President Trump’s executive order on drug prices will make things much worse. I should know — I’m writing from Hungary, where our government tried something similar. It was a disaster. Trump should learn from Hungary’s mistakes.
Trump wants to make drugs cheaper through ‘Most Favored Nation’ (MFN) pricing. The proposal would effectively link American drug prices to European prices. The idea is Americans will get a bargain by paying cheaper European prices for drugs. Unfortunately, price fixes like this come with a wide range of problems.
MFN would make the prices Americans pay for drugs dependent on the policy decisions of European governments and regulators. That’s a terrible idea. Artificially lowering prices will cause shortages, just like it did here in Hungary. The U.S. should consider allowing more medicine to be sold over the counter instead. That would achieve what Trump wants without choking up the supply chain.
High drug prices are a serious problem — but drug shortages are even worse. Hungarians experience this issue frequently. Hungary has one of the highest instances of shortages in the EU. Sometimes, consumers like me can find viable alternative drugs when the one we need is out of stock, but often, we can’t. That means the sick and wounded have to go abroad to secure their medications.
At first glance, Hungarian medicine prices look very cheap. The government implemented a blind bidding system for pharmaceutical companies and introduced voluntary price caps. It indexed prices to the lowest costs in the European Economic Area. That’s an attempt to get Hungarians the most favorable rates — a move somewhat similar to what President Trump wants to do.
However, with those policies in place, drugs are pricier than they seem in Hungary. Hungary has significantly higher relative costs of certain pharmaceuticals than richer European countries, when prices are adjusted for GDP per capita. Getting prices down is not as simple as imposing price fixes. This multifaceted government interference affects availability and innovation, as well as prices. Hungary is breaking records for drug shortages thanks to attempts at price control. Companies suffer and innovation is stifled. All in all, consumers are hit with a lack of options, less effective medication, and ultimately still unfavorable prices.
It is easy to dismiss Hungary as an unimportant faraway land. That would be a mistake. It carries important lessons for the U.S. Capping drug prices does not work. If President Trump pushes ahead with this policy, Americans will find drugs less accessible than ever. Trump often urges Europe to be less dependent on U.S. assistance. It is ironic that he is willing to delegate critical U.S. interests such as drug prices to European governments.
Whether we like it or not, we live in a globalized world where the vast web of international trade and interdependencies creates a complex system. There is no quick solution to high prices. Fixing prices to the cheapest rates in OECD countries will not result in Americans getting the benefits of cheaper prices without the disadvantages. Markets do not work that way. Those prices are the result of unique circumstances and specific negotiations.
Many OECD countries negotiate prices directly with pharmaceutical companies. American markets represent a big slice of those companies’ profits, which they can use for research and development to drive innovation. Under MFN, businesses will face two choices: either lower their investments into developing new and better pharmaceuticals, or increase prices globally to be able to spend the same amount on innovation. As the competition among drug producers incentivizes development, the latter scenario is more likely. Cutting off American revenues leads to prices going up elsewhere. That means the ‘most favored’ price Trump is chasing would not be so favorable after all — and that’s before we get to other issues like delays and shortages.
The U.S. is a global powerhouse. It is rightfully proud of its independence which enables it to lead through example. MFN would fly in the face of America’s position in the world. The policy would make the U.S. subservient to other countries' mistakes. Instead of being a trailblazer, it would have no agency over the prices of essential medicines. MFN would also suffocate innovation, which still propels America far ahead of other nations.
Innovation is the solution. It could solve the pressing problem of high drug prices. Instead of reference pricing, which has a negative impact in the long term, the Trump administration should consider allowing certain prescription medicines to be sold over the counter. Switching to over the counter (OTC) increases competition. Supermarkets sell drugs at 20% lower prices than pharmacies. Patients would save a trip to the doctor, saving more money. Every dollar spent on OTC medicine in the US saves the country over $7, translating to an annual $167.1 billion.
There are several good examples of such a measure working. The price of Loratadine, an allergy medicine, halved when switched from prescription to OTC. When adapalene gel, an acne treatment, became available over the counter, it decreased costs both for patient and payer, and improved access.
High drug prices are a problem but the most favored nation policy would push costs up, not down. It would also cost the US its leading position in innovation. Trump should not replicate failed European price control policies. Instead, he should innovate by making more drugs available over the counter to heal the U.S. from its medicine costs ailment.
Máté Hajba is a policy writer with Young Voices and the director of the Free Market Foundation, a Hungarian think tank which advocates economic freedom, civil rights and tolerance. He is also the author and co-author of several books. Máté regularly writes about economic issues and human rights for media outlets around the world.
