Episode Transcript
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Speaker 1 (00:00):
I've had Michael Cannon on the show quite a few times.
You know, I'm a big fan and supporter of the
Cato Institute Cato dot org, the probably the premier libertarian
organization in the world, and I've been associated with them
one way or another for a long time. And I
(00:20):
consider myself a little bit more of an objectivist than
a libertarian. But that's kind of sort of close, and
I won't bother talking about objectivism right now, But my
point there is that I tend to be on the
same page as the Cato Institute on most things. And
the issue we're going to talk about today is one
that Michael and I have talked about, I think at
least two times before on the air, and he has
(00:42):
yet to convince me, and I just and I'm in
this weird situation where, you know, if he thinks something
and I disagree, then I think I'm probably wrong, but
I still can't quite get to where I'm wrong.
Speaker 2 (00:55):
So what we're going to talk.
Speaker 1 (00:56):
About today, and I don't know if I mentioned, but
Michael directs health poly he studies at the Cato Institute.
So yesterday at the beginning of the show, I talked
about Donald Trump's press conference. President Trump's press conference that
he had given just forty five minutes or an hour
before my show started about the executive order that he
(01:17):
signed an hour after that or whatever regarding what he
calls most favored Nation prescription drug pricing.
Speaker 2 (01:26):
Now, before I.
Speaker 1 (01:27):
Just keep going and going and going here since since
Michael's here, let me say first, good morning and hello
and thanks for making time for us. And it looks
like you're pouring cream into coffee or pouring yourself a
glass of water or something.
Speaker 2 (01:40):
What was that? What was that?
Speaker 3 (01:43):
That was supposed it was supposed to be sly? Is
what that was?
Speaker 2 (01:46):
It's just off screen. What was it?
Speaker 3 (01:48):
You got to tell morning and thank you for having
me on.
Speaker 2 (01:50):
No, you got to tell me what that is.
Speaker 3 (01:52):
It's tea. It's tea. It was milking the tea. All right,
I've got just slightly off camp.
Speaker 1 (01:57):
I've got my tea right here. So yeah, cheers, Okay,
So let me start. Let me start with this.
Speaker 2 (02:05):
Do you believe.
Speaker 1 (02:07):
That Donald Trump has identified and I don't mean he's
the first person to do it, but that in what
he was speaking yesterday, speaking about yesterday, he was identifying
a legitimate problem that the structure of the global pharmaceutical
pricing system tends to dump most of the cost of
R and D and most of the cost of most
(02:32):
of the pharmaceutical industries profits on American health insurance buyers
and American consumers of pharmaceuticals.
Speaker 2 (02:40):
Is that an actual problem?
Speaker 4 (02:45):
So, first of all, thanks for having me on the show.
Thanks for we shall have people in our lives. I
have people in my life who I don't always agree
with them, but if I disagree with them, I worry
they're so good. I worry I might be And I
think you were saying something like that about me.
Speaker 3 (03:03):
Thank you very much. You honored me with that.
Speaker 4 (03:04):
And what you're saying about how the President portrayed drug
pricing in the United States and other countries, I think
is largely accurate. You know, we've got a situation where
in the United States the government plays as much of
a role in healthcare as it does in other nations,
even with completely socialized systems. The government here just makes
very different choices with the powers that it has.
Speaker 3 (03:26):
It is always hitting the accelerator.
Speaker 4 (03:29):
It is always pushing toward higher prices and more healthcare consumption.
And just to give a couple of examples, the Medicare
and Medicaid programs, and each cover of a population about
the size of the United Kingdom.
Speaker 3 (03:40):
You know.
Speaker 4 (03:43):
Congress created both of them, and unlike the British National
Health Service or the Canadian Medicare program, our Medicare and
Medicaid programs don't have a budget. Congress doesn't try to
limit spending those programs by imposing a budget. It just
says whatever the doctor and the hospital's order up will
pay for it or whatever the However, many people the
(04:04):
insurance companies enroll will just pay for it.
Speaker 3 (04:07):
And so with lots of measures like.
Speaker 4 (04:10):
That in place that just are always hitting the accelerator,
we end up with more drug consumption and higher prices.
