Trump’s Prescription Drug Order Sparks Debate Over Price Controls and Potential Shortages
Former President Donald Trump’s executive order aimed at lowering prescription drug prices has ignited a fierce debate over whether it constitutes government price control and what the potential consequences might be for the pharmaceutical industry and American patients. The order, signed in late 2020, directed drug companies to reduce prices or face repercussions from the federal government.
Critics, like Michael Cannon, director of health policy studies at the Cato Institute, a libertarian-leaning think tank, argue that the order amounts to price control because it extends beyond government programs and affects the free market. Cannon draws parallels to other sectors where price controls have been implemented, such as housing, food, and disaster relief, claiming that these policies have led to shortages. He fears that similar outcomes could occur in the pharmaceutical industry if drug prices are artificially capped.
Cannon stated, "We have seen government price controls in housing. We call it rent control, and it creates shortages. We have seen it when it comes to food. We call them price caps there too, and it produces shortages. We see price caps after natural disasters. We call them anti-gouging laws, and they produce shortages."
He warned that imposing a binding price ceiling on pharmaceuticals could result in shortages, deeming it a "wrong-headed thing."
The concept of price control involves government intervention to set limits on the prices of goods or services in a free market. While proponents argue that price controls can lower costs for consumers, historical evidence suggests that they have often been ineffective and counterproductive. For instance, former President Richard Nixon’s attempt to control wages and prices in the 1970s led to the gas crisis and other shortages across the country.
During the COVID-19 pandemic, some states implemented measures to address price-gouging, but these efforts proved difficult to enforce. In Michigan, Governor Gretchen Whitmer signed an executive order in March 2020 that prohibited businesses from selling products at prices exceeding 20% of their previous levels.
Trump’s executive order directed the Department of Health and Human Services (HHS) to establish price targets for pharmaceutical manufacturers, not only for government programs but also for the free market and private sector. Non-compliance could result in enforcement actions by the Justice Department and the Federal Trade Commission, along with other penalties.
In addition, Trump introduced plans to implement "most favored nations" drug pricing, a system that would peg drug prices in the United States to the lowest prices paid in other developed countries. Trump claimed that this would lead to significant price reductions, potentially ranging from 50% to 90%.
The White House has defended the executive order, arguing that it is not an example of price control but rather a measure to address anti-competitive behavior in the pharmaceutical industry. White House spokesperson Kush Desai stated that Americans are paying significantly more for the same prescription drugs compared to Europeans due to the lack of a truly free and fair market. Desai argued that Trump’s order would rectify this situation by preventing Americans from subsidizing the healthcare of other developed nations.
Data from the Department of Health and Human Services reveals that prescription drug prices have risen dramatically in recent years, increasing by over 15% between January 2022 and January 2023, reaching an average of $590 per drug product. Nearly half of the 4,200 prescription drugs on the list experienced price increases that exceeded the rate of inflation.
The Pharmaceutical Research and Manufacturers of America (PhRMA), a trade group representing pharmaceutical companies, has strongly criticized the executive order, warning that it would harm American patients. PhRMA president and CEO Stephen J. Ubl argued that importing foreign prices from "socialist countries" would be detrimental to American patients and workers, potentially leading to fewer treatments and cures and jeopardizing investments in the United States.
In April, Trump signed another executive order aimed at lowering Medicare drug prices. This order required HHS to standardize Medicare payments for prescription drugs, including those used for cancer patients, regardless of where a patient receives treatment. The White House estimated that patients could see price reductions of up to 60%.
The order also sought to align Medicare payments for certain prescription drugs with the prices that hospitals pay for those drugs, potentially reducing costs by as much as 35% compared to what the government currently pays.
The debate over Trump’s executive order highlights the complex challenges involved in regulating prescription drug prices. While proponents argue that government intervention is necessary to address high costs and ensure affordability, critics warn that price controls could stifle innovation, reduce access to medications, and lead to shortages. The long-term effects of the order remain uncertain, but the discussion it has generated underscores the importance of finding effective solutions to address the rising cost of prescription drugs in the United States.
