President Trump discussing his plan to lower drug prices on October 25, 2018. Photo: Chip Somodevilla/Getty Images

President Trump announced last Thursday a plan to reduce the United States’ uniquely high prescription drug prices. Medicare Part B will launch a demonstration project covering half the country that will base drug prices on an index sourced from 16 nations, most in Europe.

The big picture: The administration hopes aligning with an international price will bring down Medicare Part B drug costs, while forcing pharmaceutical firms to raise prices abroad to cover their R&D expenses. But the greatest reason U.S. drug costs are higher than other countries’ is that American public and private payers are restricted from bargaining effectively for lower prices, so Trump's plan is likely to have little effect.

Background: According to HHS, a group of 27 widely used drugs would have cost $8.1 billion (47%) less in 2016 if U.S. prices matched the rest of the world’s. Medicare Part B spending on prescription drugs has been rising, from $17.6 billion in 2011 to $25.7 billion in 2016 — mostly owing to expensive biologic medicines, some of which cost more than $50,000 per beneficiary per year.

Between the lines: The U.S. is unique in that it offers strong drug patent protections and limits the ability of public and private payers to appraise new drugs and bargain over prices. In the case of biologics, that problem is compounded. Europe has approved four times as many biosimilars — generic versions of biologics, whose savings can exceed 50% — as the U.S.

In the next few years, nine of the 20 bestselling biologics are going off-patent, but price relief will only come when generic versions enter the U.S. market. Easing the regulatory hurdles and excessive patent litigation that keeps biosimilars off the U.S. market would do more to reduce drug spending than anything Trump proposed.

Flashback: In June, HHS Secretary Alex Azar testified before the Senate Health Committee that international reference pricing would not reduce U.S. prices. He suggested drug firms would game the system by waiting longer to introduce new drugs in other markets or, as some have suggested, by agreeing to a high sticker price that no other government actually pays.

The bottom line: The market seems to agree with Azar: The Nasdaq Biotechnology Index closed up 1.75% after last week's announcement.

Thomas J. Bollyky is senior fellow for global health, economics and development at the Council on Foreign Relations and the author of “Plagues and the Paradox of Progress.”

Go deeper

Updated 46 mins ago - Politics & Policy

Coronavirus dashboard

Illustration: Sarah Grillo/Axios

  1. Global: Total confirmed cases as of 8 p.m. ET: 19,497,292 — Total deaths: 723,854 — Total recoveries — 11,823,105Map.
  2. U.S.: Total confirmed cases as of 8 p.m. ET: 4,994,276 — Total deaths: 162,381 — Total recoveries: 1,643,118 — Total tests: 61,080,587Map.
  3. Politics: Trump signs 4 executive actions on coronavirus aid.
  4. Public health: Fauci says chances are "not great" that COVID-19 vaccine will be 98% effective — 1 in 3 Americans would decline COVID-19 vaccine.
  5. Science: Indoor air is the next coronavirus frontline.
  6. Schools: How back-to-school is playing out in the South as coronavirus rages on — Princeton, Johns Hopkins, Howard to hold fall classes online.

Trump signs 4 executive actions on coronavirus aid

President Trump speaking during a press conference on Aug. 8. Photo: Jim Watson/AFP via Getty Images

President Trump on Saturday signed four executive actions to provide relief from economic damage sustained during the coronavirus pandemic after talks between the White House and Democratic leadership collapsed Friday afternoon.

Why it matters: Because the Constitution gives Congress the power to appropriate federal spending, Trump has limited authority to act unilaterally — and risks a legal challenge if congressional Democrats believe he has overstepped.

8 hours ago - World

What's next for Lebanon after the Beirut explosion

Photo: Houssam Shbaro/Anadolu Agency via Getty Images

Beirut residents are still clearing rubble from streets that appear war-torn, days after a blast that shocked the country and horrified the world.

Why it matters: The explosion is likely to accelerate a painful cycle Lebanon was already living through — discontent, economic distress, and emigration.