Other countries will limit the amount that the government pays
for drugs, and sometimes that also limit how much private
payers in those countries can pay for drugs, and that'll
keep the prices there lower than in the United States,
where the government is just pushing the prices up and
(04:32):
up and up. And so yeah, we end up with
the situation that you described, as the President described, where
the drug companies are making more money in the United
States than anywhere else because it can charge higher prices
like two, three, four more times what they charge in
other countries. And that means because drug innovation is such
(04:52):
a research and development in tensive process where there's lots
of fixed costs not just for developing this drug, but
also all the drugs that didn't work out. The drug
companies have lots of failures, so they got to the
drugs that succeed have got to cover the costs of
the drugs that failed. All of those, all of that
is a huge part of the costs of bringing a
(05:15):
drug to market, and because the prices are higher here,
we end up paying a larger share of that cost
than folks in other countries. And there really is something
inequitable about that. So the President is onto something there.
I think his solution is totally off.
Speaker 2 (05:28):
All right, we'll get we'll get to that in a second.
Speaker 1 (05:31):
So even I'll make a statement, and you tell me
whether I'm very right, a little right, or wrong. My
statement is this, there are many pharmaceutical companies, but that
doesn't really mean it's a very competitive industry, because there
(05:52):
are some areas where it's competitive, where company A might
make a drug that's substitutable by another drug.
Speaker 2 (05:59):
For company being but.
Speaker 1 (06:01):
There's also some areas that it functions close to a monopoly,
right or oligopoly. And I'll tell you where I'm going
with this, and this is more of an economic question.
Speaker 2 (06:12):
So where I'm going with this is, if.
Speaker 1 (06:16):
It's not an extremely competitive market, then maybe Donald Trump
is engaging in wishful thinking when he says that if
we can get other countries to pay more for their pharmaceuticals,
and put aside for a second, whether they will just
bear with my hypothetical, if other countries start paying more,
(06:41):
then the prices in the US will come down. I'm
not sure that market forces that it's a competitive enough
market with you know, where they're willing to chase down
margins that American prices would come down even if other
places started paying more.
Speaker 3 (07:00):
That is certainly a risk.
Speaker 4 (07:01):
So the situation that we're describing, being the president was
describing one, we're putting higher prices in a higher share
of the visit development costs.
Speaker 3 (07:10):
It's inequitable. One of the reasons that it.
Speaker 4 (07:16):
Persists, maybe even the main reason, is that the US
government takes steps to make sure it persists. And the
biggest is there are trade barriers in place that prevent
you and me from buying those cheaper drugs from other countries.
Speaker 3 (07:37):
And what they call re importing them into the United States.
Speaker 4 (07:41):
Oftentimes it's a US drug manufacturer sells around other countries
and so buying them back from those other countries.
Speaker 3 (07:48):
People often call that re importing.
Speaker 4 (07:50):
If we did that, if the government removed the barriers
that prevent us from doing that, then there's no way
they could keep up these pricing schemes. Be much harder
for them to keep up these price discrimination schemes, as
the economists call them, where you're selling the same product
to do different consumers at different prices based solely on
(08:10):
those consumers willingness to pay different prices, and that would
achieve everything that the president is trying to achieve without
exceeding the powers of the executive branch or violating the
Constitution or acting like a bunch of thugs. It's just
what the Trump administration is doing right now, and without
(08:32):
imposing price controls, it would just be market.
Speaker 3 (08:34):
Forces that are doing that.
Speaker 1 (08:36):
Now.
Speaker 4 (08:37):
Your precise question was does that necessarily mean that prices
will fall in the United States?
Speaker 3 (08:42):
So if.
Speaker 4 (08:45):
Drug A is available in the United States at ten
times the price that it is in the United Kingdom,
and then all of a sudden, we can buy drugs
from the United Kingdom and one tenth of the price
at one end of the price that it's available.
Speaker 3 (09:02):
Here right now.
Speaker 4 (09:03):
Does that mean that the drug company will drop the
price for drug A in the United States?
Speaker 2 (09:08):
Not necessarily, And that's that's not exactly my question.
