Newscasts - War on drug prices

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16/10/2025 08:15

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Description: Medications often cost nearly triple in the US as they do elsewhere, raising President Trump’s ire. In this Viewsroom debate, Breakingviews columnists discuss how tricky it would be to spread the subsidy burdens.

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Video Transcript:

The views expressed on this podcast are those of the participants, not of Reuters News.

For many years, Americans have paid the highest prices anywhere in the world for prescription drugs. By far, by far, many times the amount that other countries are paying, it's ridiculous. Upon taking office, I signed an executive order to make sure that Americans pay no more for prescription medications than the lowest prices for the same drug in other locations in developing nations.

Drug pricing has been a perennial bugbear of Donald Trump. For the US President, it all comes down to fairness. And also, why is the US subsidizing the rest of the world? In April, amid his Liberation Day announcements, he discussed large pharmaceutical tariffs as well. But he also dangled a remedy of sorts. If pharmaceutical companies wanted access to the $700 billion US market, they would have to start building and building fast. Since then, Big Pharma has been at pains to show how many jobs they're creating in America and how many factories they could build. AstraZeneca, Roche, Pfizer, Eli Lilly announced massive manufacturing projects. And Pfizer also announced a deal to bring down the cost of government-subsidized medications. But how will this affect the US? And will other countries be hit by these plans? All of this and more is in this week's Viewsroom. It's Aimee.

And it's Jonathan and this is the Viewsroom, your weekly podcast that delves into the knottiest issues in business, corporate finance, and economics. So, Aimee, you have been writing a ton about all of this. You've been knee-deep in the Ozempic issue, which I think has been really like a kind of lightning rod for a lot of the agita over drug pricing and differentials around the world. But we've had what really looked like pretty domestically focused, pretty narrow targeted policy proposals up until the moment that Trump re-entered the White House. How has the story been playing out since then?

So, I mean, yes, I think even in his first term, drug pricing was a big issue that he talked about a lot. And I think maybe he, like many things, he learned the lessons of his first term and decided when he was talking about tariffs, like reciprocal tariffs across the globe, he also threatened pharmaceuticals specifically. And he didn't necessarily say you have to build, or you'll be hit by tariffs, but it seemed very clear to the pharmaceutical companies that that was what he meant. So, they all were announcing these like huge projects. AstraZeneca said that they were going to spend $50 billion on R&D, research and development, and factories. All of them, almost every single one I can think of, Eli Lilly, Novo Nordisk, which actually, as you said, makes Ozempic. They all want to say, look, there's cranes in the air. There was like, one of the biotechs actually had their CEO with a shovel outside, like, their headquarters that they were building. So, it's all about like jobs, and the interesting thing, I think, to discuss, though, is like, what does this have to do with drug pricing? Because they are actually linked, I think, is the idea. And we have Rob Cyran, who is my counterpart in the US, has been covering pharma for a very long time and can tell us all of the interesting intricacies of the US system. So, Rob, you are very welcome.

Great to be here, Aimee.

So, Rob, I think I am actually kind of curious to hear the answer to this question because I have some ideas, but I'm really curious as to like, if we could just unpick this problem, why is it that US drug prices are so much higher than they are in the rest of the world?

Okay, so US drug prices are almost about three times the price in other countries. And there are a couple of, there are many reasons, but the big, one of the big reasons is, so first off, that US healthcare is composed of lots of monopolies, and the monopolies are all trying to, they tend to be very inefficient, and they also want a profit margin. And so, if you look at drug prices, for example, about 45% of all drugs are paid for by insurers, for-profit insurers. Okay, so they want their profit margin. But the other thing is that they all, they run them through what's called PBMs, prescription benefit managers. And what ideally they do is they pool demand, and they negotiate discounts from drug companies. Now the problem is, if you, and they're supposed to share the rebate between themselves and with their customers. Now the problem is that they'll say, I don't know, if someone likes to go shopping, they'll be like, hey, it was 80% off. And it's like, well, what's the price? It was 80% off. It's like, what was the price? And so that's the problem here, is that they set list prices which are just not realistic, they don't have anything to do with actual price. And they say, hey, we negotiated a big discount, and they share it with, and they keep some of it themselves. So that's one of the things. The other thing is that the US, about another 30% of the market, is from Medicare. And under Medicare, the US government is forbidden to negotiate most prices. They have to accept whatever the drug company says. That's changing a little bit. Like Ozempic, for example, is one of those drugs under negotiation right now. But for the majority of drugs, they just aren't negotiated at all. So, if you take these two things, the insurance market, also the other thing with insurers is the insurance market itself. There's not much competition in most places. You don't have, maybe three insurers. That's about it. And so, what that means is they don't pass on savings to their customers either, and people have to pay a lot. So, if you add these things up, what it means is the drug prices tend to be high.

