“We’ll slash the cost of prescription drugs, and we will bring fairness to America. Drug prices will come down. We’re gonna cut out the middlemen and facilitate the direct sale of drugs at the most favored nation price directly to the American citizen.” –President Trump
It seems like a straightforward proposition: Americans pay far more than consumers in other countries for drugs, the profits of pharmaceutical giants are soaring, while bureaucratic middleman allied with insurance companies are taking their hefty “vig”. There’s gotta be a better way.
A breast cancer drug that costs Americans $16,000 per bottle costs just ONE-TENTH that price in Sweden. The very same drug.
Last week President Trump signed an executive order aimed at lowering exorbitant prescription drug prices. Indeed, recently-appointed Medicare and Medicaid Administrator Mehmet Oz chimed in:
“30% of patients that are prescribed medications say they can’t take those medications as prescribed because they can’t afford them. That’s not bringing health to Americans. Let’s make it affordable so it’s sustainable.”
Newly-minted FDA Commissioner Dr. Marty Makary echoed:
“We didn’t take an oath to heal patients and then watch their life get ruined financially. We’re gonna do everything we can at the @US_FDA to support this executive order. It’s transformative. Thank you, @POTUS.”
HHS Secretary RFK Jr. gushed on “X”:
“No American should have to choose between getting better and going bankrupt. Yet today, skyrocketing healthcare costs are the leading cause of personal bankruptcy. Thank you, @POTUS, for your bold leadership and unwavering commitment to putting American patients first—and for taking real action to lower drug prices.”
It’s an audacious initiative by the new administration. But can Trump, King Canute-like, stem the tide of soaring prescription costs with a swipe of his pen?
His pronouncement pre-empts the long-standing agenda of the Progressive Left to curb profiteering by BigPharma and its enablers in the insurance industry. He’s stealing the thunder from Bernie, Liz Warren, and AOC!
And Trump may be uniquely insulated from pharmaceutical company influence because he’s independently wealthy and term-limited. Besides, BigPharma money underwrote the Harris campaign 6:1 over Trump in the 2024 election.
Watching this drama unfold is a little like viewing the classic movie Rashomon, with its dueling perspectives, depending on which protagonist is telling the story.
My first impulse on hearing of the executive order was to check the stock prices of huge pharmaceutical conglomerates. I expected them to tank on the news.
Not so! After a brief sell-off, Pharma stocks rallied and joined last Monday’s big uptick on news of the roll-back of the China tariffs. How could that be, when slashing drug prices stateside represents an existential threat to their revenue streams?
The answer is that drug companies are confident that Trump will be unable to enact his bold scheme. They’re prepared with an army of lobbyists and lawyers to block implementation of price controls.
They also may be relishing the prospect of reining in the power of middlemen—the pharmacy benefit managers (PBMs)—who control drug pricing at the behest of insurers. This has been a long-standing project of Big Pharma, which has spent millions in seemingly public-spirited campaigns to unlock “choices” for consumers.
Trump’s rhetoric targets these middlemen. Depending on who you’re listening to, PBMs are God’s gift to American consumers, or a costly burden on our medical system.
First, the good part: Pharmacy Benefit Managers negotiate, with enormous economy-of-scale, for volume discounts on the prices of drugs that insurance companies and Medicare Part D offer on formulary to their customers.
Most of you have experienced this: A doctor prescribes a medication and then your PBM (like ExpressScripts) authorizes it or denies it. Sometimes they tell you that instead you’ll need to take an equivalent drug whose price they’ve negotiated for. Choices are often limited, to the frustration of doctors.
For example, The NY Times recently headlined:
“CVS Caremark decided to stop offering Zepbound in favor of Wegovy for weight loss. It’s the latest example of limits imposed by insurance that disrupt treatments for patients.”
But here’s the insidious part (It’s the Law of Unintended Consequences): The PBMs have become enormous money makers, sustaining a bureaucracy of high-salaried intermediaries. What’s worse, they’re part of vertically-integrated monopolies—you know, like John D. Rockefeller who owned the oil wells, the refineries, the pipelines and the gas stations to ensure maximum profit.
Here’s how it works: Your medical insurers, be they Cigna, United Health Care, Humana, etc., have established or bought up PBMs to dispense drugs. The PBMs then steer customers to pharmacies or online fulfillment sites that are owned by the vertically-integrated companies. It all stays in-house. No wonder small independent drug stores are disappearing across America—they’re squeezed by the enormous buying power of the big guys.