Speaker 1 (09:11):
Okay, that is an interesting question, but it was not
the question I was asking. So let's say in the
United States there's a drug that for a round of
treatment or a month or whatever we pay, We pay
a thousand, and the UK pays two hundred, and because
of Trump's jaw boning, the UK agrees to pay three hundred.
(09:36):
But nothing else has changed. I'm not talking about importation.
The Trump's theory. Trump's theory is that if the drug
companies get more income by charging higher prices in these
other countries, and Trump wants to force the other countries
to pay more, which he won't be able to do,
but just bear with me, then that will give the
(09:56):
drug companies room to lower their prices here.
Speaker 2 (09:59):
So Britain will pay right three hundred.
Speaker 1 (10:01):
And will go down to nine hundred and or whatever
or he wants them both at five hundred.
Speaker 2 (10:07):
But does that dynamic really work.
Speaker 3 (10:12):
No.
Speaker 4 (10:13):
I think you're correct about that, because the when companies
price discriminate, when they charge different people different prices for
the same product based on those people's willingness to pay,
they are picking the revenue maximizing price for each individual purchaser.
Speaker 3 (10:33):
And if he decided that.
Speaker 4 (10:34):
The revenue maximizing price for the UK it is now
no longer two hundred dollars, it's three hundred dollars, that
doesn't change what the revenue maximizing price is in the
United States, however, so they're not likely to change the
price for the drug in the United States. However, that's
not quite what President Trump is proposing. What he's proposing
is that if the UK, if a drug company is
(10:57):
selling the same drug in the UK for two hundred
dollars that it is in the United States for one
thousand dollars, that every purchaser in the United States will
have access to that drug and whatever is the lowest
price that that manufacturer charges anywhere, so it's two hundred dollars,
it's two hundred dollars in the UK, then we all
(11:17):
have would get access to that drug for just two
hundred dollars. Now what this does is it probably it's
similar to what you were describing. It ties the US
price to whatever the lowest price is anywhere else. And
so the drug manufacturer might say to the UK, look,
we can't keep selling it to you two hundred.
Speaker 3 (11:38):
It's gonna have to go to three hundred.
Speaker 4 (11:40):
Or they could say it's gonna go all the way
up to one thousand, because we will lose less money
that way than with any other strategy. I think probably
most of them would come down from a thousand, because
it's hard to imagine that completely writing off their foreign
markets would be the revenue maximizing strategy under that under
(12:00):
that new policy of the US government. But a lot
of there are a lot of other things to say
about this proposal. One of them is that the president
doesn't have the authority to do this. I mean, Congress
didn't give the president the authority to set prices for
private purchases of drugs in the United States, and what
(12:21):
President Trump has proposed doing is just unleashing the executive
brand is telling Robert F. Kennedy Junior, the Secretary of
Health and Human Services, Hey, go out and set what
you think the price should be for all of these drugs,
and you know, peggingtt it whatever these drug companies are
paying the or charging the nation where it's setting the
(12:45):
prices the lowest. And then and then once you set
those prices, Secretary of Kennedy, once you come up with
those price targets, I'm going to unleash every part of
the executive branch on these drug companies until they get
those prices down. Talking anti trust who we're talking about
maybe revoking their drug approvals and threatening to revoke their
drug drug approvals from the FDA. We're talking about all
(13:08):
sorts of other things that the that the executive branch
can do just to mess with.
Speaker 3 (13:14):
To mess with the drug company.
Speaker 4 (13:15):
Uh, this is this is this is unconstitutional even thuggish
behavior where the President is saying to drug companies, nice,
nice drug company, you've got there, be ashamed of if
anything were to happen to it. And and so there's
gonna be all sorts of fights about this. But so
it might not even work. Hopefully it won't even work.
But if it did, that's not the end of the story.
(13:38):
Because if the prices that drug manufacturers are charging to
foreign governments rise dramatically. Well, on the one hand, that's
a good thing because the United States government is no
longer or the United States is no longer providing I
should say, the United States government is no longer providing
an implicit subsidy to socialized medicine systems around the world.
(14:00):
But those nations are going to have to then decide, well,
either we pay one thousand dollars or something close to
it for this drug, or we just stop covering this drug.