Right, and just to be clear, so for listeners in the rest of the world who might not know, Medicare is sort of like the one big state payer in the United States, right? That's our public insurance program for the elderly.

I think that is just, I have to say though, it's sort of fascinating, Rob, that you can't negotiate, like that the government can't negotiate, because that's a thing that the UK really benefits from, which is the NHS and NICE basically decide what drugs are going to be bought, and then they aggressively negotiate with pharmaceutical companies, and European countries do the same. So, what, like, surely that system, why on earth is it set up that way?

Partly it's because drug prices, drugs used to be actually pretty small. I mean, there's still only about 15% or less of healthcare spending in the US. And that tends to be money well spent. You know, if you can give people a drug which keeps them out of hospital, you save a ton of money actually. And so, historically, the US system also just grew up haphazardly. And so, the drug prices weren't considered a big problem. And then as they became a bigger and bigger chunk of spending, they, of course, had big lobbyists, and there's a lot of profit to protect, because drug companies make most of their profits in the US, and so they don't want to, obviously, they want to keep the profits there.

That's the point I want to unpick, because there is a lot of specifics about Trump's plans and so on that I'm sure we're going to get into, but if you step back and think about the big thesis statement here, it's that there is some huge differential between US drug prices and the rest of the world. And yet, I think you often hear it said that the US high-cost problem is in effect a subsidy to global drug development, that, like you say, most of the profits are made in the US, you have an incentive to drive drug development harder because you know you can make these supernormal profits in the United States. And I'm sure there's a bunch of other stuff that goes into that, like various funding around kind of like academic drugs research and so on. But like just taking that core of it, is it bad for the world if we lose this really big, like price-insensitive payer, who is willing to just kind of drive the pace of innovation, or is that like starting from some kind of faulty premise?

Definitely. If you think about it, drug money tends to be money well spent in comparison to other parts of the medical system. Like I said, US drug spending, about 15%. And again, if can keep someone out of the hospital, you save a ton of money. If you look at, for instance, when statins were introduced, the biggest drugs by far in the world at the time. Yet if you look at actual medical spending in the US, it didn't rise during that period from after 2000. And it really confused people for a long time. Economists looked at it and they realized, it probably actually is statins. Because what they're doing is they're preventing heart attacks, they're preventing strokes, preventing all these things. And so, a similar sort of thing is happening now with obesity-fighting drugs, weight loss drugs, like Ozempic, like Mounjaro. If you look at it and say, oh my God, we're spending all this money on these drugs, but then you think, well, hold on, what happens if we don't spend money on those drugs? Obesity is linked to basically nine out of 10 of the top reasons people die in the United States. You know, whether it's stroke, whether its heart attack, it's linked to Alzheimer's, it's all these things. It's just incredibly unhealthy to be obese. And so, you probably want drug companies to develop drugs. And what's happening is there is a free rider problem. In a lot of countries around the world, it's like, well, the US is paying for it, we can hop on and not have to pay, that's great. And you can understand why they're doing it. The problem is it's not optimal for everyone. You probably want more spending to go into drug R&D.

