US Push for Higher German Drug Prices Would Backfire, Study Says

(Bloomberg) -- US pressure on Germany to raise drug prices in an effort to spread the burden of research funding more equitably would ultimately backfire and cost both countries more, according to a new study.

The Trump administration argues that Germany has consistently been underpaying for drugs and needs to contribute more to pharmaceutical research and development. In June, it launched a tariff probe which referenced German healthcare reforms passed this year that pare back spending on medicines to relieve pressure on the federal budget.

At the same time, the US, which typically has the highest global drug prices, is seeking to reduce outlays by tying spending to a mechanism that caps it at the lowest, or near-lowest, price in a basket of countries, including Germany.

That inconsistency means the argument that higher German prices would lead to lower costs for American patients isn't supported, according to a study commissioned by Germany's GKV National Association of Statutory Health Insurance Funds published Wednesday.

Instead, if Germany were to increase drug prices by 25% — mirroring a US-UK deal last year — it would reduce net annual projected savings in Medicaid spending by about $300 million. The burden would be considerably higher for Germany, where a 25% hike would add about €5.5 billion ($6.2 billion) to outlays on drugs.

The "internal contradictions" of the two instruments the US is pursuing were part of the motivation for the study, according to author Thomas Hwang, an expert on pharmaceutical pricing and regulation.

The findings "call into question the underlying assumption that US payers would benefit from higher German prices," Hwang said in an interview. "Ultimately, the higher costs will be borne by taxpayers and patients, and it would harm both the US and Germany."

As well as the US government, the pharmaceutical industry has long been lobbying for higher drug prices in Europe, warning that failing to raise them could hold back product launches and constrain investment.

In the UK, drugmakers last year secured a reduction in the rebates they pay to the National Health Service after saying the environment there made Britain "uninvestable." As part of the deal with the US, Washington agreed not to impose tariffs on UK pharmaceutical exports for at least three years.