By Steve Levy
One of the major accomplishments of President Donald Trump’s agenda this past year was his focus on the egregious fact that Americans are forced to pay far more for their prescription drugs than their counterparts in Europe. He has rightly demanded a correction to this inequity.
It was encouraging to hear since the president articulated the problem and promoted the same solution that I had called for five years ago in my book, Solutions to America’s Problems.
The book contained eighteen chapters on various issues of contention we face in our nation. The subjects ranged from exorbitant college costs, to the illegal immigration dilemma, to election integrity. One of the most complex chapters centered on the good and bad of the American health care system.
I compared what aspects of health care Europe does better than us, and what we do that is superior to their system. I detailed how absurd it was that our elected officials allowed a system to perpetuate that forced the American consumer to pay far more than those in Europe who paid less simply because their governments capped prescription prices while we do not. The higher prices we pay foot the bill for the pharmaceutical companies to research and develop new breakthroughs that everyone around the world, including the Europeans, benefit from.
My solution was simple: Impose tariffs to equalize the playing field unless and until the companies treat us fairer, or the Europeans ease their caps to have them pay a more equitable share.
The exact wording in my book was as follows:
“Prevent pharmaceutical companies from overcharging American consumers vis-à-vis European and other consumers around the world. Impose taxes on any firm that exhibits price discrimination, or tariffs on their exports.”
And that’s exactly what President Trump did.
Here are some other excerpts from my book written back in 2020:
“So why do pharmaceutical companies charge us more?
“The simple answer is: Because they can get away with it.
“European nations place limits on how high prices can be set, and the insurance companies acquiesce, in large part because they know they can inflate the prices in the US accordingly. It is the US consumer who foots the bill for the pharmaceutical ads and the research and development that goes into the next breakthrough.
“This scenario is likely to continue unless and until someone says ‘stop.’ The European nations within NATO paid less than their share, in large part, because no one forced their hand. But once President Trump did, things changed.
“It’s not as though Europeans are holding back on promises made to the US regarding drug prices. It is, however, accurate to say that the drug companies’ pricing schemes will not change unless they are forced to change them.
“There is something inherently unfair about Europeans paying less for prescriptions due to their price controls, yet still being able to enjoy the benefits that come from innovative new drugs paid for by the surcharge placed on the American consumer.
“According to Simon Haeder, Assistant Professor of Political Science, writing for the academic journal, The Conversation:
“Until the mid-1990s, the U.S. was really not an outlier when it came to drug spending. Countries like Germany and France exceeded the U.S. in per capita drug spending. However, since then, spending growth in the U.S. has dramatically outpaced other advanced nations. While per capita spending in the U.S. today exceeds US$1,000 a year, the Germans and French pay about half that.
“Lacking even rudimentary price controls, U.S. consumers bore the full brunt of the expensive development work that goes into new drugs. These costs were further augmented by marketing expenditures and profit seeking by all entities within the pharmaceutical supply chain. Consumers in Europe, where there are government-controlled checks on prices, were not as exposed to those high costs.
“In its study, “The Global Burden of Medical Innovation” (January 30, 2018), The Brookings Institution shows that:
“U.S. consumers spend roughly three times as much on drugs as their European counterparts. Even after accounting for higher U.S. incomes, Americans spend 90 percent more as a share of income.
“Empirical estimates find that American prices are 20-40 percent higher than prices in eleven other developed countries; Branded drug revenues in America are about $334 billion, with about $134 billion attributable to higher prices. (Note that pure price increases do not change quantity or manufacturer costs, so any price increase goes directly to profits.)
“Put differently, if American prices dropped to overseas levels, global profits would fall by $134 billion. Thus, 46 to 96 percent of global profits ($134 billion of global profits ranging from $139 to a $290 billion) can be attributed to higher prices in America.
“We find that the United States market accounts for 64 percent of global profits. Under more plausible assumptions — including smaller net margins of 20 percent and higher global generic spending of $425 billion — the share rises to 78 percent.
“After accounting for the value of these health gains — and netting out the extra spending — such a European price increase would lead to $10 trillion in welfare gains for Americans over the next 50 years.”