I think as well, there's an interesting thing as well that goes on with other countries where, I think that the US system, as far as I understand it, Rob, is that people want the best medications, right? They want, and they're willing to pay for very high amounts for their healthcare, which in many, again, like we'll just use Europe as an example, that's not the system, right? So, you either have it funded through the government or you, it's massively subsidized. So, I think for European countries is that they're happy to pick and choose as well. So, for the really good drugs, they will pay, but it will be a lot less because they're negotiating for a huge amount of people. But equally, they're quite happy, and you can see this, the UK is doing this more and more, with generic drugs, right? So, the knockoffs of these patented drugs. So, they, there's a different mindset, I think, when it comes to drugs as well, as in, you don't ask your doctor in Europe. I saw this ad on the TV and it said that I should take this, whatever weight loss drug or whatever. You're told what to take and then you take it, and you don't know how much usually it costs. So, I think that's sort of an interesting element of all of this. And the other thing I was going to say, which I wanted to kind of get into Rob, is the, so that Pfizer deal that they did with Medicaid. This was kind of hailed as like Pfizer agreeing to this most-favored-nation idea, which is that, like, that America pays the same drug prices as other countries. But it was such a small amount, right, of the of the drugs that are sold, that like this was not a hit really to Big Pharma at all.

Yes, I think Pfizer's stock went up 5% on the day, which showed investors' opinion of the deal. So yes, so the deal was, there were two separate things announced by Pfizer. The first was the Medicaid deal. And Medicaid, as you said, it's a small percentage, like 5% or less of total spending. And the other thing about Medicaid is that there's already a law that says Medicaid has to pay the price that's the lowest price any commercial payer pays. So, in reality, it's not going to affect Medicaid prices at all, basically, for most drugs. The other thing was the TrumpRx, and what that means is that Pfizer says, we're going to offer discounts on drugs for people without insurance, and there are multiple problems with that. The first thing is that almost everyone in the United States is insured, so it's very few people. The second is it's off list, which basically no one pays. And the third thing is they didn't say which drugs are going to be on that, are going to be offered for sale for discounts as well. So, it's basically not affecting basically anyone, which is why the stock rallied on the news.

It's interesting as well though, because I think one of the things that I've been sort of baffled by is, you have seen since Trump started talking about, I mean, he was very kind of classic in the way that he discussed drugs, right? Because he was saying 200% tariffs, 250% tariffs, 100% tariffs. Nobody really knew where the level was. But if you're investing in these companies, you were concerned as to what was going to come about and whether basically manufacturing outside of the US, whether you're going to pay a huge amount, how that was going to affect, R&D and all of these things. But yes, as you said, Pfizer stock went up with the Medicaid deal and actually all of their stocks went up the day the pharma tariff was announced, of this 100% tariff. So, Rob, how should we think about that? How should we interpret that?

I would say there's, there's uncertainty here. But in drugs, at least the TACO trade is probably well alive.

We should explain the TACO.

The TACO trade is Trump Always Chickens Out. And the idea is that if you impose high tariffs on drugs made overseas, a couple of problems. First off, people pay out-of-pocket prices for drugs. In Europe, you pay maybe $5 or something like that, or it's free. In the US, a lot of drugs, you can pay up to 10% of the price of the drug, so you can pay a lot money out of pocket. So, if there's a tariff on that, it means people are going to be mad about that. The second thing is it could cause shortages in various generic drugs. I mean, he's indicated he's not going to put tariffs on generic drugs just because none are made in the US. But the biggest thing is probably a lot of Trump's moves seem to be designed to get press releases out of companies. And I think that's what's happening here. Because if a company says, hey, we're going to invest $50 billion in the United States. They probably already were kind of planning on building factories in the US. So, what do they do? They up the numbers or they say, hey, we're planning on doing this. When are you doing it? Well, we've started ground. You know, when is it finished? We don't know. And maybe that factory will never actually appear. There's a good chance of that. So, there's going to be a lot of press releases by companies saying, hey look, we're moving back to the United States, whether that'll pan out, don't know.

This is what I wonder because, Aimee, like you say, we've had all of these manufacturing announcements. This seems to be, I don't know, about a get out of jail free card, but this is paired with the tariffs, right? If you move production to the US, you can supposedly escape them. There is this kind of most-favored-nation rule, like we were talking about, that's hanging out there. But in aggregate, it's not clear to me the degree to which this is actually going to have a material effect on US drug pricing. And yet, yet, we have seen, Eli Lilly, a few other drug makers begin to hike prices in the United Kingdom and some other markets. What's going on here? Is there actually, do you guys think, a meaningful rebalancing that's going to come out of all of this in terms of global distribution of prices, or is it all just sort of too random, too taken in pieces for it to lead to some sort of actual rebalance around the world?

