Market-distorting price controls are bad enough. But when what's being controlled are medicines that save and enhance lives, they're far worse. A true shame, then, that a White House supposedly favoring competition, innovation, and public health has adopted them in a recent executive order.
Drug companies have long served as punching bags for liberal activists and Democratic administrations. But only in recent years has the MAGA movement trained its fire on the industry as well. As I explained in these pages in February, President Donald Trump's nomination of notorious pharma antagonist Robert F. Kennedy Jr. as secretary of health and human services signaled a troubling turn and stirred deep concern among free marketeers and drug companies alike.
And now, with the announcement of a "Most Favored Nation" policy that would impose limits on the prices of medicines equal to those in foreign countries, the administration has completed its heel turn against the life sciences industry -- a misguided and shortsighted policy that will harm both innovation and public health. What gives?
On May 12, in an executive order titled "Delivering Most-Favored-Nation Prescription Drug Pricing to American Patients," the administration rolled out its new policy. "The United States has less than five percent of the world's population," the order begins, "and yet funds around three-quarters of global pharmaceutical profits."
Who's to blame for this "egregious imbalance," as the White House put it? "Drug manufacturers, rather than seeking to equalize evident price discrimination, agree to other countries' demands for low prices, and simultaneously fight against the ability for public and private payers in the United States to negotiate the best prices for patients," the order continues.
Calling current drug prices an "abuse of Americans' generosity" and targeting "global freeloading," the administration announced it would take "aggressive action" to redress the exploitation. Specifically, the Centers for Medicare and Medicaid Services and other related executive agencies would "communicate most-favored-nation price targets to pharmaceutical manufacturers to bring prices for American patients in line with comparably developed nations." Cloaking the policy in euphemisms such as "communicate" and "price targets" did nothing to disguise its real-world import: The government would be setting prices for pharmaceuticals.
If, however, the policy does not succeed in lowering prices, the executive order also empowers the secretary of health and human services to issue waivers to the Food and Drug Administration to "import prescription drugs on a case-by-case basis from developed nations with low-cost prescription drugs." In other words, if pharma doesn't play ball, the federal government would buy the same or similar drugs from developing countries that artificially deflate their price (or to which drug companies have provided discounted medicines as a matter of policy or charity).
Predictably, the Trump executive order triggered an avalanche of criticism from the pharmaceutical industry writ large.
"Most favored nation is a deeply flawed proposal that would devastate our nation's small- and mid-size biotech companies -- the very companies that are the leading drivers of medical innovation in the United States and the cornerstone of America's biotechnology leadership," John Crowley, the president and CEO of the Biotechnology Innovation Organization, said in a press release.
Crucially, Crowley argued, "importing socialized medicine will not make Americans healthier or our economy stronger. It will only serve to empower China and our other adversaries and undermine our economic and national security."
The Competitive Enterprise Institute was similarly scathing. "As with many industries, the United States is on the frontier of innovation in the development of life-saving drugs and technology," Jeremy Nighohossian of CEI wrote. "A Most Favored Nation approach will import the judgments of the foreign analysts who employ the lowest possible evaluations for those drugs."
What's more, Nighohossian contended, "many of these nations face drug shortages due in part to pricing their drugs below market prices, and should the United States choose the lowest price among these nations, it will risk experiencing the worst shortages among these nations as well."
But not every industry group sang from the same hymnal.
For instance, Pharmaceutical Research and Manufacturers of America, or PhRMA, redirected its frustrations at the artificially low prices negotiated by other countries besides the U.S. "To lower costs for Americans," PhRMA President Stephen Ubl declared in a press release, "we need to address the real reasons U.S. prices are higher: foreign countries not paying their fair share and middlemen driving up prices for U.S. patients." Most pointedly, the group contended that "the Administration is right to use trade negotiations to force foreign governments to pay their fair share for medicines. U.S. patients should not foot the bill for global innovation."
On the other hand, PhRMA remained critical of the type of socialized medicine widely implemented in many countries abroad. "Importing foreign prices from socialist countries would be a bad deal for American patients and workers," Ubl continued. "It would mean less treatments and cures and would jeopardize the hundreds of billions our member companies are planning to invest in America -- threatening jobs, hurting our economy, and making us more reliant on China for innovative medicines."
Yet other organizations took a more balanced approach. "The president is right to object to foreign governments' price controls on pharmaceuticals, which result in America disproportionately funding most pharmaceutical research," wrote Tom Quaadman, the senior vice president for economic policy at the Chamber of Commerce. "However, the answer is not to import foreign government price control policies into the United States, but instead to pressure foreign governments to give up their price controls."
