Standing next to Pfizer CEO Albert Borla in the Oval Office last week, President Donald Trump announced that the pharma giant had made a startling concession: It would voluntarily lower the prices it charges Americans for its medicines. At the same time, the White House announced plans for TrumpRx, a new government website, that would launch next year, where US patients could purchase prescription drugs directly from drugmakers.
Politicians have been promising for years to do something to lower drug prices, a top priority for many voters. President Barack Obama made it a talking point, as did President Trump in his first term. President Joe Biden actually succeeded in passing legislation that would allow Medicare to negotiate drug prices with Big Pharma.
Now, Trump is back in the White House and is determined to make good on his promise to bring American drug prices in line with Europe and Canada through a policy called “most favored nation” status.
So, why do Americans pay more for prescription drugs than anyone else in the world? And what exactly is “most favored nation status?” To get a grasp on last week’s big news, Today, Explained co-host Sean Rameswaram talked with Stacie Dusetzina, professor of health policy at Vanderbilt University Medical Center.
Below is an excerpt of their conversation, edited for length and clarity. There’s much more in the full episode, so listen to Today, Explained wherever you get podcasts, including Apple Podcasts, Pandora, and Spotify.
What does “most favored nation” status mean?
When we’ve seen this come up in prescription drug policy, usually that means we look at countries with similar economies to ours who have pretty robust access to prescription drugs. We want to understand what they pay, and we want to pay the lowest of those prices.
One key problem is we don’t know for sure what other countries are paying. Other countries negotiate prices with drug manufacturers, and they get what they call “undisclosed discounts.” So we can see maybe the sticker price, but that’s not necessarily the price that that country is ultimately paying after those discounts. The price they pay we would call the net price, the net after all rebates and discounts. This net price paid by other countries is hidden from us currently.
This is not a small problem for the administration or for any policy that tries to use international reference pricing.
So, drug companies get to set prices, and those prices vary country to country, and some countries get more favorable treatment, but we don’t really know the specifics. Nevertheless, Donald Trump would like the United States to get more favorable treatment, comparable to those European nations?
Yes. On average across all purchasers in the US versus international prices, we tend to pay quite a bit more than other countries.
Why?
Other countries negotiate much more effectively than we do, and this is partly because they’re negotiating for the whole country at one time. Most of these countries have some form of national health insurance that allows them to negotiate with a drug company.
They do value assessments. What that means is that they basically compare the benefit of this new treatment that’s coming into their market relative to whatever is the current standard of care. They decide how much money that’s worth from a clinical and economic perspective. Then they say, “Okay, based on the clinical benefits of this drug, this is how much money we’re going to pay you.” And if companies are not willing to agree to that price, these countries will often say, “Then, you’re just not going to get to sell your drug to anybody in our country.”
On the other hand, in the US, we have a couple of things that limit our negotiations. One is that we don’t have a single payer. We have Medicare, Medicaid, we have private health insurance plans. It’s not just one group negotiating. We also have the desire to have access to everything. We want to have access to all the drugs. If our negotiations basically said, “Well, this drug isn’t worth it for us to cover,” some people are not going to be on board with that.
So, why can’t we figure it out?
Politics and policy aren’t necessarily aligning here very well.
Politically, no matter which part of the aisle you’re on, or if you’re independent, you are likely to want to say that you are going to do something about drug prices, because you know how popular that is. The reality, though, is that there are different views about who should be in charge.
Republicans have tended to want the private market to manage this. There are legitimate concerns about if you’re very heavy handed with setting prices, you may harm innovation in drug development, which is really important.
The other thing is that policies are just not as sexy as politics. You can have a big, splashy announcement that sounds like you’re making a real change to prices or access to drugs for the population — that doesn’t really do much. Or, you can have a policy change that is addressing a lot of complexity in the system that nobody has a media soundbite to talk about. Messaging is really hard.
Hearing you talk about making a big, splashy announcement being easier, the president several days ago made a big, splashy announcement. It sounds like that isn’t going to equate to meaningful change in how much Americans are paying for their drugs.
When looking at the details that are available here, the average American’s not going to experience any change from this agreement. Even people taking Pfizer’s drugs, which are the subject of this first agreement, are probably not going to see any differences in what they pay.
I think the thing that seems attractive about these options is that a lot of people are familiar with buying generic drugs this way and saving a lot of money relative to if they use their health insurance benefit. But branded drugs are just so much more expensive that it often doesn’t make sense for people to buy those outside of their health insurance.
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