The U.S. spends the most money on drugs worldwide, but the Trump Administration has a plan to reduce this. [1] They are considering introducing international reference pricing, which would align drug prices in the U.S. with the lower amounts paid by other developed countries. Two sources in the pharmaceutical industry, who are not permitted to speak publicly, have described this as the industry’s top concern. [2]
.jpg?v=1747911950)
Understanding international reference pricing
International reference pricing (IRP) is a mechanism whereby countries set their drug prices based on the prices in other countries. This is often done by selecting several ‘reference countries’, with the target country (in this case, the U.S.) then adjusting its price in alignment with the reference countries. While this can limit drug costs and stop a country from overpaying, it can also incentivize pharmaceutical companies to raise the prices in reference countries.
IRP is already used by many EU countries, Canada, and Australia, and it was first proposed for the U.S. in Trump’s first term, but was blocked by the courts. Now, as the policy resurfaces, stakeholders will be watching closely for details about how it could be implemented.
Details of Trump's proposal
While no details have been released about the new IRP approach, several other cost-saving measures are being explored following a recent executive order from President Trump. [3] These include reducing high-cost prescriptions and care for seniors, increasing prescription drug importation, and reducing competitive behavior from pharmaceutical manufacturers. [3] It will be a few months before more specific details about the implementation of these proposals are available.
In the proposal by the Trump Administration 5 years ago, expectations were that the U.S. could cut $400 billion from the annual spend on drugs, saving taxpayers $85 billion over seven years. [1][2] It’s reasonable to assume the Administration will be looking for similar savings this time around.
Additionally, the Inflation Reduction Act, introduced by Former President Joe Biden, allows the government to negotiate the price of the costliest drugs. However, the U.S. average drug price is still significantly more, sometimes up to 5 times, than the price other developed countries pay for the same drug. [1] Therefore, the current administration is also motivated to improve this Act to gain more savings.
Potential impacts on the pharmaceutical industry
While this cost-saving may seem like a good thing, it’s predicted to have a detrimental impact on the pharmaceutical and healthcare industries. If the U.S. cuts its drug spending by billions, much less money will be available for innovation. One anonymous source stated that this is the biggest "existential threat to the industry and US biosciences innovation". [1] This is because IRP would result in less money available for novel and cutting-edge treatment development, ultimately leading to a stagnation of progress in this field.
Effects on treatment access
IRP can have both a positive and a negative impact on treatment access. Lower drug costs can ultimately mean they’re more accessible for those with lower incomes or without insurance. To add, if less of the healthcare budget is spent on drugs, more money might be available for other treatments, allowing access to these within the same healthcare budget.
However, IRP can lead to less money being available for pharmaceutical investment and innovation, which could lead to a long-term decline in accessibility to new treatments. It’s a balance between short-term affordability with a risk of long-term decline, which is the central dilemma of international reference pricing.
Final thoughts
While paying less money for drugs will help save the U.S. government money and potentially increase accessibility to certain drugs, it could cause a shift in the global pharmaceutical markets, with less money available for innovation. It’s not clear yet whether this proposal will go ahead or how it will be implemented, but we can expect to have further details in the coming months.
