Price Controls Will Not Help Patients

During the State of the Union address, President Trump said, “I took prescription drugs . . . from the highest price in the world to the lowest.” While Trump is trying to address patients’ frustration with high drug prices (indeed, he has recently secured some discounts through direct bargaining with drug companies), he has enacted a policy that will ultimately cause patients to suffer.

Announced last May, Trump’s “most favored nation” drug policy (MFN) will make the biggest companies, often known as “Big Pharma,” even bigger by putting smaller companies at a disadvantage. That will mean less drug innovation, as smaller companies are responsible for the lion’s share of new drugs. ...

Price controls make it harder to make a profit on a drug because governments often impose prices that don’t cover the cost of producing a drug. For larger companies that sell many different drugs, that’s not a big hurdle. If the prices of some of their drugs are not profitable, the prices of others can make up the difference, keeping the companies in the black. Additionally, large companies can absorb MFN compliance costs and the costs of lobbying or lawyering up to avoid regulation much more easily than smaller competitors.