*This story will be updated as more details become available*

President Trump’s executive order could result in higher US medicines prices because big data will allow payments to be linked more closely to the real value a medicine delivers.

President Trump’s executive order is short on specifics but Bloomberg says that he will direct the US Trade Representative and the US Department of Commerce to take action on “unreasonable or discriminatory policies that suppress drug prices overseas.” Trump is also asking the Department of Health and Human Services to “facilitate direct drug sales to consumers at lower prices paid abroad.”

Pharmaceutical companies look as if they are charging more in the US than in the rest of the world for medicines protected by patents; sometimes they are not. Recently, I was with a client’s US and European commercial teams. With some trepidation, the UK GM announced the price he had negotiated with NICE, the British pricing authority. It was less than half the US list price but, the US general manager said that it was higher than the average price the company actually received in the US. The difference was skimmed off by what economists call “rent seekers” — companies that add no value but are able to add fees or a mark up. These parasitical pharmacy benefits managers and insurers are politically well connected and it has proved very difficult to cut them out of the US supply chain.

Does the US want medicines priced the way they are in the rest of the world?

The American system, beyond big federal programmes, relies on prices that are set through these one-on-one negotiations with various actors who can permit or block access for patients. In most of the rest of the rich world, medicines prices are set for almost all prescriptions through a system of health technology assessments (HTAs). These HTAs typically rely on some mix of assessing the true incremental value of a new medicine and estimating the savings that it could generate in other parts of the health system.

In the UK, for example, NICE typically considers a medicine cost-effective if its incremental cost-effectiveness ratio (ICER) falls between £20,000 and £30,000 per quality-adjusted life year saved (QALY). Interventions below £20,000/QALY are generally approved, while those above £30,000 require additional justification. It may accept ICERs up to £50,000 per QALY for severe conditions such as cancer or neurological illnesses or where it is difficult to measure the benefit exactly. In theory, a QALY equates to one year of life in perfect health. Two years at about 50 percent of perfect health (measured according to criteria such as pain, mobility and self-care) would be one QALY, for example.

Irish agencies require hospitals to consider the broader impact of drug choices on the entire healthcare system, including potential savings from reduced admissions or procedures. Most other countries factor these elements into decisions too. A 2015 study of 15 rich countries concluded that new medicines launched between 1982 and 2015 had saved about five times as much in averted health system costs as they had cost.

If those HTA criteria were applied widely in the US, prices would be much higher than they are in Europe. In the US, life expectancy is growing faster than healthy life expectancy — Americans are sicker for more of their lives than are most people in the world, so the cost of mitigating that poor health will be higher. There is a wealth of information in the International Longevity Centre UK’s Healthy Ageing & Prevention Index. American healthcare costs are much higher than they are anywhere else in the world, so the savings achieved by medicines will be even more impressive.

The real economic benefits of new medicines

What none of the HTA systems yet take into account are the wider societal benefits of prevention and treatment — it is often seen as too complicated. As Professor Rifat Atun and others wrote recently, “an important but often-overlooked mechanism is the benefit of health investments on the broader economy through influences on supply and demand across various other sectors of a country’s economy.”

“Adult immunisation programmes across ten countries and four vaccines showing that [these programmes] offset their costs multiple times through benefits to individuals, the healthcare system, and wider society,” a 2024 paper from the Office of Health Economics reported. “In particular, benefit-cost analysis of the same vaccines showed that adult vaccines can return up to 19 times their initial investment to society, when their significant benefits beyond the healthcare system are monetised,” it concluded

Most health spending is on older people. They, on average, spend more of their income than do younger people so they are disproportionately important drivers of economic growth. They also provide a very large proportion of volunteer hours that enable younger people, especially women, to work more. As experts at Germany’s pioneering WifOR Institute said recently about cancer treatments in Germany, “health investments [are a] driver of economic stability and growth.”

The US is the world’s biggest economy so it realises more benefits from innovative medicines than other countries do. These benefits are getting easier to measure and quantify too: big data means we can track prevention and treatment success and its knock-on impacts throughout the economy more easily month by month.

Obstacles to the executive order

Is this executive order meant to effect change or to distract from other developments? It is too early to say.

Congress may not agree to government taking a role in setting prices outside Medicare and Medicaid, but those still account for about 40 percent of US medicines spending. The Biden Administration initiated negotiation for some medicines for federal programmes and that could probably be extended by executive action.

It is easy to talk about enabling Americans to buy medicines from abroad but that requires the consent of the countries from which they are buying. Canadian or British prices are negotiated based on different health system costs and economic benefits; it is unlikely that foreign governments will want to make it easier for Americans to take advantage of negotiations that do not reflect their own circumstances or choices about healthcare provision and prevention.