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Donald Trump signed an executive
order this week accusing the 

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Pharmaceutical industry of 
overcharging Americans for 

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prescription drugs. 
The fact sheet on the White 

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House website describes the 
issue as another example of 

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other countries freeloading off 
Americans who pay up, covering 

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the cost of R&D and testing 
while everyone else benefits 

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from lower drug prices. 
The order doesn't describe how 

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the US government plans on 
forcing companies to lower their

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prices, other than to threaten 
additional aggressive action. 

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The order calls on the health 
department, led by Robert F 

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Kennedy Junior, to communicate 
price targets to pharmaceutical 

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companies, which has worried a 
few analysts that Trump plans to

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impose price controls on 
medications, tying the price 

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that Americans pay to the lowest
prices paid in comparably 

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developed countries. 
There is a 4000 year history of 

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well meaning governments 
imposing price controls, but no 

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successful examples as market 
prices are needed to solve the 

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economic problem of how to most 
effectively allocate scarce 

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resources in a world of 
unlimited wants and needs. 

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The order directs RFK Junior to 
establish a mechanism through 

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which Americans can buy 
medicines directly from 

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pharmaceutical companies, 
bypassing middle men. 

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This sent shares of Cigna, one 
of the largest health insurers 

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in the United States, down 
almost 6% and the drugstore 

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giant CVS Health down more than 
3% as both own pharmacy benefit 

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managers, known as PBMS, which 
are companies that work with 

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health insurers, large employers
and other payers to manage their

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prescription drug benefits. 
Most of the stock prices that 

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declined bounced back later in 
the week as investors appear to 

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have decided that Trump is all 
bark and no bite. 

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But it's still worth digging 
into why drug prices are so high

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in America. 
PBMS have been hit with 

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criticism from antitrust 
regulators, lawmakers, 

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independent pharmacies and 
patient advocates in recent 

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years for business practices 
that detractors say drive up 

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drug costs for Americans. 
The Pharmaceutical industry is 

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America's most hated industry, 
according to a Gallup poll. 

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Only 20% of Americans view the 
industry positively, meaning 

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that it's ranked below the 
federal government, lawyers, 

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real estate agents, and even 
Mark Zuckerberg. 

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OK, they didn't actually put 
Mark Zuckerberg on the list. 

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I made that bit up. 
But then I wondered who the most

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hated man in America actually 
is. 

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So I googled it and it's Martin 
Shkreli, the pharma guy who 

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became famous a few years ago 
for hiking the price of an AIDS 

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medicine. 
So I guess I was wrong. 

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Americans actually love Mark 
Zuckerberg. 

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Apparently, he's the person 
Americans would most like to go 

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for a coffee with you. 
Drink coffee, man or no? 

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Nah. 
Really. 

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Yeah. 
I mean, you've, you've had it. 

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I have sometimes on vacation 
I'll drink it recreationally. 

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It's like every once in a while.
Americans have long complained 

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about high prescription drug 
prices, and people from other 

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countries are often amazed by 
how expensive Healthcare is in 

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the United States. 
Research from last year shows 

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that prescription drugs cost 
almost three times as much in 

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America as in the rest of the 
world. 

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But of course, nothing's ever as
simple as it first appears. 

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The gap is largest for brand 
name drugs, which cost 4.22 

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times as much in the United 
states as they cost in the rest 

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of the world. 
But then unbranded generic 

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drugs, which account for 90% of 
prescription drug volumes, are 

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actually cheaper in the United 
States than than elsewhere. 

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Let's look at why drug prices 
are so high in the United 

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States, and whether we need drug
prices to stay high to foster 

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innovation. 
Let's look into why the prices 

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seem to go up faster than 
inflation, whether the situation

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is actually better in the rest 
of the world, and how Trump 

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could lower drug prices without 
price controls. 

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When President Trump first 
suggested that Canada could 

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become the 51st American state 
last December, he had a pricing 

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supporter, the Democratic 
Senator Bernie Sanders, who 

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tweeted. 
Does that mean that we can adopt

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the Canadian healthcare system 
and lower the cost of 

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prescription drugs? 
I'm all for it. 

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Sanders has been pushing for 
years for the US to adopt A 

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Canadian style healthcare 
system, including its price 

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controls on prescription drugs. 
He even introduced a bill in 

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2017 to allow Americans to 
import medicines from Canadian 

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pharmacies as long as they meet 
certain safety standards. 

