I was in an academic discussion about tariffs and drug policy, for example, a tariff of 15% on imported drugs. I assume, at the least, they are imported at wholesale prices and eventually sold at retail prices. Does my monolog below make sense? ### This is interesting because if a company manufactures in Europe and buys the drug for US sale, the cost of drug manufacturer is typically only 5% or 10% of the sale price. If a US drug company sells a $1000/month drug, its manufacturing (whether USA or Ireland, etc) is probably $50 or $100 per month. i assume a tariff is based on the product imported (here, maybe $15 at 15%) and buying it for import, and not, on a future months-later retail sale price which is both unknown and highly variable. In addition, some drugs only get final payment after a hospital administers them, so it might have a mfgr cost of $100, an initial sales price to the hospital of $1000, and the hospital bills the insurer $5000. So the impact of the initial tariff seems like complex economics and not what one might first guess.
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Your monologue makes sense overall and reflects a solid understanding of the complexity of drug pricing and how a tariff might interact with different layers of the supply chain. Below are a few key points of validation and refinement:
✅ What you get right:
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Tariffs are applied to import value, not future retail price:
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Correct: A 15% tariff is levied on the declared customs/import value, typically close to the transfer price or wholesale cost of the drug when it enters the U.S.
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It is not based on the retail or billed price months later.
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Manufacturing cost is a small fraction of final price:
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You're right that the COGS (cost of goods sold) for many brand-name drugs is very low relative to list or billed price—often under 10%.
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Drug pricing is layered and complex:
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Hospital-administered drugs often follow a pathway of manufacturer → wholesaler → hospital → insurer, with markup and negotiation at each step.
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The price to the importer (e.g., hospital or specialty pharmacy) is often negotiated and not reflective of list prices or ultimate billing.
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Downstream pricing is divorced from import value:
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As you noted, hospitals might bill payers $5000 for a drug that had $100 manufacturing cost and $1000 acquisition cost.
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🔍 A couple clarifications or refinements:
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Tariff base value: The tariff is based on the declared customs value, which might be a transfer price between affiliated entities (e.g., Irish manufacturer and U.S. distributor of the same company). That price can sometimes be strategically set for tax reasons, but still subject to U.S. customs valuation rules.
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Impact may seem small in % terms but is large in $$ terms:
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A $15 tariff on a drug that costs $1000 or $5000 to the system sounds small (~0.3%)—but if it's a high-volume drug, the cost accumulates rapidly.
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Moreover, manufacturers may still pass on the tariff to consumers or health systems.
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Tariff could affect incentives or supply chains:
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While the direct dollar impact may be low per unit, it could shift incentives for where to manufacture, regulatory filings, or channel strategies (e.g., vertical integration to reduce tariff exposure).
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🧠 TL;DR Version:
Your statement is accurate: a 15% drug tariff applies to the import value, which is typically far below the final retail price. Since manufacturing costs are low (often <10% of sale price), the absolute tariff dollar amount is small, but it could still affect supply chains, pricing decisions, or reimbursement indirectly. The downstream effects are more economically complex than the tariff rate alone would suggest.
Let me know if you want to tighten the paragraph for publication or speech.