I think that it's really interesting. I think, first of all, yes, I think there is going to be rebalancing, but not in the way that you think. So, the Eli Lilly announcement was about their GLP-1 drugs, their weight loss drugs in the UK, and they were hiking the price by 170%.

Oh, okay, that's a lot.

That's a lot. So, Rob talked about people paying list price. The fact is there is an alternative to Eli Lilly's weight loss drugs, which is Ozempic and Wegovy, which is Novo Nordisk's drugs. And they did not increase the price by 170%. So, the idea that somebody would pay that when there is an alternative, a cheaper alternative, to me, didn't seem sensical. And also, I think it's sort of interesting that a lot of the drug makers are saying, for some reason, it's the UK that you're going to see higher drug prices. Not European countries, because they know that Europe is a huge market. The UK is usually 5% of sales. So, it's not going to bother them too much if they anger the UK government, but it might be a problem for them if they really rile the Europeans. So, they're sort of showing Trump, look, look at this, look, I've raised the price over the UK, I'm bringing down the cost in the US, this is all brilliant. But what I'm hearing, and I heard this from an investor in one of the biotechs, so these are the small companies who make the kind of innovative drugs that are usually bought by big pharma companies. And what he was saying is that these biotechs are basically saying, we're not going to launch in Europe. We're just going to launch to the US. So that means we're going to sell our drugs directly into the US, not Europe, so that when somebody asks, wait a second, how much are you charging for this in Germany? They say, we don't sell in Germany. And they can charge whatever they want then. So, it's all, on every side, it looks to me very performative. Like you're performing for Trump. You want to show him you're building this lovely factory. Rob is right. I think a lot of those companies had already plans to build factories because the US is the biggest drug market in the world and it's the most profitable. So, there's every reason why you would go there in the first place. But I think the loser in this situation, I do think, will be Europe. Because new drugs are important. They extend people's lives. There are new breast cancer treatments that are coming out. There's HIV treatments that mean people can only take an injection or a pill once a month rather than daily. These things actually change people's lives. And if you don't have those launches happening because of this sort of battle about who's paying more, I think that the loser is, it will be Europe. And they can, they can do a few things. They can still focus on generic drugs. And I think that that will probably be okay. But they might also shift more towards China. And China is getting much better at creating drugs, cheaper drugs, faster. So, this is all really quite seismic, I think actually for the industry, what's happening and how Trump is going about this.

Paradoxically, it could raise US prices as well. I mean, if you think of drugs as the upfront costs are phenomenal and the marginal costs are close to zero, what happens is typically, they sell it in the US, they make a nice profit, and any profits they make elsewhere are just gravy. You know, they can sell it, costs like a cent to make the drug, a couple cents to make a drug, whatever. You can sell in Germany for five bucks, you make a nice profit. If they aren't selling in Germany at all, well then, hey, what's going to happen? The company's going to look and say, well, okay, well, let's charge more in the US. And there's no comparison so everyone's like, well okay, this disease we've never heard of, it's cost $200,000 a year. Sounds reasonable, I don't know. And so, what happens is the US ends up paying more, perhaps.

It seems like such an odd sort of paradoxical situation, like the US is trapped into this, I guess, cost leader position. No matter what happens from here on out it almost seems until we get to, like you say Aimee, this kind of big industrial shift between the US and China. I know Rob you've been looking at a lot of issues around basic research and government funding, and there's some thought that could also be a kind of motive force towards that as well. So, interesting times ahead, but I think that is a good place to wrap it up. Rob, thank you so much for joining us on the Viewsroom.

Thanks for being here.

Thanks for tuning in. This podcast was produced by Sheryl Peña in New York and Gregory Garner in Toronto. You can listen to a new episode of the Viewsroom every Thursday on the Reuters app or your favorite platform. And don't forget to tune in to our sister podcast, The Big View, every Tuesday, as well as the other great podcasts from the Reuters team. If you like what you heard, please follow the Viewsroom and let us know what you thought. We have a new email address where you can send us feedback, which is breakingviews-podcasts@tr.com. And check out our views on the biggest stories in business and finance every day on Breakingviews.com and Reuters.com.