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Sanders is not the only 
politician to have pitched this 

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idea, either. 
Florida's Republican governor, 

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Ron DeSantis, spent years 
petitioning the federal 

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government to allow his state to
import drugs directly from 

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Canada, too. 
Last year, he succeeded and 

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Florida became the first US 
state to launch a prescription 

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drug importation program. 
Floridas program wouldn't 

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directly help consumers at the 
pharmacy as it instead aimed to 

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lower cost for the states 
Medicaid program and the 

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medications provided by its 
corrections and health 

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departments. 
The plan would only have a 

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limited effect for Florida as 
generic drugs are already 15 to 

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20% cheaper in the United States
than in Canada and these make up

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the majority of prescriptions. 
So it's just the brand name 

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drugs that are cheaper in 
Canada. 

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And this is because the Canadian
government uses its buying power

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to negotiate lower prices with 
the pharmaceutical companies. 

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One of the downsides of this 
approach is that if 

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pharmaceutical companies don't 
agree to price cuts on their 

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newest drugs, they're just 
unavailable in Canada. 

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According to Forbes, Canadian 
patients only had access to 45% 

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of the 460 new drugs introduced 
worldwide between 2012 and 2021,

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while American patients, if they
could afford them, had access to

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85% of them. 
Florida identified 14 drugs that

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it planned to import from Canada
last year, but one year on, the 

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results have been unspectacular.
What do I mean by unspectacular?

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Well, what I mean is that it 
doesn't appear that Florida has 

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imported a single Canadian drug 
so far. 

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Importing medicines this way 
works out to be quite 

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complicated because of the 
USFDA's requirements, which 

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include finding companies to 
work with, like a Canadian 

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exporter and AUS importer, and 
then following a process to 

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ensure that the drugs are safe 
and authentic. 

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According to a lawsuit where the
state of Florida is now suing 

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the FDA, Florida has so far 
spent $50,000,000 to set up a 

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warehouse to store the medicines
and paid an importer and 

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distributor over $24 million, 
with this fee increasing at the 

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rate of $1.2 million every 
month, even though not a single 

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prescription pill has been 
imported, relabeled or 

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distributed. 
And this is because of the FDA's

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idle. 
According to the lawsuit, one of

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the main reasons that 
prescription medicines are more 

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expensive in America than 
elsewhere is that, like Canada, 

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most other wealthy countries 
negotiate directly with 

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pharmaceutical companies to get 
a good price on medications for 

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the country as a whole. 
Because of the way that 

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healthcare and health insurance 
works in the United States, 

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thousands of smaller health 
plans negotiate their own 

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prices. 
And because of their smaller 

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sizes, these health plans can't 
buy the same volume as a country

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can, and thus they can't get the
same kind of discounts. 

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In the United States, the FDA 
decides if a new medicine is 

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safe enough to be sold. 
And if it's safe, it can be sold

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in places like the UK. 
The NHS additionally decides if 

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it's worthwhile making the new 
medicine available. 

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National Health services in 
other countries often compare 

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new medicines to existing ones 
to decide if the new one is 

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actually better and if the 
improvements are worth the 

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higher price. 
Pharmaceutical companies say 

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that US patients get new 
medicines faster and with fewer 

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insurance restrictions than 
patients in other countries. 

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In 2016, there were protests in 
the United States over steep 

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price hikes for EPI pens, which 
at $300.00 per dose, cost more 

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than three times what they cost 
in other developed nations. 

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Epipens are needed for people 
with extreme allergies who carry

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them around at all times in case
of emergency. 

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While these protests were going 
on in the United States, there 

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were similar protests in the UK 
over the lack of access to a 

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cystic fibrosis drug called 
Orcambi. 

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In the US, OR Cambi was 
available and cost around 

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$270,000 per patient per year, a
very expensive drug. 

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The best price the NHS could 
negotiate with the manufacturer 

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was about a 50% discount, but 
this was still too expensive for

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the NHS. 
According to the Guardian, OR 

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Cambi helps around 40% of 
patients with cystic fibrosis 

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but only has limited efficacy. 
Canada's cost effectiveness body

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turned the drug down too. 
At the time that this was going 

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on, President Trump accused the 
UK of freeloading by refusing to

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pay the high prices American 
drug companies charge for 

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medications in the US. 
While new medicines do often 

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become available in the United 
States earlier than in the rest 

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of the world, research shows 
that Americans, and in 

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particular uninsured Americans, 
skip taking their prescription 

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medications due to cost more 
than citizens of any other 

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developed country. 
There is a trade off between 

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price and availability. 
President Trump used the story 

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of a very wealthy and overweight
friend buying weight loss 

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medication abroad to illustrate 
the problem that Americans face.

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I mean, I'll tell you a story. 
A friend of mine who's a, a 

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businessman, very, very, very 
top guy. 

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Most of you would have heard of 
him, very successful, very rich,

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seriously overweight. 
And he takes the fat, the fat 

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shot drug president, could I ask
you a question? 

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What? 
I'm in London and I just paid 

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for this damn fat drug I take. 
I said it's not working. 

