Trump's Revenge on Pfizer and a Blow to Capitalism

November 22, 2020

Trump's new executive order is tying what Medicare pays for drugs to prices paid by other developed countries. I assume Trump is upset with Pfizer for waiting until after the election to announce that their vaccine was better than 90% effective. In true form, he lashes back at them by making them lower drug prices paid by Medicare.

In my opinion, if this legislation holds (it will not after the new administration gets in), this forced pricing will have a negative effect on drug prices and in the end will make drug prices rise not fall. Forced limits on pricing is a form of Socialism and, in the end, will backfire from its intended purpose.

Pharmaceutical drugs from American companies are paid for by Americans and subsidized by the additional revenue they gather from outside the country at reduced prices. Drug companies are left with two options; raise prices abroad to match what they want to charge here or lower prices domestically to match what they charge abroad.

Raising prices abroad most likely won't work because they would have done so long ago. These are profit generating entities that are not giving drugs away to foreign countries in the name of being charitable. Their only option now is to lower prices because of the Trump executive order for Medicare participants. This too will not work because they need that money for future drug research.

So, in the end, all they can do is cut their sales abroad and RAISE prices domestically to make up for it. This is the primary problem with Socialism, everyone loses in the end.

In a free market economy, drug companies should be allowed to charge what they want and leave it up to us whether we want to pay it or find an alternative.

Before this announcement, Warren Buffett signaled he was bullish on drug companies, namely Abbvie, Merck, Bristol Myers...and more. It will be interesting to watch which way they trend until the end of the year when I assume this executive order will be reversed or never put into effect at all.

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