President Trump recently set an ambitious goal -- ensure that Americans pay lower prices for medicines than patients in any other developed country. He's rightly frustrated that other wealthy nations artificially suppress their drug prices, which shifts the global research burden onto Americans and forces us "to pay almost three times more for the exact same medicines, often made in the exact same factories."
But while his executive order mostly deals with a proposal to directly tie U.S. drug prices to the lower "most-favored-nation" prices offered abroad, the most effective solutions are actually contained in other parts of his order.
In particular, the White House suggested creating a streamlined way for Americans to purchase medicines without having to go through the "middlemen" that heavily mark up prices. Simply targeting these intermediaries would dramatically reduce American patients, employers, and taxpayers' spending on prescription drugs -- without deterring the research investments that lead to lifesaving new medicines.
America's prescription drug supply chain is maddeningly complex. And middlemen exploit that complexity to maximize their own profits -- at the expense of patients and taxpayers.
The biggest offenders are pharmacy benefit managers, or PBMs. These giant companies -- just three of which control 80% of all prescriptions dispensed nationwide -- determine which drugs are covered by insurance plans, and how much patients must pay out-of-pocket for those medicines. PBMs use their leverage to extract huge discounts and rebates from drug companies.
Unfortunately, PBMs' interests are often diametrically opposed to patients' and employers' interests.
PBMs' earnings are generally calculated as a percentage of a drug's nominal price. Consequently, PBMs have a powerful incentive to force patients onto higher-cost medicines: the more expensive the drug, the higher the rebate for the PBM.
PBMs now collect roughly 42 cents of every dollar Americans spend on brand-name drugs. In many cases, the value of PBM rebates and fees for a given drug in the United States far outstrips the total cost of the drug in Europe.
In other words, if PBMs' influence were significantly curtailed, and they had to charge a flat administrative fee for their services rather than reaping a percentage of a drug's total price -- a reform that many in Congress have already proposed -- U.S. drug prices could be considerably lower without diverting a dollar away from research and development.
The federal 340B program, which enables hospitals to purchase prescription drugs at mandatory discounts, plays a similarly inflationary role. Congress intended hospitals to use the savings from 340B to offer more affordable care to low-income and uninsured patients.
Yet since hospitals are not explicitly required to pass those savings on, many opt to exploit the 340B program instead. They buy discounted drugs for pennies on the dollar and sell them to patients at enormous markups, sometimes exceeding 700%. In 2023, the total value of discounts on drugs purchased under 340B was roughly $58 billion -- much of which patients never saw.
By reforming PBMs and the 340B program, the Trump administration and Congress could substantially reduce the prices that patients pay for medicines. Simultaneously, the administration could follow through on the president's order instructing the U.S. Trade Representative -- the nation's top trade negotiator -- to ink deals that "ensure foreign countries are not engaged in any act . . . [that] suppress[es] the price of pharmaceutical products below fair market value."
Negotiating trade agreements and cracking down on PBMs' and hospitals' abuse of patients would lead to real savings for patients -- without sacrificing innovation. If the United States instead imports other countries' price-control schemes, global medical R&D will collapse, with no country but China likely to pick up the slack.
The White House is right to focus on making medicines more affordable. But not all solutions are equally effective. Patients, and researchers, are counting on the president and his advisers to choose wisely.
Dr. Wolfgang Klietmann is a former clinical pathologist and medical microbiologist at Harvard Medical School.
