Trump Counters “Profiteering and Price Gouging from Big Pharma”

A Bernie Sanders idea, Robert Kennedy explains

Dr. Jay Bhattacharya, Dr. Mehmet Oz, President Trump, and Robert Kennedy Jr. with Trump’s executive order on drug pricing.

What to make of President Trump’s announcement this morning that he will “slash the cost of prescription drugs” and “no longer tolerate profiteering and price gouging from Big Pharma”?

On the face of it, it’s an abandonment of the principle that the price should be freely determined by markets, not by the president. Trump said the drug companies would have to “either abide voluntarily” by his order to charge Americans the same prices charged in other developed countries “or we will use the power of the federal government.” He also vowed, “We’re gonna cut out the middlemen,” explaining, “they are worse than the drug companies.”

When I checked after the event, Cigna (which owns pharmacy benefit manager Express Scripts) was down about 6 percent. CVS, which owns Caremark, another pharmacy benefit manager, was down about 4.7 percent. Drug companies—Pfizer, Lilly, Merck, GSK—by contrast, were up or even. The market overall was up on the China tariff news.

For anyone worried that Trump’s policies amounted to Bernie Sanders socialism, the secretary of health and human services, Robert Kennedy Jr., helpfully explained that, yes, “This was the fulcrum of Bernie Sanders’s run for the presidency.”

Kennedy said he has two children who are Bernie Sanders fans. “When I told them this was going to happen they had tears in their eyes,” Kennedy said. He apparently meant tears of joy.

Dr. Mehmet Oz, the administrator of the Centers for Medicare & Medicaid Services, was more reassuring, explaining that the change was meant to make the rest of the developed world pay more for medicine so that America isn’t shouldering the whole burden. “We want innovation,” Oz said, likening the policy change to the effort to get NATO allies to spend more on defense. “We are going to be able to get the pharmaceutical industry whole,” Oz said.

Dr. Jay Bhattacharya, the director of the National Institutes of Health, said, “I teach economics at Stanford.” He portrayed the administration as “helping drug companies” by advocating on their behalf for higher drug prices in Europe. “We’re going to defend American drug companies in Europe,” Bhattacharya said.

Bhattacharya talked about what he called “tremendously high drug prices.” I took my economics at a non-Stanford university but if there was a class on what defined a drug price as “tremendously high” I must have missed it; at Stanford, the tuition for such a class must be “tremendously high.” If a drug will save a life or reliably extend it or meaningfully improve its quality or be an alternative to risky surgery, the price may seem high, but the price of not taking the drug may be even higher.

When a reporter asked President Trump if he was putting price controls on medicine, he rejected that description. “It’s not price control,” he said. “Price control was before.” He meant that the other countries, like Europe and Canada, were imposing price controls that the drug companies were subjected to while Americans paid higher prices.

The executive order, titled, “Delivering Most-Favored Nation Prescription Drug Pricing to American Patients,” says, “Americans should not be forced to subsidize low-cost prescription drugs and biologics in other developed countries, and face overcharges for the same products in the United States. Americans must therefore have access to the most-favored-nation price for these products. My Administration will take immediate steps to end global freeloading and, should drug manufacturers fail to offer American consumers the most-favored-nation lowest price, my Administration will take additional aggressive action.”

Pharmaceutical Research and Manufacturers of America (PhRMA) president and CEO Stephen J. Ubl issued a statement in response to the executive order. He also blamed the middlemen. “To lower costs for Americans, we need to address the real reasons U.S. prices are higher: foreign countries not paying their fair share and middlemen driving up prices for U.S. patients,” Ubl said. “The Administration is right to use trade negotiations to force foreign governments to pay their fair share for medicines. U.S. patients should not foot the bill for global innovation. The U.S. is the only country in the world that lets PBMs, insurers and hospitals take 50% of every dollar spent on medicines. The amount going to middlemen often exceeds the price in Europe. Giving this money directly to patients will lower their medicine costs and significantly reduce the gap with European prices.”

He warned, though, that, “Importing foreign prices from socialist countries would be a bad deal for American patients and workers. It would mean less treatments and cures.”

What’s really going on here?