[By GuanchaNet Columnist NorthernStorm]
While all eyes were on the US-China trade negotiations and Trump's Middle East trip, Trump hasn't been idle at home either.
On May 12 local time, Trump signed an executive order requiring pharmaceutical companies to reduce drug prices in the U.S. to the lowest level among OECD countries, i.e., the so-called "most favored nation" treatment.
This move was quite significant, but most European and American pharmaceutical stocks did not fall; instead, they rose quite a bit. Many experts also made judgments that whether Trump's policy can actually lower drug prices still has quite a few variables.
On May 12, U.S. President Donald Trump announced measures to lower drug prices during a press conference. To his right are Health Secretary Alex Azar and National Institutes of Health (NIH) Director Francis Collins. Photo by AFP.
America's medical technology is undoubtedly the most advanced, but the cost of healthcare for Americans is extremely high; in fact, the healthcare issue is one of America's main social problems.
This is a consensus across party lines. In recent years, all three presidents have done something about it. Obama proposed a new health insurance system, but the final results were less than ideal; Biden required the reduction of prices for a small number of commonly used drugs in the inflation reduction bill, but the impact was not significant.
This most favored nation treatment proposal is not Trump's first attempt. In 2020, the Trump administration had proposed a similar plan, but because of a lawsuit filed by the Pharmaceutical Research and Manufacturers of America (PhRMA), this plan was suspended.
Therefore, many people are skeptical about whether Trump's current plan will significantly lower drug prices for Americans.
Firstly, how long will Trump himself continue to pay attention to this policy? It is well known that the attitude of this U.S. president towards many policies often changes, and he retreats when encountering difficulties or no longer pays attention after proposing them. The problem of high drug prices in the United States is clearly not something that can be solved by just one executive order, requiring subsequent extensive attention and planning. Trump's approach and past performance make both European and American pharmaceutical industry insiders and analysts doubt how this policy will be implemented.
Beyond Trump's personal level, the executability of this executive order still has too many variables.
This executive order only requires pharmaceutical companies to reduce prices to the most favored nation level, but there are no specifications regarding how to enforce it or what to do if companies violate it. Trump mentioned cracking down on middlemen during the press conference, but didn't mention how exactly. This not only provides a lot of loopholes for various enterprises, but also poses a challenge for administrative personnel on what exactly they should do.
According to the current U.S. pharmaceutical system, a large portion of the high drug prices is not for the pharmaceutical companies but for pharmacies, insurers, and pharmacy benefit management organizations. This proportion can sometimes reach 50%, which is the result of the highly market-oriented nature of the U.S. pharmaceutical industry. These organizations have a great influence on the flow of drugs and the settlement of medical insurance in the U.S., and as long as they wish, they can easily obstruct this policy. For example, insurance and pharmacy organizations can convert this part of the cost into some kind of "service fee" rather than the drug price itself. However, so far, we haven't seen any systematic plans from the Trump administration.
In most cases, Americans' drug payment costs are higher than those in other countries. The average price of the same brand-name drugs in the U.S. is 344% higher than in other countries. Nicole Bean for BioSpace.
Theoretically speaking, Trump could directly control the U.S. official medical insurance system through administrative power, but the scale of commercial medical insurance in the U.S. is very large, and Trump's idea is unlikely to have an immediate effect. At the same time, even within the U.S. official medical insurance system, there are numerous legal loopholes in the settlement process. American pharmaceutical-related organizations don't need to directly confront Trump; through legal means, they can greatly delay Trump's healthcare reform plans.
To be honest, Trump's plan does indeed keep with his usual style, but many complex global issues cannot be solved simply by a command.
Let's compare it with China's centralized procurement policy.
China's centralized procurement policy first started as a pilot in certain regions before being implemented nationwide. Each round requires negotiation, and only part of the drugs are negotiated at a time. Sometimes negotiations succeed, and sometimes some drugs fail to be negotiated. This policy is carried out under the premise that China's drug and medical device localization has achieved some success, and that national medical insurance dominates the settlement of medical insurance. This work has been ongoing for more than ten years since its argumentation phase. It has indeed achieved some success, but it also faces many problems, old and new. Some of these problems have become hot topics of public opinion, and some of them are really difficult to solve.
Compared to this, Trump's idea is completely impulsive, believing that as long as he wants something, everything can be solved. This makes people very suspicious.
The healthcare issue is undoubtedly a key issue in every country today. Behind the drug issue lies a collection of multiple complex problems. The desire to quickly resolve complicated issues is understandable, but when facing multiple problems at once, they are not always easy to solve. From Trump's executive order alone, multiple problems can be broken down.
In Trump's speech, he mentioned that pharmaceutical companies set high drug prices citing research and development costs, which he believes is unfounded. He argued that other countries should bear more costs, and in a way, this becomes a favorable reason for pharmaceutical companies. The logic behind this is certainly interesting. Drug prices in Western countries are generally expensive, but none of them are as expensive as in the U.S. The reason is that most Western countries have some form of pricing negotiation systems to control drug prices, and the inspiration for China's centralized procurement system also comes from here.
For a long time, America's most market-oriented healthcare system has been considered a driver of innovation, as excessive profits are undoubtedly the primary motivation for innovation under capital-driven rules. And objectively speaking, Americans bear more of this cost, given that U.S. drug prices are the highest in the world. In response to this issue, Trump's solution is to let other countries shoulder more of the burden, consistent with his view that Americans are losing out in globalization while other countries are benefiting.