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He said I just paid $88 and in 
New York I paid $1300. 

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What the hell is going on? 
He said. 

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So I checked and it's the same 
box made in the same plant by 

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the same company. 
It's the identical pill that I 

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buy in New York, and here I'm 
paying $88 in London. 

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In New York I'm paying $1300. 
Now, this is a great 

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businessman, so, but he's not 
familiar with this crazy 

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situation that we have. 
But he was stunned. 

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I brought it up with the drug 
companies, represented by 

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somebody who's very, very smart,
good person too. 

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And we argued about it for about
half hour. 

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And then finally he just said, 
because they can't justify it. 

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He just said, look, you got me, 
you got me. 

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I can no longer just, they've 
been justifying this crap for 

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years. 
They said, oh, it's research and

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development, where I said, well,
research and development, other 

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countries should pay research 
and development too. 

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It's for their benefit. 
To understand drug testing, we 

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need to go back to 1937, when an
improperly prepared antibiotic 

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caused a mass poisoning event in
the United States, where over 

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100 people died. 
The public outcry LED Congress 

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to pass the Federal Food, Drug 
and Cosmetic Act a year later, 

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which exempted drugs that people
had been using for several 

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years, like aspirin and insulin,
but required pharmaceutical 

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companies to provide convincing 
passing evidence to the FDA that

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any new product being introduced
was safe for patients to 

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consume. 
As directed after the 

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thalidomide tragedy, a 1962 
amendment was added requiring 

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drug makers to convince the 
agency that a new drug was 

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effective as well as safe. 
The amount of time required to 

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test new medications for safety 
and effectiveness has grown over

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time and once again there are 
trade-offs. 

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No one wants unsafe medications 
being sold to the public, but 

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equally, if testing takes too 
long, life saving medications 

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could be being withheld from the
public, causing lives to be 

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lost. 
In the 1980s, under intense 

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pressure from advocates for AIDS
patients who protested the 

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agency sluggishness, the FDA 
made changes in the way it tests

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and approves drugs for patients 
who are fatally ill. 

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In 1983, the Orphan Drug Act was
passed to encourage drug makers 

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to develop rare disease 
treatments that otherwise might 

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not be profitable to research. 
The FDA allowed approval for 

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these drugs based on smaller 
trials with more flexible 

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evidence standards. 
And it offered more time on the 

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market for the medicines without
generic competition so that 

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pharmaceutical manufacturers 
could earn a reasonable profit 

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from their research. 
The Prescription Drug User Fee 

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Act of 1993 allowed the FDA to 
start charging pharmaceutical 

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companies fees to fund the 
review process. 

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This additional funding speed up
the approval process but 

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increased the cost of doing 
business for pharmaceutical 

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companies. 
In 1993, the FDA collected $66 

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million in fees from the 
Pharmaceutical industry. 

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But we're collecting more than 
12 times as much by 2018. 

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00:15:04,160 --> 00:15:08,640
FDA drug review times declined 
from more than three years in 

232
00:15:08,640 --> 00:15:12,840
1983 to less than one year in 
2017. 

233
00:15:13,080 --> 00:15:17,000
But total time from the 
authorization of clinical 

234
00:15:17,000 --> 00:15:21,880
testing to approval has remained
constant at approximately 8 

235
00:15:21,880 --> 00:15:25,520
years over that period. 
While there are complaints about

236
00:15:25,520 --> 00:15:29,080
the speed of the drug approval 
process in the United States, 

237
00:15:29,440 --> 00:15:33,480
research from the Yale School of
Medicine found that the FDA 

238
00:15:33,480 --> 00:15:37,000
moves faster than its 
counterparts in Europe, Canada, 

239
00:15:37,000 --> 00:15:40,680
and Japan. 
One of the arguments that the 

240
00:15:40,680 --> 00:15:44,440
pharmaceutical companies make 
for new drugs being so expensive

241
00:15:44,440 --> 00:15:49,560
in the United States is that R&D
is both risky and expensive. 

242
00:15:49,960 --> 00:15:54,240
Only about 12% of new molecules 
make it through the approval 

243
00:15:54,240 --> 00:15:59,200
process to being commercialized,
and a recent study found that 

244
00:15:59,200 --> 00:16:04,520
R&D and D spending for the 
industry hit $276 billion in 

245
00:16:04,520 --> 00:16:09,160
2021. 
Last year, the FDA approved 50 

246
00:16:09,160 --> 00:16:11,960
new drugs for use in the United 
States. 