That I think is it's a good thing to eliminate
that implicit subsidy. If those nations stop covering that drug
and start covering fewer things and make more room for
a private market for healthcare in their nations, that's a
(14:24):
good thing. Some of them, however, might decide that they're
going to start ignoring patents. They're going to say, you
know what, the reason you're charging one thousand dollars for
that drug, it's because you've got a patent on it.
Each pill costs five dollars or whatever. So we're just
going to commandeer that intellectual property. We are going to
(14:45):
a license manufacturers in our country to make this drug
themselves for five dollars a pill or we're going to
buy them from India or some other country where they're
not recognizing your patent at two dollars a pill, and
that is going to threaten the ability of drug manufacturers
(15:05):
to invest in the research and development that produces new cures.
Speaker 3 (15:09):
I don't think that that's a reason not to.
Speaker 4 (15:16):
Allow free trade between the United States and other countries.
Speaker 3 (15:19):
Allow us to. I mean, the same thing would happen.
Speaker 4 (15:21):
In the government allowed us to re import drugs from
other countries, because that'll become a topic of trade negotiations
and the governments will work something out there.
Speaker 2 (15:31):
All right, So just about out of time, So let
me just.
Speaker 1 (15:34):
Get another question in, and for those just joining, we're
talking with Michael Cannon, who directs health policy studies at
the Cato Institute Cato dot org.
Speaker 2 (15:42):
So just give me quick answers on a couple of things.
Right now, What are the.
Speaker 1 (15:48):
Rules about what I am allowed to do to import
medication from another country?
Speaker 4 (15:54):
So, first of all, it needs to have an FDA approval.
The FDA has to approve the particular drug with and
what goes on the label, So the formulation, the manufacturing process.
Speaker 3 (16:07):
And.
Speaker 4 (16:11):
The indication on the label. What we're recommending you use
this drug to do and drugs that are available in
other countries, for the most part, when they sell them
in other countries, they don't go through all of that
rigor role that the if it requires you to sell
to do to sell a drug in the United States,
so the drug would have to go through the manufacturer
(16:33):
have to go through all of those things. That is,
in effect, those regulations become a trade barrier because I
can't just buy that drug from another country, and so
the FDA should just deem as satisfying its requirements any
drug that any other advanced nations regulatory bodies have approved,
and that would eliminate that trade.
Speaker 1 (16:54):
Would you put India in that category because I buy
my medication from India when I either can't find it
here or it's too expensive here.
Speaker 4 (17:02):
I would put all nations in that category, because that's
what the freedom to trade with people of all nations
is a fundamental human right. And then you should be
able to choose which nations regulatory body has provided you
the certainty you want. But for political purposes, I you know,
(17:23):
to make it palatable to people who might be afraid
of the idea. I usually say like OECD nations or
something like that.
Speaker 1 (17:29):
Okay, last quock question for you. If you were in
charge and you could implement I'm going to say two
policy changes aimed very specifically reducing the cost pharmaceuticals in
the United States.
Speaker 2 (17:43):
What would those two policy changes be.
Speaker 4 (17:46):
They would have They would not relate directly to drug pricing.
They would relate to who controls the money in the
health sector. I would change the tax code so that
workers can control the trillion dollars of their earnings employers
can contru all and use to purchase, choose, and purchase
a health plan for workers. Give that money to the workers,
(18:07):
let them choose their health plans, and they will spend
that money much more carefully, including putting downward pressure on
drug prices, because they'll switch from the expensive drug to
the cheap one and spark price competition if they get
to see the savings. But if the savings go to
an employer, they're not going to bother. Same thing with
the Medicare program. Stop giving people like government to fine
package of healthcare subsidies. Do what Social Security does. Just
(18:30):
give them that trillion dollars in cash, and then Medicare
and rollies will do the same. They will switch to
the lower cost drugs and the lower cost hospitals and
so forth when they get to see the savings. And
that's how you spark this sort of price competition that
makes healthcare more universal.
Speaker 1 (18:45):
Michael Cannon, direct Health Policy Studies at the Cato Institute
Sato dot org. Thanks as always, Michael, great conversation. Go
enjoy your tea.
Speaker 3 (18:55):
Always a pleasure.
