Something they’ll teach you in a negotiation class is the importance of leverage: establish a more dominant negotiating position, and you can ask more from your counterparty. Being in the stronger position means you dictate terms, not the other way around.
Unless, as it would happen, you’re the United States.
Although the United States is the world’s superpower – with the strongest military, the largest economy, the most desirable currency, the best agriculture, and the most soft power – we have gotten in the habit of letting others dictate terms to us, rather than the other way around. Because the American-led world order has been so overwhelmingly benevolent, there are many who use that benevolence against us. We’ve created the biggest lever in the world, but we don’t use it.
President Trump is reversing course. His use of tariffs as leverage abroad is reminiscent of Teddy Roosevelt’s famous saying, “Speak softly and carry a big stick.” (Trump has the stick part down, but doesn’t worry too much about the speaking softly part.)
And now, with prescription drug prices, Trump is showing how to use that big stick at home.
In May, Trump issued a most favored nation (MFN) executive order, the strongest, market-wide solution for fighting Big Pharma’s price discrimination against American patients. He threatened Big Pharma that if they didn’t offer price parity, “We will deploy every tool in our arsenal to protect American families from continued abusive drug pricing practices.”
And companies have responded to the leverage of his big stick. On October 10, AstraZeneca joined Pfizer and yielded to President Trump’s demands to offer “most-favored-nation” pricing to Medicaid, meaning Americans will pay the same for brand-name drugs as patients abroad. It has long been known that Big Pharma charges Medicaid as much as 422 percent(!) more for certain drugs.
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For decades, pharmaceutical giants have funded their profit margins by ripping off Uncle Sam while giving steep discounts abroad because other countries won’t let them get away with the same shenanigans. Drug companies “consistently” raised prices above inflation on almost 1,000 top-selling drugs virtually every year from 2006 and 2020, according to a recent AARP report. Now that the proverbial cat is out of the taxpayer-funded bag, manufacturers announced they’re hiking prices on only 250 drugs this year.
But how about we get that down to zero.
The U.S. federal government is the biggest drug-purchaser on the planet, which means it should have enormous leverage when negotiating deals. But this has not been the case. Since the U.S. government’s pockets are so deep, drug manufacturers have exploited us because there has been no one to tell them no. (It’s the same reason the cost of higher education is so insane.)
Thank goodness, someone is finally telling them no. And kudos to AstraZeneca and Pfizer for doing right by the American public. We can hope that other members of Big Pharma will finally do the same.
Alas, that may be too much to hope for. Many other pharmaceutical giants are fighting back with a PR shell game to trick voters into looking the wrong way when it comes to higher drug costs. Big Pharma’s latest diversion is trying to pin the blame on pharmacy benefit managers (PBMs) with an expensive public affairs blitz that involves lobbying, earned media, and sarcastic advertisements.
PBMs negotiate discounts for employers and health plans, the same way you might hire an agent for a negotiation. Pharmaceutical companies are trying to blame PBMs for the high cost of drugs, when they’re the ones who keep Big Pharma from completely running over us. PBMs pass more than 90 percent of their discounts back to clients; they’re our lever against Big Pharma.
The Biden Administration went along with this, with its Federal Trade Commission (FTC) suing several PBMs last year at pharma’s bidding. There’s every reason to be confident that the Trump Administration will turn course on this, as FTC Chair Andrew Ferguson has shown he understands the situation better than the Democrats do.
Leverage is important in a negotiation. Although the American government should have always been able to use its leverage to help taxpayers, for too long, it’s been used against us. That’s all changing now.
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