247
00:16:12,280 --> 00:16:18,680
If we divide the $276 billion of
annual R&D spending by 50 new 

248
00:16:18,680 --> 00:16:24,400
drugs a year, we end up with 
$5.52 billion per drug in 

249
00:16:24,400 --> 00:16:28,240
research cost alone. 
Drug companies need to make that

250
00:16:28,240 --> 00:16:31,880
back and cover the cost of 
manufacturing and marketing 

251
00:16:32,120 --> 00:16:36,040
before they even break even. 
And not all of those 50 new 

252
00:16:36,040 --> 00:16:38,200
drugs will be blockbusters 
either. 

253
00:16:38,400 --> 00:16:42,040
Many will be competing with 
existing treatments, and some of

254
00:16:42,040 --> 00:16:45,240
the existing drugs will be 
better than the new ones. 

255
00:16:45,880 --> 00:16:50,480
Once a new medication is 
approved, it has about 12 years 

256
00:16:50,480 --> 00:16:54,560
of market dominance before a 
competitor brings out a similar 

257
00:16:54,560 --> 00:16:58,160
or better drug. 
Pharmaceutical companies have to

258
00:16:58,160 --> 00:17:02,520
make their money back plus a 
profit in this 12 year window. 

259
00:17:03,160 --> 00:17:07,240
Unlike the 20 year patents that 
drug makers get, which are 

260
00:17:07,240 --> 00:17:10,960
generally acquired early in the 
development process and are 

261
00:17:10,960 --> 00:17:14,839
based on intellectual property 
rights rather than evidence of 

262
00:17:14,839 --> 00:17:19,119
safety and effectiveness, 
marketing exclusivity is granted

263
00:17:19,200 --> 00:17:23,440
only after a drug has been 
approved by the FDA and only 

264
00:17:23,440 --> 00:17:25,880
when statutory requirements are 
met. 

265
00:17:26,319 --> 00:17:31,080
Exclusivity puts into place a 
period of time during which no 

266
00:17:31,080 --> 00:17:35,200
other applications can be 
accepted and or approved for the

267
00:17:35,200 --> 00:17:38,480
same active ingredient. 
This means that other 

268
00:17:38,480 --> 00:17:42,520
manufacturers who want to 
develop alternative formulations

269
00:17:42,520 --> 00:17:46,880
or generic versions of the drug 
will not be able to have their 

270
00:17:46,880 --> 00:17:50,320
products approved during that 
exclusivity period. 

271
00:17:50,920 --> 00:17:54,920
There are exceptions to some of 
these protections too, which 

272
00:17:54,920 --> 00:17:58,000
might even benefit President 
Trump's fat friend. 

273
00:17:58,360 --> 00:18:03,200
I'm not fat, I'm big bound. 
When drugs are in short supply, 

274
00:18:03,200 --> 00:18:07,120
like GLP One, which is 
prescribed for diabetes as well 

275
00:18:07,120 --> 00:18:11,080
as obesity, pharmacies in the 
United States are allowed to 

276
00:18:11,080 --> 00:18:15,720
make compounded versions which 
are full blown copies so that 

277
00:18:15,720 --> 00:18:19,160
people can still access 
important medications. 

278
00:18:19,600 --> 00:18:25,000
The FDA declared a shortage of 
GLP One in 2022 due to high 

279
00:18:25,000 --> 00:18:29,280
demand allowing telehealth 
providers to make generic 

280
00:18:29,280 --> 00:18:33,200
versions, and only recently 
removed it from the shortage 

281
00:18:33,200 --> 00:18:37,360
list after the agency determined
that the current supply of the 

282
00:18:37,360 --> 00:18:40,920
drug can meet present and future
demand. 

283
00:18:41,520 --> 00:18:44,960
The compounded versions were 
very popular as cheaper 

284
00:18:44,960 --> 00:18:48,920
alternatives for people whose 
insurance didn't cover the drug 

285
00:18:48,920 --> 00:18:52,240
for weight loss, but now they're
going away. 

286
00:18:52,880 --> 00:18:57,480
CNBC reported last month that 
Novo Nordisk, the drug's 

287
00:18:57,480 --> 00:19:01,680
manufacturer, will make the drug
available at a discount through 

288
00:19:01,680 --> 00:19:06,320
telehealth providers in order to
address a larger market. 

289
00:19:07,120 --> 00:19:11,360
Reuters reported last December 
that drug makers planned to 

290
00:19:11,360 --> 00:19:16,760
raise prices in the US on at 
least 250 branded medications by

291
00:19:16,760 --> 00:19:23,440
approximately 4 1/2% for 2025. 
Their research shows that larger

292
00:19:23,440 --> 00:19:27,200
drug price increases were once 
far more common in the United 

293
00:19:27,200 --> 00:19:30,840
States, but in recent years drug
makers have scaled them back 

294
00:19:31,080 --> 00:19:35,400
after price hikes drew sharp 
criticism in 2015. 