Speaker 2 (18:55):
Many thanks, all right, thank you,
I've had Michael Cannon on the show quite a few times.
You know, I'm a big fan and supporter of the
Cato Institute Cato dot org, the probably the premier libertarian
organization in the world, and I've been associated with them
one way or another for a long time. And I
(00:20):
consider myself a little bit more of an objectivist than
a libertarian. But that's kind of sort of close, and
I won't bother talking about objectivism right now, But my
point there is that I tend to be on the
same page as the Cato Institute on most things. And
the issue we're going to talk about today is one
that Michael and I have talked about, I think at
least two times before on the air, and he has
(00:42):
yet to convince me, and I just and I'm in
this weird situation where, you know, if he thinks something
and I disagree, then I think I'm probably wrong, but
I still can't quite get to where I'm wrong.
Speaker 2 (00:55):
So what we're going to talk.
Speaker 1 (00:56):
About today, and I don't know if I mentioned, but
Michael directs health poly he studies at the Cato Institute.
So yesterday at the beginning of the show, I talked
about Donald Trump's press conference. President Trump's press conference that
he had given just forty five minutes or an hour
before my show started about the executive order that he
(01:17):
signed an hour after that or whatever regarding what he
calls most favored Nation prescription drug pricing.
Speaker 2 (01:26):
Now, before I.
Speaker 1 (01:27):
Just keep going and going and going here since since
Michael's here, let me say first, good morning and hello
and thanks for making time for us. And it looks
like you're pouring cream into coffee or pouring yourself a
glass of water or something.
Speaker 2 (01:40):
What was that? What was that?
Speaker 3 (01:43):
That was supposed it was supposed to be sly? Is
what that was?
Speaker 2 (01:46):
It's just off screen. What was it?
Speaker 3 (01:48):
You got to tell morning and thank you for having
me on.
Speaker 2 (01:50):
No, you got to tell me what that is.
Speaker 3 (01:52):
It's tea. It's tea. It was milking the tea. All right,
I've got just slightly off camp.
Speaker 1 (01:57):
I've got my tea right here. So yeah, cheers, Okay,
So let me start. Let me start with this.
Speaker 2 (02:05):
Do you believe.
Speaker 1 (02:07):
That Donald Trump has identified and I don't mean he's
the first person to do it, but that in what
he was speaking yesterday, speaking about yesterday, he was identifying
a legitimate problem that the structure of the global pharmaceutical
pricing system tends to dump most of the cost of
R and D and most of the cost of most
(02:32):
of the pharmaceutical industries profits on American health insurance buyers
and American consumers of pharmaceuticals.
Speaker 2 (02:40):
Is that an actual problem?
Speaker 4 (02:45):
So, first of all, thanks for having me on the show.
Thanks for we shall have people in our lives. I
have people in my life who I don't always agree
with them, but if I disagree with them, I worry
they're so good. I worry I might be And I
think you were saying something like that about me.
Speaker 3 (03:03):
Thank you very much. You honored me with that.
Speaker 4 (03:04):
And what you're saying about how the President portrayed drug
pricing in the United States and other countries, I think
is largely accurate. You know, we've got a situation where
in the United States the government plays as much of
a role in healthcare as it does in other nations,
even with completely socialized systems. The government here just makes
very different choices with the powers that it has.
Speaker 3 (03:26):
It is always hitting the accelerator.
Speaker 4 (03:29):
It is always pushing toward higher prices and more healthcare consumption.
And just to give a couple of examples, the Medicare
and Medicaid programs, and each cover of a population about
the size of the United Kingdom.
Speaker 3 (03:40):
You know.
Speaker 4 (03:43):
Congress created both of them, and unlike the British National
Health Service or the Canadian Medicare program, our Medicare and
Medicaid programs don't have a budget. Congress doesn't try to
limit spending those programs by imposing a budget. It just
says whatever the doctor and the hospital's order up will
pay for it or whatever the However, many people the
(04:04):
insurance companies enroll will just pay for it.
Speaker 3 (04:07):
And so with lots of measures like.
Speaker 4 (04:10):
That in place that just are always hitting the accelerator,
we end up with more drug consumption and higher prices.
