Tariffs on Imported Prescription Drugs: What Does It Mean?
The president recently declared a 100% tariff on imported patented and branded pharmaceutical products, unless the manufacturing company is in the process of constructing a pharmaceutical plant within the country. The phrase 'in the process of' is defined by the president as either 'breaking ground' or 'under construction'. Therefore, no tariffs would be imposed on pharmaceutical products if construction has started. This announcement has led to several questions and concerns.
Which Medications Will Be Affected?
The president's announcement did not specify whether pharmaceutical companies with existing manufacturing plants in the U.S. would be exempt from this tariff. It also didn't clarify if the exemption would apply to all of their products, or just those produced at the U.S. site. For instance, two companies that produce weight loss drugs have announced plans to invest in U.S. manufacturing. However, it's unclear whether their intent to invest would be enough to avoid the tariff.
Around the same time, another company that produces weight loss medicine announced that they would build a $6.5 billion manufacturing facility in Houston. This facility would produce their weight loss medicines, as well as other drugs. A company that makes asthma medication also announced plans to invest $50 billion over the next five years to expand its research and development and manufacturing footprint in the U.S.
However, many popular branded drugs are primarily manufactured overseas, especially in Europe. It's unclear how these tariffs will impact the price and availability of these medicines.
Will Drug Prices Increase?
Only one out of every ten prescriptions filled in the U.S. is for a brand-name drug. The majority are for generic drugs, which are much cheaper and won't be affected by the tariffs. Whether the prices of brand-name drugs will increase depends on how many drug manufacturers get exemptions from the tariff and whether they choose to pass the costs onto the consumers.
Some companies might choose not to pass on the costs. However, if the costs of the tariffs are passed onto patients, this could lead to significant price increases at the pharmacy counter. Additionally, it may take some time for price hikes to occur, as drug manufacturers find out whether they qualify for an exemption.
Could Insurance Companies Cover the Additional Costs?
Insurance companies and middlemen, also known as pharmacy benefit managers, might attempt to negotiate with drug manufacturers or absorb some of the tariff-related costs. However, it's more likely that they would pass the costs onto patients, potentially through larger copays. Those who get their medications covered through government health programs could also see price increases.
Will the Tariffs Encourage More U.S. Drug Manufacturing?
The decision to build a manufacturing plant is complicated, expensive, and requires years of planning. It's unlikely that these tariffs will lead to a significant increase in U.S. drug manufacturing. Even if a company decides to invest in a new manufacturing plant, it would likely take between two to five years to construct the facility. Additionally, upgrading an existing manufacturing plant is also a lengthy process.
Could There be Drug Shortages?
If the focus of the tariffs remains solely on brand-name drugs, it's unlikely that U.S. patients will face shortages. However, this doesn't account for smaller companies that produce niche brand-name products and may not have the resources to handle the extra costs. If the tariffs extend to generic drugs, the risk for shortages is much higher, as these drugs are typically sold at close to the cost they're made, making it difficult for companies to justify the cost of building a new facility.