295
00:19:35,920 --> 00:19:40,480
The issue of drug price hikes 
came into sharp focus in 2015 

296
00:19:40,640 --> 00:19:45,240
when pharma bro and rap 
enthusiast Martin Shkreli bought

297
00:19:45,240 --> 00:19:49,240
an old drug called Daraprim, 
which treats life threatening 

298
00:19:49,240 --> 00:19:53,800
diseases in HIV patients. 
He raised the price overnight 

299
00:19:53,800 --> 00:19:58,800
from $13.50 a pill to $750 a 
pill. 

300
00:19:59,160 --> 00:20:03,320
The drug had been developed in 
the 1950s and had no patent 

301
00:20:03,320 --> 00:20:08,280
protection, but there were no 
generic competitors available in

302
00:20:08,280 --> 00:20:11,000
the market that patients could 
turn to. 

303
00:20:11,360 --> 00:20:15,640
He was the only supplier and he 
marked the price up as much as 

304
00:20:15,640 --> 00:20:19,200
he could. 
In principle, the new high price

305
00:20:19,200 --> 00:20:23,280
should encourage generic drug 
makers to produce a cheaper bio 

306
00:20:23,280 --> 00:20:26,520
equivalent product. 
But because of the small number 

307
00:20:26,520 --> 00:20:30,440
of patients who needed it and 
the short treatment duration 

308
00:20:30,440 --> 00:20:34,120
relative to other drugs, it 
wasn't worthwhile for another 

309
00:20:34,120 --> 00:20:37,080
company to start producing a 
generic version. 

310
00:20:37,880 --> 00:20:42,920
A Reuters analysis in 2023 found
that pharmaceutical companies 

311
00:20:42,920 --> 00:20:48,400
launched new US drugs in that 
year at prices 35% higher than 

312
00:20:48,400 --> 00:20:52,000
the prior year. 
They say that more than half of 

313
00:20:52,000 --> 00:20:55,520
the new medicines were for 
orphan diseases, meaning 

314
00:20:55,520 --> 00:21:00,120
diseases which affect fewer than
200,000 Americans, and that most

315
00:21:00,120 --> 00:21:04,600
of these drugs were not expected
to become big sellers, possibly 

316
00:21:04,600 --> 00:21:09,480
justifying the price per dose. 
Despite the constant political 

317
00:21:09,480 --> 00:21:13,720
pressure to reduce the price of 
prescription medicines, Novartis

318
00:21:13,720 --> 00:21:18,480
introduced the world's most 
expensive medication in 2019, a 

319
00:21:18,480 --> 00:21:24,360
gene altering injection that 
cost $2.1 million for a one time

320
00:21:24,360 --> 00:21:28,800
treatment for a rare inherited 
disease that destroys certain 

321
00:21:28,800 --> 00:21:31,080
cells involved in muscle 
movement. 

322
00:21:31,440 --> 00:21:35,360
If left untreated, patients 
typically don't live past 

323
00:21:35,360 --> 00:21:38,960
childhood. 
Novartis offered insurers the 

324
00:21:38,960 --> 00:21:43,600
choice of paying for the 
treatment in $425,000 

325
00:21:43,600 --> 00:21:48,360
installments over five years. 
The patent system was put in 

326
00:21:48,360 --> 00:21:52,640
place to encourage innovation by
giving inventors temporary 

327
00:21:52,640 --> 00:21:57,400
monopolies on their new ideas so
that they can recoup their R&D 

328
00:21:57,400 --> 00:22:00,920
investment over time and 
hopefully yield a profit. 

329
00:22:01,560 --> 00:22:04,520
If the business of coming up 
with new medicines is 

330
00:22:04,520 --> 00:22:08,720
profitable, it should attract 
new market entrants and society 

331
00:22:08,720 --> 00:22:12,080
should broadly benefit from 
innovative new products. 

332
00:22:12,440 --> 00:22:16,480
To patent a new product, an 
inventor has to fully disclose 

333
00:22:16,480 --> 00:22:20,320
the details of their invention, 
giving the public complete 

334
00:22:20,320 --> 00:22:24,480
possession of it. 
They then get a 20 year monopoly

335
00:22:24,480 --> 00:22:27,800
to commercialize their new idea 
without competition. 

336
00:22:28,320 --> 00:22:32,040
When the patent expires, the 
invention falls into the public 

337
00:22:32,040 --> 00:22:35,760
domain and the inventor no 
longer has the exclusive right 

338
00:22:35,760 --> 00:22:37,600
to commercialize their 
invention. 

