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When President Donald Trump unveiled American Patients First, his new plan to reduce drug prices, in the Rose Garden of the White House in mid-May, pundits and consumers interested in a looser regulatory health care regime waited anxiously for what they hoped would be a first step in that direction.

While the original remarks delivered by the president were described by conservative health care experts as underwhelming—not bad, necessarily, just short on details and seemingly lacking anything beyond boiler plate ideas conservatives had been proposing for years with little success—Health and Human Services Secretary Alex Azar clarified Trump’s remarks and filled in the gaps a few days later. And where Trump had been general, Azar was painstakingly specific, to the delight of free-market advocates everywhere.

The excitement of Trump’s plan is due to the general theme evident throughout the plan: making drug pricing—long thought to be a primary reason for steep health care costs—much more competitive and subject to free-market forces and much less regulated by government bureaucracies and insurance company middlemen, who have long enjoyed a near-monopoly on negotiating power.

And along with ideas about requiring pharmacy benefit managers—those insurance company middlemen mentioned above—to finally be transparent about the rebates they receive from drug companies and mandating they pass at least one-third of those savings on to the consumer, Trump also outlined his desire to tackle something in the drug industry that has become a hallmark within his administration: trade imbalances.

One of the specific bullet points released by the White House related to the trade imbalance in drug pricing says, “Other countries use socialized healthcare to command unfairly low prices from U.S. drug makers. This places the burden of financing drug development largely on American patients and taxpayers, subsidizes foreign consumers, and reduces innovation and the development of new treatments.”

The statement also noted, “The United States pays more than 70 percent of branded drug profits among [Organisation for Economic Co-operation and Development] countries.”

A 2015 report from The Wall Street Journal titled “Why the U.S. Pays More than Other Countries For Drugs” explains the same concept in this way: In European nations such as England and Norway, where the state is the primary drug-buyer because it is almost the only player in the provision of health care, the ability to unilaterally apply price controls keeps costs artificially low. The very disperse U.S. system—which includes everything from insurance companies to federal/state governments to employers—means no one can act unilaterally.

Additionally, the United States provides drug research and development that quite literally supply the rest of the world with its drugs. If drug prices in the United States were to drop as a result of mandates and regulations, drugmakers would not be able to fund their research and development efforts, which means the cutting-edge drugs the rest of the world relies on would no longer be created or would be created much more slowly.

Sally Pipes, president and chief executive officer of the Pacific Research Institute, writing in RealClearHealth just after the unveiling of the new pricing plan, noted the Trump administration has already started to renegotiate trade deals with nations such as South Korea, which promised to revise its reimbursement scheme to make sure U.S. drug manufacturers receive the same rate of reimbursement as domestic Korean manufacturers.

“President Trump has … promised to crack down on foreign countries that freeload off American research and development spending on pharmaceutical,” Pipes wrote. “Right now, many countries artificially cap the price of drugs. And they impose trade barriers that force American drug manufacturers to sell their products at steep discounts. Such practices shift the burden of funding drug development onto American patients and taxpayers. Seventy percent of pharmaceutical companies’ global profits come from sales made in the United States.”

The United States has been very nearly subsidizing the global drug pharmaceutical trade while other nations pat themselves on the back for keeping prices low (because they have no research and development overhead to offset and their socialist-leaning governments have monopolies on price control).

Similar to how Trump recently changed his approach to trade in China—he is working to tamp down intellectual property theft and threatening to impose tariffs unless China reconsiders its massive trade surplus—Trump seems poised to take a much-needed hardline approach to drug manufacturing and pricing as well.

It’s a most-welcome shift to have an administration interested in making sure that in the global pharmaceutical trade, the United States gets as much back as it puts in.

Sarah Lee is a research fellow at The Heartland Institute.

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