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A friend correctly harangued me about this New York Times piece on Donald Trump’s deal on prescription drugs with the United Kingdom. According to the article, the UK has agreed to pay 25 percent more for new drugs than it would otherwise, in exchange for relief from tariffs Trump threatened to impose.

The article includes several assertions that are either misleading or false. First, it told readers:

“President Trump and top officials in his administration have complained that wealthy European countries like Britain pay too little for medicines, forcing the United States to pay what they believe is an unfair share of the costs of drugs [emphasis added]. American consumers ultimately bear some of those costs when they pay health insurance premiums and taxes.”

The New York Times reporters have no idea what President Trump and his top officials actually believe about the fairness of drug prices. They know what they say. That is all the paper should report rather than speculating on thoughts.

As a practical matter, people in the United States will pay over $720 billion this year for drugs that would likely sell in a free market for around $150 billion. The industry spends around $150 billion on research. If European countries paid half of what people in the United States paid, and people in the US did as well, it could easily cover the industry’s research spending. The higher prices in the US go to profits, marketing, and highly paid top executives.

New York Times reporters are apparently prohibited from raising the issue, but we could turn to alternative mechanisms for funding the development of new drugs, such as direct public funding, which we already do the tune of more than $50 billion a year through the NIH and other government agencies. If we tripled or quadrupled this funding, all research could be open-source, and all new drugs could be sold as cheap generics. This would also largely eliminate the incentive to lie about the safety and effectiveness of drugs, which we saw most dramatically with the opioid crisis.

The NYT piece also includes the bizarre assertion:

“Pharmaceutical companies stand to profit from the change. They share Mr. Trump’s view that European countries like Britain are paying too little for medicines.”

This is basically saying that pharmaceutical companies think they should make higher profits. That is surely true, but not exactly news.

The piece also is somewhat misleading when it discusses the industry’s decisions about investing in the UK.

“This year, several major companies have pulled back on investments in Britain, arguing that the country has become a less lucrative place to do business.

“In September, Merck said it would abandon plans to build a new lab in London, which was already under construction. Dave Ricks, chief executive of Eli Lilly, told The Financial Times that ‘Britain was “probably the worst country in Europe ‘ for drug prices, from the perspective of pharmaceutical companies. AstraZeneca has scrapped plans to upgrade a vaccine manufacturing site in Liverpool and a research lab in Cambridge and instead emphasized large investments in the United States.”

There is no direct connection between a country’s desirability as a place to locate a lab and its drug pricing policy. Under numerous treaties, governments are prohibited from showing favorable treatment to their own companies in pharmaceutical pricing. What the NY Times is describing is effectively extortion, where drug companies are using investment decisions to force governments into allowing them to charge higher prices.

There is one other important issue that this piece neglects to mention. The higher prices only apply to new drugs, not ones currently on the market. Donald Trump will be out of office in three years. The UK may reasonably be making a bet that the higher prices on new drugs will not have too much impact on their spending over the next three years, after which point they will have a more normal president in the White House who will not try to interfere with their domestic pricing policy.

As it is, Trump is threatening to raise prices for patients in the United States to increase the profits of the pharmaceutical industry. That position would likely not be very popular here if the UK were to refuse this deal from Trump or a successor.

There would also likely be zero consequence to breaking a deal signed with Donald Trump. Everyone knows Donald Trump doesn’t honor his side of deals, there is zero reason to expect his partners to either.

The post New York Times Gets the Story on Prescription Drug Prices Wrong appeared first on CounterPunch.org.

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