339
00:22:38,120 --> 00:22:41,480
In the United States, drug 
companies have been very 

340
00:22:41,480 --> 00:22:45,240
successful at finding ways to 
extend that monopoly period 

341
00:22:45,520 --> 00:22:50,080
through tactics like piling up 
patents to protect inventions 

342
00:22:50,240 --> 00:22:54,080
that are only tangentially 
related to the drug in question.

343
00:22:54,480 --> 00:22:59,320
A 2023 paper from Cornell 
University found that the top 10

344
00:22:59,320 --> 00:23:02,800
best selling brand name 
pharmaceuticals have an average 

345
00:23:02,800 --> 00:23:07,200
projected duration of 40 1/2 
years of patent protection, 

346
00:23:07,480 --> 00:23:11,200
which is more than double the 20
year statutory term. 

347
00:23:11,520 --> 00:23:15,720
This practice of obtaining 
extended patent protection is 

348
00:23:15,720 --> 00:23:19,560
known as evergreening. 
The authors of the paper say 

349
00:23:19,560 --> 00:23:23,360
that the bulk of the patents 
contributing to Evergreening are

350
00:23:23,360 --> 00:23:27,360
improvement patent that cover 
improvements to methods of 

351
00:23:27,360 --> 00:23:30,520
using, manufacturing or 
administering a drug. 

352
00:23:30,920 --> 00:23:35,200
According to the New York Times,
drug companies are not the only 

353
00:23:35,200 --> 00:23:37,880
ones making money from high drug
prices. 

354
00:23:38,240 --> 00:23:42,440
Doctors, hospitals and other 
intermediaries make more money 

355
00:23:42,440 --> 00:23:47,120
when drug prices are high too. 
Under Medicare policies for some

356
00:23:47,120 --> 00:23:50,880
drugs, doctors pay upfront for 
the drugs that they administer 

357
00:23:50,880 --> 00:23:54,960
to patients in their offices. 
They can then bill Medicare for 

358
00:23:54,960 --> 00:23:59,000
the cost of the drug and get to 
charge a percentage of the drug 

359
00:23:59,000 --> 00:24:03,240
cost, which is fixed by Medicare
to cover their overhead. 

360
00:24:03,640 --> 00:24:07,520
If the doctor administers the 
cheapest available drug, they 

361
00:24:07,520 --> 00:24:11,240
might only get to bill a few 
dollars for their work, so 

362
00:24:11,240 --> 00:24:14,560
they're incentivized to 
administer the highest priced 

363
00:24:14,560 --> 00:24:17,960
drug so that they can get paid a
reasonable fee for their 

364
00:24:17,960 --> 00:24:21,600
efforts. 
Experts also see misaligned 

365
00:24:21,600 --> 00:24:26,840
incentive stemming from pharmacy
benefit managers, or PBMS, which

366
00:24:26,840 --> 00:24:30,000
are big businesses that 
negotiate with pharmaceutical 

367
00:24:30,000 --> 00:24:33,920
companies on behalf of the 
employers and health plans that 

368
00:24:33,920 --> 00:24:37,160
pay most of the bills for 
prescription drugs. 

369
00:24:37,720 --> 00:24:42,360
PBMS make more money when they 
negotiate a large discount with 

370
00:24:42,360 --> 00:24:45,440
a pharmaceutical company. 
Because of this skewed 

371
00:24:45,440 --> 00:24:49,320
incentive, the PBMS are accused 
of pushing pharmaceutical 

372
00:24:49,320 --> 00:24:53,400
companies to increase the list 
prices of drugs, making 

373
00:24:53,400 --> 00:24:55,600
pharmaceutical companies look 
bad. 

374
00:24:55,720 --> 00:24:59,360
And PBMS look good for 
negotiating huge discounts. 

375
00:24:59,800 --> 00:25:03,200
A friend of mine who's worked as
a pharma analyst for almost 20 

376
00:25:03,200 --> 00:25:07,480
years pointed out to me that if 
you look at the combined market 

377
00:25:07,480 --> 00:25:12,160
caps of the PBMS and how they've
grown over the last 15 years and

378
00:25:12,160 --> 00:25:15,440
compare that with the combined 
market caps of the big 

379
00:25:15,440 --> 00:25:19,640
pharmaceutical companies, you'll
quickly see where the taxpayer 

380
00:25:19,640 --> 00:25:23,840
money is going. 
He explains that by law, PBMS 

381
00:25:23,840 --> 00:25:27,640
are paid a cut of the difference
between the list price and the 

382
00:25:27,640 --> 00:25:31,600
negotiated price. 
If the list price is 100 and the

383
00:25:31,600 --> 00:25:37,600
negotiated price is 40, the PBM 
would get 10% of that $60.00 

384
00:25:37,600 --> 00:25:40,840
discount. 
The reason that PBMS saw their 

385
00:25:40,840 --> 00:25:44,640
stock prices fall more than 
pharmaceutical stocks last week 

386
00:25:44,840 --> 00:25:48,840
is that if Trump manages to 
bring the list prices down, it 

387
00:25:48,840 --> 00:25:52,440
would hit the profitability of 
the PBMS more than the 

388
00:25:52,440 --> 00:25:55,920
pharmaceutical companies in the 
United States. 