Other countries will limit the amount that the government pays
for drugs, and sometimes that also limit how much private
payers in those countries can pay for drugs, and that'll
keep the prices there lower than in the United States,
where the government is just pushing the prices up and
(04:32):
up and up. And so yeah, we end up with
the situation that you described, as the President described, where
the drug companies are making more money in the United
States than anywhere else because it can charge higher prices
like two, three, four more times what they charge in
other countries. And that means because drug innovation is such
(04:52):
a research and development in tensive process where there's lots
of fixed costs not just for developing this drug, but
also all the drugs that didn't work out. The drug
companies have lots of failures, so they got to the
drugs that succeed have got to cover the costs of
the drugs that failed. All of those, all of that
is a huge part of the costs of bringing a
(05:15):
drug to market, and because the prices are higher here,
we end up paying a larger share of that cost
than folks in other countries. And there really is something
inequitable about that. So the President is onto something there.
I think his solution is totally off.
Speaker 2 (05:28):
All right, we'll get we'll get to that in a second.
Speaker 1 (05:31):
So even I'll make a statement, and you tell me
whether I'm very right, a little right, or wrong. My
statement is this, there are many pharmaceutical companies, but that
doesn't really mean it's a very competitive industry, because there
(05:52):
are some areas where it's competitive, where company A might
make a drug that's substitutable by another drug.
Speaker 2 (05:59):
For company being but.
Speaker 1 (06:01):
There's also some areas that it functions close to a monopoly,
right or oligopoly. And I'll tell you where I'm going
with this, and this is more of an economic question.
Speaker 2 (06:12):
So where I'm going with this is, if.
Speaker 1 (06:16):
It's not an extremely competitive market, then maybe Donald Trump
is engaging in wishful thinking when he says that if
we can get other countries to pay more for their pharmaceuticals,
and put aside for a second, whether they will just
bear with my hypothetical, if other countries start paying more,
(06:41):
then the prices in the US will come down. I'm
not sure that market forces that it's a competitive enough
market with you know, where they're willing to chase down
margins that American prices would come down even if other
places started paying more.
Speaker 3 (07:00):
That is certainly a risk.
Speaker 4 (07:01):
So the situation that we're describing, being the president was
describing one, we're putting higher prices in a higher share
of the visit development costs.
Speaker 3 (07:10):
It's inequitable. One of the reasons that it.
Speaker 4 (07:16):
Persists, maybe even the main reason, is that the US
government takes steps to make sure it persists. And the
biggest is there are trade barriers in place that prevent
you and me from buying those cheaper drugs from other countries.
Speaker 3 (07:37):
And what they call re importing them into the United States.
Speaker 4 (07:41):
Oftentimes it's a US drug manufacturer sells around other countries
and so buying them back from those other countries.
Speaker 3 (07:48):
People often call that re importing.
Speaker 4 (07:50):
If we did that, if the government removed the barriers
that prevent us from doing that, then there's no way
they could keep up these pricing schemes. Be much harder
for them to keep up these price discrimination schemes, as
the economists call them, where you're selling the same product
to do different consumers at different prices based solely on
(08:10):
those consumers willingness to pay different prices, and that would
achieve everything that the president is trying to achieve without
exceeding the powers of the executive branch or violating the
Constitution or acting like a bunch of thugs. It's just
what the Trump administration is doing right now, and without
(08:32):
imposing price controls, it would just be market.
Speaker 3 (08:34):
Forces that are doing that.
Speaker 1 (08:36):
Now.
Speaker 4 (08:37):
Your precise question was does that necessarily mean that prices
will fall in the United States?
Speaker 3 (08:42):
So if.
Speaker 4 (08:45):
Drug A is available in the United States at ten
times the price that it is in the United Kingdom,
and then all of a sudden, we can buy drugs
from the United Kingdom and one tenth of the price
at one end of the price that it's available.
Speaker 3 (09:02):
Here right now.
Speaker 4 (09:03):
Does that mean that the drug company will drop the
price for drug A in the United States?
Speaker 2 (09:08):
Not necessarily, And that's that's not exactly my question.
