The state regulates pharmaceuticals by laws and regulations that require prescriptions, FDA approvals, and so on. It distorts the market by regulating healthcare—inflating the price of insurance by prohibiting insurers taking into account pre-existing conditions, by tax rules that remove consumer choice from the payment, and so on. It inflates the prices of pharmaceuticals by granting patents and by imposing the huge regulatory burdens and cost of the FDA process, and by increasing demand for such pharmaceuticals from Medicare and Medicaid purchases. And then it tries to “negotiate” for lower prices, which causes much squawking.
Meanwhile other countries with more explicitly subsidized healthcare systems simply impose price caps and refuse to pay inflated pharma prices. So Big Pharma continues to sell into these regulated markets, at profit but less than could be made at the inflated prices their patents would otherwise permit them to charge.
Then people naturally try to import the drugs sold at a steep discount in Canada etc., into the US. This is an obvious a way to “undercut” the ability of Big Pharma to soak American consumers and taxpayers—to undercut inflated patent prices, to partially counter the effect of patents. So naturally the supposed “free-traders”—Republicans and “libertarians” at Cato, for example–oppose drug reimportation, i.e. free trade, since they prefer patents over free trade. I’ve discussed this before at Cato on Drug Reimportation; Cato Tugs Stray Back Onto the Reservation; and Other Posts.
So it’s no surprise they are going apeshit that Trump is suggesting “a “most-favored nation” drug-pricing regime for Medicaid. While the details are hazy, the idea is for Medicaid to pay drug makers the lowest price charged by other developed countries”. See the editorial “Trump’s Worst Idea Since Tariffs,” Wall Street Journal (May 7, 2025), tagline: “The President is pitching a plan to outdo Democrats on drug price controls.” Why is it a bad idea? Because this would reduce “investment in new potential cures.” In other words, US consumers and taxpayers should pay the full drug prices after it’s inflated by virtue of the patents, which protect the manufacturers from competition, so as to keep incentivizing Big Pharma to make ever more drugs that taxpayers can also be fleeced to pay for. Even though if the manufacturer sells the drug at a lower cost in, say, Canada, they are obviously still profiting.
The editorial complains:
Meanwhile, Chinese companies are announcing biotech breakthroughs almost every day, including in fields that the U.S. pioneered such as CAR-T cell therapies. Some Republicans want to spend tens of billion of dollars to ensure that the U.S. doesn’t lose its biotech edge to China. How about not handcuffing American innovation with bad policy?
It’s not “handcuffing” US Big Pharma to make it harder to force US taxpayers and customers to subsidize Big Pharma by paying patent inflated monopoly prices. And by the way, don’t we hear regular from the same crowd that China doesn’t respect IP, it steals IP, and so on?1 Bu-bu-but if this is the case, how can “Chinese companies are announcing biotech breakthroughs almost every day”? Either this is a lie or exaggeration, or patents are not needed for such breakthroughs, or China has a strong patent system after all. Which is it, IP fascists?
- See The China Stealing IP Myth, KOL460 | Rant about the “China is Stealing Our IP” Myth, Lacalle on China and IP “Theft”, All-In Podcast Concern over China and IP “Theft”, and others here. [↩]
You must log in to post a comment. Log in now.