It’s hard to find things that Donald Trump and Bernie Sanders agree on, but one point of consensus is that pharmaceutical companies have long been ripping off Americans by charging extortionate prices for prescription medications. “Americans are being screwed, and it’s no good. They’re not going to put up with it,” Trump said in February, at a White House event. In May, he issued an executive order declaring that the Administration would impose lower prices by fiat if drugmakers didn’t align their U.S. prices with what they charge in other countries. “I agree with President Trump,” Sanders commented in a statement. “It is an outrage that the American people pay, by far, the highest prices in the world for prescription drugs.”
In addition to threatening to introduce price controls, the Trump Administration was preparing the way for tariffs on drugs and their ingredients, many of which come from abroad. Wall Street paid attention to these threats. Between Trump’s election last November and the beginning of April, a period in which the stock market as a whole rose sharply, drug stocks fell by about twenty per cent. That was then. Last week, the President, standing alongside the C.E.O. of Pfizer, Albert Bourla, announced plans for a government-run website, TrumpRx, on which Pfizer would list some of its drugs at prices discounted up to eighty-five per cent. A White House fact sheet said the Administration and Pfizer, the world’s fourth-largest pharmaceutical company by revenue, had reached an agreement to “bring American drug prices in line with the lowest paid by other developed nations (known as the most-favored-nation, or MFN, price).” Wasn’t this more bad news for drugmakers? Investors didn’t think so. In two days, Pfizer’s shares jumped up by fourteen per cent. The stocks of other pharmaceutical companies also rose strongly based on predictions that they would strike similar deals. By the end of the week, the S. & P. Pharmaceuticals Select Industry Index had surpassed its November high.
A closer inspection of the Pfizer agreement shows that Trump has turned out to be a paper tiger. “It’s a lot of nothing,” Craig Garthwaite, the director of the health-care program at Northwestern’s Kellogg School of Management, told me. “For most people, it will have very little effect on drug prices.” Rena Conti, an economist and expert on the biopharmaceutical industry who works at Boston University’s Questrom School of Business, issued a similar assessment: “Top line is: it’s a win for Pfizer, but not a win for American patients.” Rather than radically restructuring drug pricing and distribution, the agreement amounted to “fiddling around the edges,” she said.
In the American drug industry, practically anything that preserves the status quo is a victory for Big Pharma firms, which, according to a study by the Journal of the American Medical Association, boast a net profit margin of 13.8 per cent compared to 7.7 per cent for S. & P. 500 companies in other sectors. Years ago, I asked a senior executive at a prominent drugmaker why it employed so many lobbyists in Washington. After looking at me as if I were a naïf, he explained that the industry generated most of its revenues and the vast majority of its profits in the U.S. In other countries, such as Britain and France, companies were forced to negotiate the prices they charged with government-run or single-payer health-care systems that have a lot of bargaining leverage. But in this country—where health care is balkanized and the largest public drug-buyer in the U.S., Medicare, was legally prevented from negotiating with drugmakers—the industry was able to charge much higher prices. It was well worth paying an army of lobbyists to try to preserve this privileged position.
Between 1998 and the middle of this year, according to data from OpenSecrets, a public-interest group that tracks money in politics, Big Pharma spent more than $6.3 billion on lobbying. During that period, the most significant reform related to drug pricing came in the Inflation Reduction Act of 2022, which empowered Medicare to haggle prices with drug companies. In principle, this was a landmark development, but the negotiated prices won’t go into effect until next year and will initially apply to just ten prescription drugs, out of thousands. (In subsequent years, the number is scheduled to grow.) If Trump was really determined to stand up to Big Pharma, he would be pressing for a rapid expansion of this initiative, but he isn’t doing that. And, even if he did, he would have to corral Republicans in Congress to support the new legislation required, which certainly wouldn’t be easy: the I.R.A. was passed without a single G.O.P. vote.