Speaker 1 (09:11):
Okay, that is an interesting question, but it was not
the question I was asking. So let's say in the
United States there's a drug that for a round of
treatment or a month or whatever we pay, We pay
a thousand, and the UK pays two hundred, and because
of Trump's jaw boning, the UK agrees to pay three hundred.
(09:36):
But nothing else has changed. I'm not talking about importation.
The Trump's theory. Trump's theory is that if the drug
companies get more income by charging higher prices in these
other countries, and Trump wants to force the other countries
to pay more, which he won't be able to do,
but just bear with me, then that will give the
(09:56):
drug companies room to lower their prices here.
Speaker 2 (09:59):
So Britain will pay right three hundred.
Speaker 1 (10:01):
And will go down to nine hundred and or whatever
or he wants them both at five hundred.
Speaker 2 (10:07):
But does that dynamic really work.
Speaker 3 (10:12):
No.
Speaker 4 (10:13):
I think you're correct about that, because the when companies
price discriminate, when they charge different people different prices for
the same product based on those people's willingness to pay,
they are picking the revenue maximizing price for each individual purchaser.
Speaker 3 (10:33):
And if he decided that.
Speaker 4 (10:34):
The revenue maximizing price for the UK it is now
no longer two hundred dollars, it's three hundred dollars, that
doesn't change what the revenue maximizing price is in the
United States, however, so they're not likely to change the
price for the drug in the United States. However, that's
not quite what President Trump is proposing. What he's proposing
is that if the UK, if a drug company is
(10:57):
selling the same drug in the UK for two hundred
dollars that it is in the United States for one
thousand dollars, that every purchaser in the United States will
have access to that drug and whatever is the lowest
price that that manufacturer charges anywhere, so it's two hundred dollars,
it's two hundred dollars in the UK, then we all
(11:17):
have would get access to that drug for just two
hundred dollars. Now what this does is it probably it's
similar to what you were describing. It ties the US
price to whatever the lowest price is anywhere else. And
so the drug manufacturer might say to the UK, look,
we can't keep selling it to you two hundred.
Speaker 3 (11:38):
It's gonna have to go to three hundred.
Speaker 4 (11:40):
Or they could say it's gonna go all the way
up to one thousand, because we will lose less money
that way than with any other strategy. I think probably
most of them would come down from a thousand, because
it's hard to imagine that completely writing off their foreign
markets would be the revenue maximizing strategy under that under
(12:00):
that new policy of the US government. But a lot
of there are a lot of other things to say
about this proposal. One of them is that the president
doesn't have the authority to do this. I mean, Congress
didn't give the president the authority to set prices for
private purchases of drugs in the United States, and what
(12:21):
President Trump has proposed doing is just unleashing the executive
brand is telling Robert F. Kennedy Junior, the Secretary of
Health and Human Services, Hey, go out and set what
you think the price should be for all of these drugs,
and you know, peggingtt it whatever these drug companies are
paying the or charging the nation where it's setting the
(12:45):
prices the lowest. And then and then once you set
those prices, Secretary of Kennedy, once you come up with
those price targets, I'm going to unleash every part of
the executive branch on these drug companies until they get
those prices down. Talking anti trust who we're talking about
maybe revoking their drug approvals and threatening to revoke their
drug drug approvals from the FDA. We're talking about all
(13:08):
sorts of other things that the that the executive branch
can do just to mess with.
Speaker 3 (13:14):
To mess with the drug company.
Speaker 4 (13:15):
Uh, this is this is this is unconstitutional even thuggish
behavior where the President is saying to drug companies, nice,
nice drug company, you've got there, be ashamed of if
anything were to happen to it. And and so there's
gonna be all sorts of fights about this. But so
it might not even work. Hopefully it won't even work.
But if it did, that's not the end of the story.
(13:38):
Because if the prices that drug manufacturers are charging to
foreign governments rise dramatically. Well, on the one hand, that's
a good thing because the United States government is no
longer or the United States is no longer providing I
should say, the United States government is no longer providing
an implicit subsidy to socialized medicine systems around the world.
(14:00):
But those nations are going to have to then decide, well,
either we pay one thousand dollars or something close to
it for this drug, or we just stop covering this drug.
