MW Trump is right about drug prices. He's just going about it all wrong.

By Brett Arends

The stock market doesn't believe the president about prescription drugs

If Donald Trump wanted to turn his prescription-drug executive order into policy, he could declare an emergency and order the federal government - through Medicare, Medicaid and the Department of Veterans Affairs - to start buying all the prescription drugs in France and Japan.

Those countries have by far the cheapest prescription-drug prices among major developed countries, according to the Rand Corporation. The Japanese and the French are getting the same drugs as we are for 30 cents on the dollar, if you can believe. Across the OECD group of developed countries, the average is 36 cents.

Yes, it's as egregious as it sounds. Across the developed world, Americans consume just 23.8% of the pills but account for 62.4% of the drug companies' revenues. To put it another way, Rand reckons we pay $617 billion a year for our prescription drugs, but if prices were "equalized" across the developed world, as the president says he wants, that would only be $235 billion - savings of nearly $400 billion a year.

As Medicare Part D alone spends over $200 billion a year on prescription drugs, the savings just for that program would be enormous.

In terms of saving Americans money - on our taxes, our health insurance and our out-of-pocket expenses - this policy idea potentially dwarfs anything and everything the Trump administration has proposed so far. Yes, even Elon Musk's army of the undead claiming Social Security.

The president's executive order on prescription drugs comes just two weeks after MarketWatch urged him to pursue this policy. (Presumably, this is coincidence.)

Trump is absolutely right about drug prices: Americans are paying way too much compared to the rest of the developed world. We are, in effect, paying for the drug companies' profits and their research and development. We should pay much less than today, and people in the developed world should pay much more. The prices should be roughly equal. Imagine if Apple $(AAPL)$ sold its iPhones in America at three times the prices in Tokyo or Paris.

Sadly, the stock market doesn't think the president's executive order will have much effect - if any. Pharmaceutical PPH and biotech IBB stocks eased Tuesday but only slightly, and only after jumping significantly on Monday. The moves have been trivial. If investors thought this policy was going to lead to a plunge in U.S. drug prices - especially down to international levels - the reaction would have been much more severe.

Read: Pharma stocks gain as traders have doubts on Trump's executive order to lower drug prices

The stock market is often crazy, but it isn't usually stupid. There are plenty of reasons for its cynicism.

It's been just six years since Democrats in Congress proposed something similar to Trump's latest policy idea. Linking U.S. drug prices to foreign prices was part of the Elijah Cummings Lower Drug Costs Now Act. It was supported by all Democrats in the House of Representatives at the time, and opposed by nearly all Republican representatives. The GOP now controls both Houses. Has the GOP had a dramatic change of heart? Stay tuned.

Meanwhile, the pharmaceutical industry themselves are going to fight this tooth and nail, as you'd imagine. Their lobbying organization PhRMA sent me a press release warning that these low foreign prices are set by "socialist countries" (presumably commie France, Japan, Germany and so on). It also blamed higher U.S. drug prices on hospitals, insurance companies and pharmacy-benefit managers, who "take 50% of every dollar spent on medicines."

I asked for more information about that second point, but PhRMA did not respond.

They have a point, even if they may be exaggerating the size. Andrew Mulcahy, an expert on prescription-drug prices and lead author of the Rand Corporation analysis on international prices, says that the medical system in total pockets about a third of the money spent on medicines, rather than a half. "Everyone is taking a cut along the way," he says.

That's still about $200 billion - a gigantic amount.

A cynic might get the impression that the U.S. healthcare system is a complex network of interlocking rip-off. Each of these vested interests employs vast numbers of lobbyists, spin doctors and lawyers, and makes huge annual campaign contributions to the people supposed to be overseeing the system, to keep the good times (for them) rolling.

In 2020, PhRMA successfully used the courts to stop a similar executive order by President Trump near the end of his first term. If they do the same this time, the president can always say "I tried, but the Deep State stopped me."

PhRMA, the trade organization for the drug companies, is a "nonprofit" with a budget of half a billion dollars a year.

According to the nonprofit Open Secrets, the pharmaceutical industry spent $85 million during the last election cycle on campaign contributions to federal politicians. (More, incidentally, to Democrats than Republicans.) It also spent a staggering $387 million last year alone on lobbying.

All of which is a lot cheaper than selling drugs at Japanese prices.

-Brett Arends

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May 13, 2025 13:43 ET (17:43 GMT)

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