389
00:25:55,920 --> 00:25:59,800
My friend explained that 
Medicaid and Veteran Affairs are

390
00:25:59,800 --> 00:26:04,960
100% centrally managed, whereas 
Medicare is partially managed by

391
00:26:04,960 --> 00:26:08,320
the US government and partially 
by PBMS. 

392
00:26:08,880 --> 00:26:13,600
He explained that by law for 
Medicaid, drug companies must 

393
00:26:13,600 --> 00:26:19,000
provide the greater of a fixed 
rebate of 23.1% versus the 

394
00:26:19,000 --> 00:26:22,760
average manufacturing price, or 
the difference between the 

395
00:26:22,760 --> 00:26:26,080
average manufacturing price and 
the lowest price the 

396
00:26:26,080 --> 00:26:29,200
manufacturer offers to any 
private purchaser. 

397
00:26:29,400 --> 00:26:34,840
This means that Medicaid prices 
are already extremely low, very 

398
00:26:34,840 --> 00:26:39,080
close to European prices if not 
lower, especially because does 

399
00:26:39,280 --> 00:26:43,400
there's also a CPI penalty, 
which means that if the list 

400
00:26:43,400 --> 00:26:47,280
price has gone up by more than 
the rate of inflation, then the 

401
00:26:47,280 --> 00:26:51,880
pharmaceutical company has to 
pay a penalty and pay back the 

402
00:26:51,880 --> 00:26:55,520
difference, even if the 
pharmaceutical company was never

403
00:26:55,520 --> 00:27:00,320
paid the list price by Medicaid.
My friend points out that this 

404
00:27:00,320 --> 00:27:04,480
mechanism caused the price of 
insulin to go negative a decade 

405
00:27:04,480 --> 00:27:09,280
ago and that Sanofi was selling 
Lantus to Medicaid but had to 

406
00:27:09,280 --> 00:27:13,400
deliver the drug for free and 
pay Medicaid money because they 

407
00:27:13,400 --> 00:27:17,680
were asked by PBMS to increase 
the list price dramatically over

408
00:27:17,680 --> 00:27:21,800
the years so that PBMS could 
earn higher profits year after 

409
00:27:21,800 --> 00:27:25,200
year. 
He points out that in Europe, 

410
00:27:25,200 --> 00:27:31,120
around 10% of GDP is spent on 
healthcare, versus 18% in the 

411
00:27:31,120 --> 00:27:34,720
United States. 
But in both the US and Europe, 

412
00:27:34,960 --> 00:27:40,160
drugs only account for 10 to 12%
of overall healthcare costs, the

413
00:27:40,160 --> 00:27:44,040
biggest expense being 
physicians, hospitals and so on.

414
00:27:44,680 --> 00:27:48,640
So the prices of prescription 
medications in the US are 

415
00:27:48,640 --> 00:27:52,560
roughly in line with the overall
cost of treating patients in the

416
00:27:52,800 --> 00:27:55,400
US. 
The second part of Trump's 

417
00:27:55,400 --> 00:27:59,640
order, which directed or FK 
Junior to establish a mechanism 

418
00:27:59,640 --> 00:28:03,240
through which Americans can buy 
medicines directly from 

419
00:28:03,240 --> 00:28:06,680
pharmaceutical companies, is 
worth discussing, too. 

420
00:28:07,240 --> 00:28:10,800
The question we have to ask is 
whether drug companies would 

421
00:28:10,800 --> 00:28:14,760
want to sell directly to the 
public or not, verifying their 

422
00:28:14,760 --> 00:28:17,560
prescriptions and so on like 
pharmacies do. 

423
00:28:18,040 --> 00:28:21,600
Anyone who's ever gone directly 
to a manufacturer's website 

424
00:28:21,800 --> 00:28:24,800
hoping to get a better price 
than they can get on Amazon or 

425
00:28:24,800 --> 00:28:28,320
Walmart probably knows how this 
might work out. 

426
00:28:28,720 --> 00:28:32,320
The pharmaceutical companies may
not want to compete with their 

427
00:28:32,320 --> 00:28:35,920
distributors. 
Some of the big pharma companies

428
00:28:36,120 --> 00:28:40,240
already have direct customer 
sales channels like Lily Direct 

429
00:28:40,240 --> 00:28:44,240
and Novacare, but we'll have to 
wait and see if they'll start 

430
00:28:44,240 --> 00:28:47,160
undercutting the big chain 
drugstore prices. 

