While the bully on the playground likes claiming victory—it doesn’t actually mean that he accomplished anything. The way that the bully’s class behaves around him, the way his teachers treat him, and the long-run consequences of his actions are almost never good for the bully. However, President Trump has been content with bullying companies into complying with his demands. The most recent example is the TrumpRx.gov website that just went live.
The idea of TrumpRx is a good one. Pharmaceutical prices are high, and they should be lower. The problem is that, in setting the TrumpRx prices, President Trump is using government thug tactics instead of good public policy.
Pfizer was the first company to give in to the President’s price demands, as well as committing to invest $70 billion to boost their manufacturing in the U.S. In return for Pfizer’s compliance, the President agreed to a three-year pause on pharmaceutical tariffs. An offer they couldn’t refuse.
After some more cajoling, several other companies have now followed Pfizer’s lead. The result is a direct-to-consumer website with low drug prices. The question that should be asked is: at what cost?
Unfortunately, we actually know the answer, in part thanks to a 2020 report from President Trump’s own Council of Economic Advisors on the Opportunity Costs of Socialism. The report cites a study that looked into the effects of the U.S. adopting European style price controls, finding that the cost of such policies would be lower life expectancy for Americans.
The mechanism for this involves several steps. Price controls undermine intellectual property rights, changing a pharmaceutical company’s incentive to invest in R&D. Price controls also harm the bottom lines of companies, which in turn also reduces the capital available for investment. Less research and development leads to fewer new drugs—and therefore lower life expectancy.
President Trump has based his price goals on the idea of Most Favored Nation pricing—not just mimicking European price controls, but literally importing them in a race to the bottom of socialist pricing.
Of course, like almost everything that President Trump does, TrumpRX is a well-intentioned response to a real problem. The President wants the U.S. to have the lowest prices in the world, and that is a tough to goal to argue against. It is in the implementation that everything starts to go off the rails. This is actually the third time that President Trump has proposed using MFN pricing. The first time the list of most favored nations included several self-described communist countries. When there was pushback to that list, the first Trump Administration went back to the drawing board and produced a second list that was less controversial, at least politically. This time Trump was actually able to implement the idea; it just took a few threats and a willingness to ignore the advice of his own economists.
Fortunately, there are real ways to lower drug prices that don’t involve bullying, but instead rely heavily on President Trump’s other idea to solve healthcare market woes: Fund the Patient. When doctors purchase pharmaceuticals directly from the manufacturers, patients pay much less than they would if they had to go through a pharmacy. If patients controlled their own healthcare dollars, they could use Mark Cuban’s Cost Plus Drugs. It is likely that pharmaceutical companies, if removed from the burden of needing to pay off PBMs, could sell directly to consumers at prices comparable to those on TrumpRx, only without needing to have their arms twisted.
There are lots of solutions to high healthcare prices, and most of them involve removing government barriers and poorly designed regulatory incentives. However, asking CEOs to the White House to make them an offer that they can’t refuse shouldn’t be something that is even on the table. We need reform that doesn’t just win the next election, but makes America a better place to live.
Charles Sauer is President of the Market Institute.
