Americans Will Foot The Bill For Germany's New Drug Price Controls

Authored by Drew Johnson via PJMedia.com,

Germany just found a new way to lower its own healthcare costs: make Americans pay more.

In late April, German policymakers proposed changes that cap spending growth, restrict care, and force drugmakers to provide steep discounts.

These changes are supposed to save Germany money. But drugmakers still need to recoup the high costs of research and development. When a country like Germany suppresses the prices it pays for innovative medicines, those costs don't disappear — they simply shift elsewhere.

And because many other wealthy countries use similar price controls, that cost burden is increasingly falling on the United States.

The global imbalance is already stark.

American patients generate roughly three-quarters of global pharmaceutical profits despite accounting for just a quarter of global GDP. In effect, the United States is underwriting much of the world's drug innovation while patients abroad pay far less for the same treatments.

President Trump has spent months trying to end this freeloading by pressing other countries to pay fair value for new treatments — and he shouldn't let Germany get away with refusing to cooperate.

Foreign mooching off American medical innovation is a real and longstanding problem. Wealthy governments around the world — and especially in Europe — set drug prices by decree, effectively refusing to pay manufacturers fair value for treatments they spend years, sometimes decades, developing.

As a result, drugmakers disproportionately rely on revenue from the United States to sustain research and development. While patients abroad often pay cut-rate prices, Americans pay far more for the same meds. That imbalance is fundamentally unfair.

Of course, America can't simply stop paying for innovation. If U.S. leaders copied other countries' price-control tactics — as Democrats have often suggested — companies would struggle to earn returns on new research, and global development of life-saving new drugs would grind to a halt.

That leaves only one viable solution: force other countries to start paying their fair share for innovation.

President Trump has made progress on this front by pressuring wealthy allies directly. In April, for instance, he convinced the United Kingdom to increase its spending on new medicines. The deal proved that a firm U.S. stance could yield meaningful results.

But Germany is now testing America's resolve. Germany already spends far less than the United States on medicines, even when factoring in its smaller population and economy. Its new plan will deepen that divide by imposing strict limits on health spending growth and taking money directly from manufacturers to fund drug coverage.

Soon, Germany will pay even less than it already does for innovative medicines. The result will be higher costs concentrated in the U.S. market — or reduced investment in new cures. Either way, American patients will bear the burden.

And if Washington fails to respond, its broader effort to end foreign free-riding will lose credibility. Other countries will assume that they can continue to free-ride without facing consequences.

The United States needs to make a stand.

Fortunately, the Trump administration has real negotiating leverage. As the recent deal with the UK shows, U.S. trade officials have plenty of tools to obtain cooperation from foreign governments. They should use these tools to ensure fair pricing, knock down barriers to market access, and make clear that continued freeloading will come with consequences. This can and should start with a Section 301 investigation of other countries' drug-pricing policies. Such a move would expose unfair practices and empower U.S. officials to impose trade penalties, forcing allies like Germany to pay fair value for innovative medicines.

Ultimately, policymakers should ensure that all of America's allies pay their fair share. President Trump ended a different form of international leeching last year when he convinced NATO members to spend a greater percentage of their GDP on defense. If U.S. negotiators can secure similar spending targets for innovative medicines, they can end free-riding for good — and allow drugmakers to lower prices at home without hurting innovation.

American patients shouldn't have to subsidize the world's medicine cabinet. The policies of countries like Germany have inflated U.S. drug costs for too long.

By standing up to Germany now, President Trump can reaffirm that the United States no longer tolerates foreign freeloading on American medicines, while helping to reduce costs for American patients and preserving the breakthroughs they depend on.