In short, industry groups and free marketeers widely panned the executive order. But are they right? In short, yes.
Artificially limiting drug prices will inevitably reduce the incentive for pioneering life science companies to develop critical medicines and vaccines. Quite simply, if you cap a product's profitability, you can expect to get less of it.
For instance, a 2024 report by the Congressional Budget Office concluded that price controls would "reduce manufacturers' incentives to engage in research and development (R&D) and would slow the pace of innovation in the pharmaceutical industry." In particular, the CBO found that one proposed price-cap bill would have "reduced the number of new drugs introduced to the market in the third decade after implementation by 10%." The report updated an earlier CBO study that estimated an 8% reduction in new drug discoveries if price controls were implemented.
By reducing innovation in the life sciences, price caps significantly harm the health of all Americans. A 2008 RAND Corporation study found that "price controls reduced life expectancy over time." Specifically, if drug prices were fixed, by 2060, life expectancy for Americans aged 55-59 would fall by 0.7 years. That decrease would cost $51,000 per person, even after any possible savings from lower prices are taken into account. And the usually sober-minded George Mason economist and polymath Tyler Cowen reckoned in a post titled "What is the gravest outright mistake out there?" that "those who want to regulate down prices on pharmaceuticals" would likely "kill millions over time."
Tomas Philipson, a University of Chicago economist and a former acting chairman of the Council of Economic Advisers, found in 2023 that a diminution of innovation caused by price controls "will lead to health losses valued at $18 trillion" by 2031. "The rationale for the price controls is to save taxpayers and seniors money," he wrote. "But the savings on existing drugs are minuscule in comparison to the loss in health resulting from a decrease in drug innovation."
The equation is straightforward: Less innovation means fewer jobs and a further erosion of America's qualitative technical edge over competitor countries such as China. One recent study estimated that price controls would lead to a loss of between 66,800 and 135,900 jobs -- and five times as many job losses if you count indirect effects. Even in the White House's own frame of reference, ceding a critical field of innovation to economic rivals such as the People's Republic of China surely will not "Make America Great Again."
There was a time when Republicans enthusiastically endorsed these arguments. As recently as 2023, the GOP-controlled House Budget Committee released a statement boldly titled "Biden's Drug Price Controls Kill Innovation and Drive-Up Long-Term Costs." The committee highlighted a report finding that the Inflation Reduction Act's "drug price controls will lead to a substantial reduction in revenue for biopharma companies, which reduces their ability to reinvest into future development of new drugs." In fact, the study concluded that the Biden measure would "lead to up to 139 drugs not being developed over the next ten years." It cited two pharma companies announcing, in light of the Inflation Reduction Act, that they were ceasing development of a treatment for a rare eye disease and a drug for certain blood cancers.
But now, the Republican occupant of the White House has sounded a distinctly new tune. Between this executive order and the chaotic on-again, off-again tariff policy, the Trump administration has proven at best a sporadic supporter of the free market. Indeed, in his first term, Trump launched a similar effort to cap drug prices but quietly dropped it amid resistance from courts and industry. Not so in the second term, when the emboldened president no longer faces reelection.
So, can the White House's policy be steelmanned? Is there a reasonable policy argument for price controls? In a word, no.
It is indeed unfair that many medicines in much of the developed world are so much cheaper than in the U.S. The mismatch in bargaining power between foreign governments, many of which employ single-payer or socialized healthcare, and the firms that produce those medicines is striking.
But punishing the companies that invest tens of billions of dollars in bringing those drugs to market is the wrong approach. For all the talk of outsize profits at pharma companies, the National Institutes of Health found in 2020 that their margins were no greater than the average S&P 500 company in the mid-2010s and that typical profitability analyses "do not take into account expenses related to research and development." Those R&D outlays are enormous, by some accounts as much as $2.6 billion per drug.
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This mission-critical industry doesn't deserve the scorn it's receiving from rabid progressive Democrats and hardcore MAHA/MAGA-ites alike. As BIO's Crowley argued, "Researchers that spend years developing cures and breakthrough treatments are being penalized and the U.S. is falling behind in the 21st century biotech race." And as former CBO Director Douglas Holtz-Eakin put it, the asymmetry in global drug pricing is "deeply unfair," but "importing those same price controls through MFN price-fixing does not solve any problem; it just produces less revenue, which translates into less R&D and fewer innovative therapies."
What a pity that a Republican administration needs to be reminded that this misguided policy won't make America healthy or great.
Michael M. Rosen is an attorney and writer in Washington, a nonresident senior fellow at the American Enterprise Institute, and author of Like Silicon From Clay: What Ancient Jewish Wisdom Can Teach Us About AI.