In place of real reform, we now have the Pfizer agreement, and its headline proposal to launch TrumpRx. In a press release about the deal, Pfizer said it would offer many of its primary-care medications at prices averaging half their list prices. This sounded promising, but industry analysts quickly pointed out that about ninety per cent of Americans get their prescribed medications through insurance plans. For these people, it would still likely be cheaper to get the drugs the traditional way and pay the co-payment. Garthwaite said buying drugs through TrumpRx could conceivably benefit “a small subset of people,” principally among the population that doesn’t have any insurance coverage. But many medications would still be prohibitively expensive. Conti calculated that, even with Pfizer’s announced forty-per-cent discount for Xeljanz, a popular treatment for arthritis and other inflammatory diseases, it could still cost patients more than fifteen thousand dollars a year.
Even if TrumpRx does get up and running next year, as the White House indicated it will, its existence is unlikely to alter the prices at which drugmakers sell the great bulk of their products. In fact, the Wall Street Journal, citing senior Administration officials, reported that TrumpRx wouldn’t actually sell any drugs at all. It would instead refer users to direct-to-consumer websites, where purchases could be made. In the scathing estimation of The American Prospect’s David Dayen, TrumpRx would merely “filter people to the latest drug industry tactic to avoid patient anger over high prices.”
The Administration’s claim that the agreement would bring U.S. drug prices in line with lower prices charged overseas also demands inspection. Its fact sheet acknowledged that Pfizer is pledging to guarantee these low prices solely for drugs purchased through Medicaid, the public health-care system for low-income Americans. But Medicaid plans, which are managed at the state level, already receive hefty discounts on list prices. Conti pointed to a 2021 study that found that these discounts amounted to sixty-five per cent off retail prices. If the Pfizer agreement is replicated with other drugmakers, it could conceivably further enlarge the Medicaid discounts. But they wouldn’t apply to the prices that drug companies charge Medicare or private insurance plans.
Another, and ostensibly more significant, element of the Pfizer agreement is the Administration’s claim that the deal would have the effect of “guaranteeing MFN prices on all new innovative medicines Pfizer brings to market.” Last year, a study by the RAND Corporation found that brand-name-drug prices in the U.S. are, on average, more than four times those in other developed countries. In some cases, the price gaps are even larger. At a White House event in May, Trump mentioned that a friend of his told him that he had paid eighty-eight dollars in London for an anti-obesity drug that would have cost him thirteen hundred dollars in New York.
But the terms of the Pfizer agreement are confidential, so how, exactly, the White House plans to assure global price parity remains unknown. In a press release, Pfizer merely said, “We’ve established a balanced global pricing approach that continues to recognize the value of innovation while ensuring prices in the U.S. and other developed countries are both reasonable and sustainable.” The experts I spoke with expressed skepticism about this commitment. “It’s not clear what it really amounts to,” Garthwaite said. “We are doing policy by press release. My guess is that Pfizer has agreed that they will launch new drugs at the same list price everywhere, but that they will still do separate negotiations from there. It’s not the same thing as saying the net prices will be the same.” Conti said that the Pfizer agreement, if adopted widely, could lead drugmakers to raise their prices in other countries rather than bringing them down here in the U.S. “That’s actually been a talking point in the industry for the past couple of years,” she noted.
In short, it looks like the concessions that the company made are relatively minor. In return, it received a three-year exemption from Trump’s tariffs of as much as a hundred per cent on imports of branded or patented drugs, which were scheduled to go into effect on October 1st but which have now been paused. For Pfizer, a company with a global supply chain and more than ten manufacturing plants in Europe alone, escaping Trump’s levies was a major win. “We now have the certainty and stability we need on two critical fronts, tariffs and pricing, that have suppressed the industry’s valuations to historic lows,” Bourla, Pfizer’s C.E.O., said. He clearly thinks he got a good deal. Analysts and investors agree. Who would contradict them?