It cannot be denied that the pharmaceutical industry is a highly globalized sector, but has America really lost out in this process? The situation is likely not so. A typical manifestation of pharmaceutical globalization includes a large amount of raw materials coming from China to Europe and America, and much of the early-stage research and development being outsourced to China. Why do these companies do this? Of course, because China offers good value for money in raw materials, and research and development costs are lower. In the exorbitant profits of America's pharmaceutical industry, China's bottom-tier supporting industries can only earn a small fraction.
Luckily, like in other fields, China's pharmaceutical industry has also begun moving upstream from its supporting role. This industrial upgrading process is quite evident. But the problem is that America clearly does not want to see this happen.
Before this price cut for drugs, the Trump administration had already launched a 232 investigation on imported drugs, especially Chinese drugs, hoping to create barriers for imported drugs. At the same time, in 2020, PhRMA, the American pharmaceutical association that blocked Trump's most favored nation drug pricing plan, made a statement that was quite revealing. While supporting Trump's policy, it explicitly stated that reliance on Chinese drugs and learning China's drug pricing system should not be considered—previously, some in the U.S. industry worried that Trump might import large amounts of Chinese drugs to lower drug prices. But I think this is overestimating Trump's intentions; he is not genuinely trying to lower drug prices. Trump is more likely aiming to save money to give tax cuts to the rich, with the benefits for the底层 people being secondary. Perhaps this contradiction in America—worrying about the harm of Chinese raw materials to national security while thinking that American drug costs are too high—is due to Trump's current policies.
High U.S. drug prices cannot be resolved by just one executive order from Trump.
Many international pharmaceutical companies price some drugs low in third-world countries, not because they are kind-hearted, but because they are well aware that setting too high a price would reduce sales and affect revenue. This applies to drug price negotiations in other countries as well. The U.S. is no exception; because of the lack of basic medical insurance, Americans must spend a lot on healthcare, otherwise they risk becoming one of the homeless. They do not have much bargaining power.
America has the world's leading medical technology, but the poor state of several per capita health indicators stems from this; because America's economic model gives pharmaceutical companies room to exploit resources, this is why things are as they are. Trump seems unwilling to change this, instead blaming others; we have reason to believe this won't solve the fundamental problem.
Using innovation as a reason to explain U.S. drug prices doesn't hold up. High U.S. drug prices are not due to original research drugs; in fact, many older drugs and generic drugs in the U.S. are also the most expensive in the world. There have even been instances where companies bought patents for older drugs and raised prices dramatically. However, it cannot be denied that innovative drugs are indeed costly, and this is not just an issue for the U.S.; it is a common problem for pharmaceutical innovation worldwide.
A common saying is that the cost of a completely new drug is one billion dollars. Here, the term "completely new drug" usually refers to a new target or a new mechanism of action for a target. The main source of this innovation cost is trial-and-error expenses. Although the development of new drugs nowadays is largely based on specific studies at the molecular and cellular levels, whether something that works at the molecular level will work in the human body obviously has many variables.
This is also why some say that Chinese drugs follow those of Europe and America. Domestic new drugs are no longer simple imitations of European and American new drugs but are rapid followers after international pharmaceutical companies have successfully targeted a mechanism. Although many people look down on this, ten years ago, most domestic pharmaceutical companies probably didn't have this capability.
Indeed, in the field of drug research and development, new technologies have emerged one after another over the past few decades, with each era bringing entirely new technologies to improve drug development. However, the success rate and cost of original research drugs have not fundamentally improved. The reason is not complicated; most innovations in drug research and development techniques occur at the molecular and cellular levels, whereas most failures and costs in drug trials come from the clinical trial stage. Our understanding of the laws governing complex human systems is unlikely to improve rapidly, and this will likely remain a gradual upward trend for decades to come. Therefore, although new technologies are certainly good, expecting an advanced technology to solve the cost of drug development is unrealistic. Even AI companies like OpenAI consider Trump's commitments in healthcare to be speculative behavior.
In fact, China's pharmaceutical companies face similar issues. One major controversy about centralized procurement is that some people believe that if drug prices are too low, it will pose a huge challenge to China's pharmaceutical companies' ability to develop new drugs, and without sufficient profit margins, how can drug research and development be driven? Some companies choose to go overseas to address this issue, but the pharmaceutical industry remains an industry with very high barriers. Trump will obviously choose to strictly guard against Chinese drugs. Of course, Trump's requirement to raise prices for drugs from other countries also presents opportunities for China's innovative drugs, but whether these opportunities can be seized depends on too many variables.
In essence, Trump doesn't really care about innovative drugs; otherwise, he wouldn't have cut funding for basic life sciences research in the U.S. After all, without these basic research efforts, there would be no pharmaceutical industry in the U.S. Even if the U.S. stops developing all new drugs now, pharmaceutical companies still have enough old profits to sustain themselves. Even if one day China surpasses the U.S. in new drug development, they can still protect themselves through trade barriers. But what about ordinary Americans? Our pharmaceutical industry faces many problems, some similar to those in the U.S., and some different. Regardless, we shouldn't delude ourselves.
In the current situation where "low-hanging fruits" are becoming fewer, the cost of innovation tends to increase, concentrating on a few companies, which easily leads to monopolies. Under such circumstances, the results of technological innovation often do not benefit everyone, as evidenced by the plight of Americans despite their leading pharmaceutical technology. This situation naturally needs to change, but whether Trump's blind activism can solve the problem remains to be answered by history.
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