Trump's Attempt to Slash Prescription Prices with Price Controls Will Slash Healthcare Quality

In an attempt to slash prescription drug prices, President Trump signed an executive order earlier this week addressing high prescription drug prices. Trump is going to implement a "most favored nation" (MFN) pricing model, which means that the cost of a prescription drug does not exceed the lowest price that other high-income countries pay for the same drug. Trump is exerting pressure on drug manufacturers to accept MFN pricing. While the executive order directs the Secretary of Health and Human Services to take "aggressive measures," it is unclear what those measures are. 

What we see President Trump doing is implementing price controls, which is rich since he called Kamala Harris a communist for her ridiculous idea of price controls for groceries during the presidential campaign. It does not matter which political party endorses price controls: they are a bad policy idea. It is not simply because there are centuries of price controls that have failed, whether that those are rent control, an overdraft fee cap, fixed exchange rates, price-gouging laws during natural disasters, and consumer loan interest rate caps. 

In 2022, I heavily criticized President Biden for the prescription drug price controls in the Inflation Reduction Act (IRA). I will be bringing those same criticisms to Trump's proposal because they still hold. By definition, price ceilings create shortages because the drug companies will be disincentivized to produce more drugs at reduced prices. The truth is that price controls do not eliminate costs, but rather shift costs at the expense of something else. What is that something else? 

One outcome of these price controls is that lower access to drugs would mean greater death. One study from the University of Chicago estimated that the casualties caused by the IRA would be 331.5 million life years across a 20-year timespan (Philipson and Durie, 2021). To give you some context, the COVID pandemic resulted in the loss of 9.7 million life years (Quast et al., 2022), which would be about 34 times the life lost during the worst pandemic in the past century. 

Not only that, but drug price controls in Europe translated into less drug research and development (Golec and Vernon, 2006). Fewer new medicines means worsening healthcare outcomes than would have occurred otherwise. That is not only for the United States, but across the globe. Another study found that the drugs that do get developed can have their entry into the market delayed by a year (Maini and Pammolli, 2023; Danzon et al., 2004). To reiterate an earlier point, a longitudinal study found that these delays reduce life expectancy (Lichtenberg, 2005).

Trump's executive order is going to be even worse than Biden's IRA price controls. Why? At least under the IRA, the laws mainly affected Medicare. With this executive order, Trump is expanding the scope of the price controls to the private sector, which means it will affect all prescription drugs. If Trump actually cares about reducing prices and making prescription drugs great again, he could focus on policy that makes the prescription drug market more competitive, such as allowing for increased reimportation of drugs, expanding access to generic drugs, or ending prescription requirements for a number of drugs. Otherwise, Trump will make prescription drug pricing an even bigger disaster than under the Biden administration.