Will Trump’s Executive Order on Drug Prices Yield the Desired Results

While President Trump signed an order aimed at reducing the high cost of prescription drugs in the U.S., it isn’t clear how exactly the price reduction will be achieved and how such reductions could impact the country in the long term.

The President said patients in America pay a lot more for prescription drugs than the cost incurred for the same drugs in other countries. He added that he was going to order drug firms to slash their prices within the U.S.

There has been a growing concern about the high cost of prescription drugs in America and data exists to highlight these price differences. For example, the Government Accounting Office conducted a price comparison between the cost of prescription drugs in the U.S. and the cost of the same drugs in Canada, France and Australia. They found that these drugs cost double or even quadruple in price in America in comparison to those other countries.

So, how does Trump plan on cutting these costs? The order isn’t clear on exact mechanisms but mentions that drug makers need to sell more of their drugs to patients directly rather than through insurance firms. The order also suggests that drugs can be imported from countries where prices are lower. More unclear is the instruction that agreements reached between drug makers and foreign countries don’t include “discriminatory and unreasonable” provisions that make prices higher in the U.S.

It should be noted that trade rules and concerns about drug safety have in the past made it hard to implement the idea of sourcing drugs from nations where those medicines are priced lower. No solution to these stumbling blocks has yet been found, so direct imports are unlikely to be a viable solution to the high prices in the U.S.

Trump also wants drug makers to accord America MFN (Most Favored Nation) status through which companies are expected to match the lowest cost of medicines abroad while selling those medicines to buyers in the U.S. Firms would grant this status voluntarily, or as Trump says, the federal government would exert its power to enforce this. How? Again, the executive order is scant on the mechanisms for such enforcement.

A look at how markets responded to Trump’s announcement can provide clues as to what impact the order is likely to have on companies making drugs. There was an initial hit to shares when the president previewed his intentions in the executive order. However, stock prices rallied once the actual order was released, a suggestion that investors didn’t foresee any significant impact from that order.

It would be interesting to hear what Medical Advantage plan providers like Astiva Health think about the practicality of the order signed by Trump with the intention of bringing down drug prices in the country.

NOTE TO INVESTORS: The latest news and updates relating to Astiva Health are available in the company’s newsroom at https://ibn.fm/Astiva

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