raise medicine prices in Europe so they can be lowered in the United States is now more than just another bombastic demand from the president of the world’s leading power. The leading scientific journal The Lancet publishes a pioneering study this Monday warning of the real risk that measures pushed by Washington could reconfigure global pharmaceutical markets, lead companies to raise prices for drugs in other countries and delay the launch of new therapies there. The study was carried out by experts from renowned institutions including the London School of Economics and the universities of Harvard and Zurich, among others.

The policy, called “most-favored nation,” aims to stop the U.S. from being the country with the world’s most expensive prescription drugs. The measure proposes comparing the prices that Medicare — the public insurance system that covers 68 million Americans aged 65 and over — pays for each drug with the prices in selected reference countries. When Medicare prices are higher than in comparable countries, drugmakers would have to refund the U.S. government the difference through “additional rebates,” the paper says.

The potential savings for Washington are huge. After analyzing a sample of 195 patented drugs for which Medicare spends around $87.9 billion (€76 billion) a year within the GLOBE procurement system — for hospital drugs — and GUARD — for pharmacy-dispensed drugs — the researchers concluded the bill could be reduced by 16% to 18% “in its initial phase” and up to three times more after five years. South Korea, Norway and Australia are the most frequently used reference countries by Medicare to set prices, the authors revealed.

The problem with this policy is that, for three out of every four drugs under analysis, drugmakers would have to return to Medicare far more money — “about 3.8 times more” — than they earn from the drug’s annual sales in the chosen reference country. In other words, keeping prices low in those countries would cause manufacturers to lose more Medicare revenue than they generate by selling their drugs there. That creates a strong incentive to raise prices or not to sell their medicines elsewhere in the world so they are not penalized in the U.S.

“To minimize reductions in Medicare revenue, pharmaceutical companies might be incentivised to delay market launch or pursue other strategies to prevent the establishment of a reference price in the lowest-priced reference countries,” the study warns.

“U.S. policies can affect access to medicines globally. Policymakers should ensure that the availability of important medicines is not delayed as a result,” warns Kerstin Noëlle Vokinger of the University of Zurich (Switzerland), one of the study’s authors.

Despite the limitations of the study, such as the need to estimate the actual prices of many medicines because of the opacity of contracts between governments and drugmakers, consulted experts stress its relevance because, among other things, it quantifies for the first time the consequences of Trump’s policies on the global pharmaceutical market.

One of those experts is Jaume Puig Junoy, an economist and professor at UPF Barcelona School of Management, who has just published an essay about the impact of U.S. geopolitics on public health policies (published in Spanish by FUNCAS). “The study provides very useful evidence that confirms one of the book’s theses: when a low price in a small market causes a much larger loss for a drugmaker in the United States, incentives increase to delay launches, raise prices or offer confidential discounts,” he says.

However, Puig Junoy warns, this policy could end up harming other countries without delivering large benefits to Medicare: “If the U.S. remains the primary market and sets high initial prices, these could end up rising in other countries. That would make the savings obtained by Medicare of little significance.” The key idea is that spending reduction in the U.S. “is not an isolated outcome but depends on how companies and the health systems in reference countries react.”

Jaime Espín, a professor at the Andalusian School of Public Health (EASP) and a former adviser to the World Bank and the European Commission, believes a “possible delay in the launch of some drugs and attempts to raise prices” are likely in public health systems such as Spain’s.

“Those increases, however, can be mitigated with innovative financial instruments,” adds the expert, referring to clauses that can be included in contracts between governments and drugmakers to keep final prices confidential. Regarding the The Lancet study, Espín highlights that “it makes a novel quantitative assessment of the impact of these policies on public procurement in the U.S.,” while noting that “it does not estimate the implications for prices or possible delays in the launch of new drugs in the EU.”

Beatriz González López-Valcárcel, professor at the University of Las Palmas de Gran Canaria, says that other governments might activate ways to “get off the radar” as a U.S. reference country by “altering presentations and packaging so they are not comparable with those in the U.S.” Those changes would make the price comparisons sought by the Trump administration impossible.

A recurring issue in this situation is price confidentiality, which experts such as González López-Valcárcel believe could now “intensify” to avoid unwanted increases due to Trump’s pressure on drugmakers. Spain, for example, has followed this strategy in recent months by legally shielding these prices so they remain secret.

The director general of Pharmaceuticals at the Spanish Ministry of Health, César Hernández, admits that the pressure caused by Trump’s policies “is real” in the administration’s relations with the sector. “There is a risk that the industry will try to prevent European prices from conditioning those obtained in the United States,” he explains.

Hernández rejects as “simplistic” the argument that “Europe pays too little for medicines” and argues that “European health systems contribute very significantly to innovation through drug funding, public research, clinical trials, scientific infrastructure and the generation of evidence.”

Therefore, and although he considers it “legitimate to debate how to fairly distribute the global effort for innovation,” the director general maintains that “the characteristics and internal problems of the U.S. market cannot automatically be transferred to European systems.”

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