The incentive for cost-containment disappears; you’d think it would be in the interest of insurers to curb drug prices, but no, newer pricier drugs command higher margins at the drug-store counter. Voilá—the perfect hedge for insurance companies! They game the system even when authorizing insurance coverage for expensive meds, while harvesting big markups at the pharmacies they own.
But it gets worse. In a scathing report by the Federal Trade Commission under the previous administration (“Pharmacy Benefit Managers: The Powerful Middlemen Inflating Drug Costs and Squeezing Main Street Pharmacies”), it was alleged that PBMs receive huge “rebates” (AKA kick-backs) from drug companies for preferentially listing their pricey meds on formularies.
The FTC report claimed that many of the PBMs’ contractual arrangements are cloaked in secrecy to avoid accountability. What are the deals and to where are the discounts that should be benefitting consumers disappearing?
The FTC report, drafted under the auspices of Progressive Biden-appointee Lina Khan, was reviled by pro-business Conservatives as anti-business overreach. Express Scripts even sued Khan and the FTC, calling their report “unfair, biased, erroneous, and defamatory”. How ironic then, that after sacking Khan, the Trump administration is now singing from the Khan playbook in demonizing the PBMs!
Drug companies relish the prospect of curbing the influence of PBMs because, without them, they can market directly to consumers in an open marketplace, skipping the arduous and restrictive negotiations with benefit managers. The pharmaceutical manufacturers could then deliver their rebates to consumers instead of to PBMs, allowing them to make pricey drugs more affordable. It’s not clear that getting rid of middlemen would, overall, lower medication prices, but it would eliminate the “skim” from PBMs, a potential savings.
Seizing the opportunity to bypass PBMs, Eli Lilly is pioneering a program to retail their popular weight loss drug Zepbound and other medications direct-to-consumer, offering discounts.
Already free-market Conservatives are inveighing against the Trump executive order, invoking the old argument that high drug costs are the price we pay for world-leading pharmaceutical innovation. They note that BigPharma has long been subject to a love-hate relationship by politicians: Happy to fatten their campaign coffers with generous contributions, pols are quick to turn drug-makers into whipping boys for populist discontent.
It’s also clear that new technologies, with innovation super-charged by artificial intelligence, are rapidly emerging that could make drug development take off in coming years. With breakthrough techniques, for example, for genetic analysis, regenerative medicine with stem cells and bioactives, gene-splicing to cure hereditary diseases, personalized medicine for cancer, and a slew of new weight-loss options, many argue we can’t afford to throttle-down the drug pipeline with price controls.
Adding more hurdles, drug-makers are already complaining that their previously cozy relationship with FDA regulators is turning frosty under the new MAHA HHS.
One thing’s for sure: The price of new medications is likely to be enormous. Novel drugs that target cancer, Alzheimer’s, or hereditary diseases routinely cost five-figures or more per year already. Medicare, by some projections, is threatened with insolvency by 2036.
We’re also trying to onshore production of medications as a national security priority. Covid and our brief bout with prohibitive tariffs highlighted the reality that virtually 90% of the raw materials for our essential drugs are sourced from foreign countries with lower labor costs and fewer regulatory constraints. It’ll be expensive to retool the home front for domestic manufacture.
Of course, one solution might be to go full MAHA, and make Americans less dependent on pharmaceutical solutions for preventable scourges. But realistically, are Americans ready to forego their infatuation with drug panaceas?
When I was in Europe earlier this month, everyday people extolled the benefits of their low-cost healthcare, with minimal outlays for medications. Of course, they admitted, they routinely surrender about half their income in taxes. It’s unclear how readily other countries, accustomed to cut-rate drug prices, can be coerced to shoulder a greater part of the burden of U.S.-based drug development as the Trump plan envisions.
Trump’s war on drug prices seems to closely follow the Art-of-the Dealplaybook. In bold initiatives on immigration, tariffs, DEI, universities, DOGE, peace negotiations in the Middle East and Ukraine, the emerging pattern seems to be to pitch a grenade and then pick up the pieces after the initial detonation, eventually retreating to a more moderate position.
After all the fanfare, given the enormous resiliency of BigPharma, I suspect a similar motif of realistic accommodation may emerge. But even incremental progress to make drugs more affordable and accessible would be an achievement.