That I think is it's a good thing to eliminate
that implicit subsidy. If those nations stop covering that drug
and start covering fewer things and make more room for
a private market for healthcare in their nations, that's a
(14:24):
good thing. Some of them, however, might decide that they're
going to start ignoring patents. They're going to say, you
know what, the reason you're charging one thousand dollars for
that drug, it's because you've got a patent on it.
Each pill costs five dollars or whatever. So we're just
going to commandeer that intellectual property. We are going to
(14:45):
a license manufacturers in our country to make this drug
themselves for five dollars a pill or we're going to
buy them from India or some other country where they're
not recognizing your patent at two dollars a pill, and
that is going to threaten the ability of drug manufacturers
(15:05):
to invest in the research and development that produces new cures.
Speaker 3 (15:09):
I don't think that that's a reason not to.
Speaker 4 (15:16):
Allow free trade between the United States and other countries.
Speaker 3 (15:19):
Allow us to. I mean, the same thing would happen.
Speaker 4 (15:21):
In the government allowed us to re import drugs from
other countries, because that'll become a topic of trade negotiations
and the governments will work something out there.
Speaker 2 (15:31):
All right, So just about out of time, So let
me just.
Speaker 1 (15:34):
Get another question in, and for those just joining, we're
talking with Michael Cannon, who directs health policy studies at
the Cato Institute Cato dot org.
Speaker 2 (15:42):
So just give me quick answers on a couple of things.
Right now, What are the.
Speaker 1 (15:48):
Rules about what I am allowed to do to import
medication from another country?
Speaker 4 (15:54):
So, first of all, it needs to have an FDA approval.
The FDA has to approve the particular drug with and
what goes on the label, So the formulation, the manufacturing process.
Speaker 3 (16:07):
And.
Speaker 4 (16:11):
The indication on the label. What we're recommending you use
this drug to do and drugs that are available in
other countries, for the most part, when they sell them
in other countries, they don't go through all of that
rigor role that the if it requires you to sell
to do to sell a drug in the United States,
so the drug would have to go through the manufacturer
(16:33):
have to go through all of those things. That is,
in effect, those regulations become a trade barrier because I
can't just buy that drug from another country, and so
the FDA should just deem as satisfying its requirements any
drug that any other advanced nations regulatory bodies have approved,
and that would eliminate that trade.
Speaker 1 (16:54):
Would you put India in that category because I buy
my medication from India when I either can't find it
here or it's too expensive here.
Speaker 4 (17:02):
I would put all nations in that category, because that's
what the freedom to trade with people of all nations
is a fundamental human right. And then you should be
able to choose which nations regulatory body has provided you
the certainty you want. But for political purposes, I you know,
(17:23):
to make it palatable to people who might be afraid
of the idea. I usually say like OECD nations or
something like that.
Speaker 1 (17:29):
Okay, last quock question for you. If you were in
charge and you could implement I'm going to say two
policy changes aimed very specifically reducing the cost pharmaceuticals in
the United States.
Speaker 2 (17:43):
What would those two policy changes be.
Speaker 4 (17:46):
They would have They would not relate directly to drug pricing.
They would relate to who controls the money in the
health sector. I would change the tax code so that
workers can control the trillion dollars of their earnings employers
can contru all and use to purchase, choose, and purchase
a health plan for workers. Give that money to the workers,
(18:07):
let them choose their health plans, and they will spend
that money much more carefully, including putting downward pressure on
drug prices, because they'll switch from the expensive drug to
the cheap one and spark price competition if they get
to see the savings. But if the savings go to
an employer, they're not going to bother. Same thing with
the Medicare program. Stop giving people like government to fine
package of healthcare subsidies. Do what Social Security does. Just
(18:30):
give them that trillion dollars in cash, and then Medicare
and rollies will do the same. They will switch to
the lower cost drugs and the lower cost hospitals and
so forth when they get to see the savings. And
that's how you spark this sort of price competition that
makes healthcare more universal.
Speaker 1 (18:45):
Michael Cannon, direct Health Policy Studies at the Cato Institute
Sato dot org. Thanks as always, Michael, great conversation. Go
enjoy your tea.
Speaker 3 (18:55):
Always a pleasure.
Speaker 2 (18:55):
Many thanks, all right, thank you,
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