President Trump recently issued a blitz of executive orders in an attempt to fulfill his promise to reduce drug prices.
One of those orders would put in place a “cure” far worse than the disease. The order in question establishes foreign reference pricing, whereby the federal government ties its reimbursement rates for certain drugs dispensed under Medicare Part B and Part D to the lower prices available in countries with per-capita GDP comparable to that of the United States. Germany is one of those countries.
The president is trying to put his reputation as a master negotiator to use. But the deal he’s proposing would deprive Americans of the medicines they depend on to thrive and even survive.
It’s easy to look at German drug prices and think Americans are getting a raw deal. As Mr. Trump notes, “We pay 80 percent more than nations like Germany … for some of the most expensive medicines, identical in all respects.”
Germans pay less for these medicines because their government restricts what pharmaceutical companies can charge. Under the German model, firms can sell a new drug at a price of their choosing for one year. This gives the Federal Joint Committee — a non-governmental organization known by its German initials G-BA with representatives from the payer, provider and patient communities — a chance to commission a study of the clinical effectiveness of the medicine. If the committee deems a new drug no more beneficial than existing medicines, then the price is effectively capped at the cost of those existing drugs or therapies.
The G-BA engages in some serious motivated reasoning. After all, if it can conclude that the drug in question is no more effective than a cheaper drug, then German payers save a lot of money.
So, it’s no wonder the G-BA is dismissive of new drugs. About 60% of new medicines are judged to be no more effective or have no more quantifiable clinical benefit than drugs already on the market.
The G-BA’s judgments are completely out of step with the medical consensus. Half of the cancer drugs that German officials claimed provided no additional benefit between 2013 and 2017 were considered breakthroughs by the U.S. Food and Drug Administration.
The broader oncology community has lauded a class of breast cancer therapies called CDK4/6 inhibitors as game-changing; Germany’s drug bureaucrats gave three of them negative assessments.
Pharmaceutical companies won’t sell their cutting-edge products at the cut-rate prices the G-BA so often dictates. So, German patients don’t have access to them. Of the 356 new medicines launched between 2011 and 2019, fewer than two-thirds were available in Germany.
Americans, by contrast, had access to 87%. Under Mr. Trump’s executive order, that number would plummet.
And by importing Germany’s price controls, the order would deny pharmaceutical researchers the revenue they need to underwrite the development of the next generation of cures.
Rather than import foreign price controls, the Trump administration should pressure countries like Germany to pay their fair share of the global pharmaceutical research and development tab. The United States accounts for nearly 60% of that tab. Germany’s share is one-tenth as much — just 6%. And it’s fallen by almost half since 1990.
In other words, German patients are freeloading, enjoying the fruits of the medical innovation that American patients disproportionately pay for.
President Trump’s executive order wouldn’t correct that injustice. By importing German price controls, it would rob American patients of the most innovative medicines available today — and stop the breakthrough treatments of tomorrow from ever being developed.