431
00:28:47,840 --> 00:28:52,240
Analysts so far are saying that 
the lack of specific information

432
00:28:52,240 --> 00:28:56,440
in Trump's executive order makes
it hard to predict its eventual 

433
00:28:56,440 --> 00:28:59,200
impact. 
And they say that the order is 

434
00:28:59,200 --> 00:29:03,400
more of a statement of intent, 
but that it has no legislative 

435
00:29:03,400 --> 00:29:07,040
authority. 
The Democratic Representative Ro

436
00:29:07,040 --> 00:29:11,640
Khanna quickly introduced a bill
to codify the executive order in

437
00:29:11,640 --> 00:29:16,000
Congress, which if passed, would
give Trump's most favored nation

438
00:29:16,000 --> 00:29:20,680
pricing the force of law. 
Vermont Senator Bernie Sanders 

439
00:29:20,840 --> 00:29:24,520
released a statement agreeing 
with Trump, saying if Trump is 

440
00:29:24,520 --> 00:29:28,320
serious about making real change
rather than just issuing a press

441
00:29:28,320 --> 00:29:30,880
release, he will support the 
legislation. 

442
00:29:30,880 --> 00:29:34,760
I'll soon be introducing to make
sure we pay no more for 

443
00:29:34,760 --> 00:29:38,280
prescription drugs than people 
in other major countries. 

444
00:29:38,800 --> 00:29:43,520
Researchers at the University of
Southern California told the BBC

445
00:29:43,720 --> 00:29:47,240
that the executive order could 
possibly backfire if drug 

446
00:29:47,240 --> 00:29:51,560
companies decided to pull out of
selling new medications in poor 

447
00:29:51,560 --> 00:29:55,440
countries to try to retain their
profits in the US. 

448
00:29:56,000 --> 00:30:00,200
It's also not clear how lower 
prescription drug prices fit 

449
00:30:00,200 --> 00:30:05,160
into RFK Junior's Make America 
Healthy Again agenda, as he's 

450
00:30:05,160 --> 00:30:08,600
been critical of the widespread 
use of pharmaceutical products, 

451
00:30:08,800 --> 00:30:13,960
including vaccines, instead 
emphasizing diet, exercise and 

452
00:30:14,240 --> 00:30:18,040
possibly testosterone 
replacement therapy as the key 

453
00:30:18,040 --> 00:30:22,760
to improving Americans health. 
Connor O'Keefe at the Mises 

454
00:30:22,760 --> 00:30:26,680
Institute argues that if the 
Trump administration wants to 

455
00:30:26,680 --> 00:30:30,440
solve the issue of high drug 
prices without disastrous price 

456
00:30:30,440 --> 00:30:34,080
controls causing drug shortages,
there are several things they 

457
00:30:34,080 --> 00:30:37,280
can do. 
The first is allowing Americans 

458
00:30:37,280 --> 00:30:39,480
to buy drugs from foreign 
markets. 

459
00:30:39,840 --> 00:30:43,240
The only reason that companies 
can charge two different prices 

460
00:30:43,240 --> 00:30:46,320
for the same product in 
different countries is that the 

461
00:30:46,320 --> 00:30:49,760
government prohibits Americans 
from buying and importing that 

462
00:30:49,760 --> 00:30:53,520
product from abroad. 
Another approach would be to 

463
00:30:53,520 --> 00:30:57,760
reduce the number of years of 
patent protection on new drugs, 

464
00:30:58,000 --> 00:31:01,240
meaning that generics become 
available more quickly. 

465
00:31:01,440 --> 00:31:05,720
Or Trump could reduce the cost 
of getting FDA approval for new 

466
00:31:05,720 --> 00:31:10,600
drugs with expedited testing, 
reducing development costs. 

467
00:31:11,080 --> 00:31:15,120
All of these solutions are 
trade-offs with pros and cons. 

468
00:31:15,360 --> 00:31:19,080
There's no perfect solution and 
there are no easy answers. 

469
00:31:19,240 --> 00:31:23,000
If it was as easy as demanding 
that prices should be lower, the

470
00:31:23,000 --> 00:31:25,400
problem would have been solved a
long time ago. 

471
00:31:25,920 --> 00:31:28,240
Thanks for tuning into this 
week's podcast. 

472
00:31:28,400 --> 00:31:31,840
If you know anyone who you think
would find it interesting, send 

473
00:31:31,840 --> 00:31:35,480
them a link as word of mouth is 
really how podcasts grow. 

474
00:31:35,760 --> 00:31:38,200
Have a great week and talk to 
you again soon. 

475
00:31:38,360 --> 00:31:38,720
Bye.