Background: Will Europe face higher drug costs due to U.S. price cuts?

Healthcare systems around the world are watching closely after U.S. president Donald Trump decided that medicine prices in the U.S. should be reduced, possibly by up to 80%. He also criticized Europe, saying European countries pay too little for medicines and that this must change. But who decides how much a medicine should cost? And what international forces are at play here?

Every euro spent on a medicine is the result of a complex mix of interests, negotiations, and rules. That’s why the same medicine can cost up to ten times more in one country than in another.

The question that arises is: what actually is a fair price, and for whom? And why do Americans often pay much more than Europeans? At Utrecht University, researchers are digging deep into these questions. They study how government pricing and reimbursement policies affect access to medicine. They also explore the political and economic forces behind the scenes.

More questions than answers

Trump’s plan sounds like good news for Americans and bad news for Europe. But researchers say it raises more questions than it answers.

“There are many questions about what Trump’s order will mean in practice,” says Aukje Mantel-Teeuwisse, an expert in pharmacy and global health. “The U.S. government recently gave more details, but those just created more confusion.”

For example, what price is Trump talking about? Does he mean the list price from the manufacturer? Or the actual price a government pays after negotiations? In Europe, those actual prices are kept secret. “The price you see on paper is often not the price that’s paid in practice,” says Mantel-Teeuwisse.

Middlemen in the U.S. healthcare system

Trump could also be referring to the margin that various intermediaries in the U.S. take. These intermediaries, including so-called Pharmacy Benefit Managers, negotiate between insurers and pharmaceutical companies. They charge high fees for this, which leads to higher drug prices. Europe does not have this kind of setup.

There’s no concrete plan, just big statements. Still, it might have real consequences

Trump wants to remove the middlemen system. While this sounds helpful, it also raises new questions. Researcher Wim Goettsch, Professor of Health Technology Assessment of Pharmaceuticals, immediately foresees them.

“There’s no concrete plan, just big statements,” says Goettsch. “Still, it might have real consequences if drug companies start changing their global strategies. What if drug companies pull out of the U.S. market? Or, more likely, what if they raise prices elsewhere to make up the difference?”

Waterbed effect

Goettsch warns that this could create a “waterbed effect”. This means that pushing down on one side (the U.S.), makes the other side (Europe) go up. Drug companies earn over 50% of their global revenue in the U.S., but only 20–25% in Europe. “It’s possible they’ll try to raise prices in Europe if profits in the U.S. fall,” says Goettsch.

instead of pointing to shareholders or costly marketing campaigns, Trump places the blame on Europe

Trump also sees a "waterbed effect," but in reverse. According to Trump, the lower prices that Europe negotiates lead to higher prices for American patients. According to this reasoning, pharmaceutical companies have to charge extra-high prices in the U.S. because they are forced to accept lower prices elsewhere in the world. By raising prices in the U.S., they can still manage to make enough profit overall.

Mantel-Teeuwisse says this idea is too simplified. “Research shows that drug companies already make more profit than they need to cover research and development. But instead of pointing to shareholders or costly marketing campaigns, Trump places the blame on Europe.”

“Most-Favored-Nation” pricing

The U.S. government wants to base its medicine prices on the lowest prices paid in similar countries like Germany, Sweden, or the Netherlands. This idea is called the Most-Favored-Nation price.

European medicine price evaluations are complicated processes, but they usually lead to cheaper deals.

But Goettsch says it’s not clear how this would work in practice. The U.S. and Europe have very different healthcare systems. While the U.S. relies on middlemen, in Europe public health organizations evaluate and advise on price levels, with the aim of keeping healthcare affordable. These evaluations are complicated processes, but they usually lead to cheaper deals.

Secret negotiations

“Now Trump wants drug companies to match their U.S. prices to international ones,” says Goettsch. “But those international prices are set through complex evaluation processes and secret negotiations involving many groups.”

What this means for Europe

Meanwhile, the EU is reviewing its pharmaceutical legislation and policies. One big debate is about how long a pharmaceutical company should have exclusive rights to sell a new drug. The longer this exclusivity lasts, the more money they can make from this drug.

EU countries disagree about how long that should be. Some countries where drug companies are based, may want longer exclusivity. “Trump’s pressure could influence this debate,” says Goettsch. “In response, policymakers might consider extending exclusivity rights, to maintain industry profits. But it’s unclear whether Europe is willing to change its system for America’s sake.”

Understanding the market

Goettsch and Mantel-Teeuwisse aren’t just looking at pricing. Theirs teamsa also study how valuable new medicines really are, and how they compare to existing treatments. They also examine the roles of governments, insurers, and drug companies.

Their work combines pharmaco-epidemiology, health economics, and international policy analysis. “The hard part,” says Goettsch, “is that we rarely know the true price or who earns what.” While companies report profits, they don’t say where those profits are made.

If we want medicines to stay affordable and available, we need to understand how the system works and where it doesn’t

So the research now focuses more on the profits made from individual medicines, worldwide. But even that information is often kept secret. “Thus, this work is very important,” Goettsch says. “If we want medicines to stay affordable and available, we need to understand how the system works and where it doesn’t.”