New Study Offers Drug Pricing Lessons from Abroad, Urges Changes in U.S.

A new study that compares drug prices in four countries finds that “pharmaceutical prices in the United States are extraordinarily high and have contributed to an unsustainable level of spending on drugs.”

The study from the Institute for Health Policy points out that other countries such as Germany, the United Kingdom and Australia, have governmental regulations that help keep drug prices at sustainable levels. Study authors urge policymakers to do something to change the situation in the U.S.

In California, a bill calling for drug makers to justify prices for high-end drugs was shelved this session but may resurface in the California Legislature next year.

Thought to be the first of its kind in the nation, AB 463 by Assembly member David Chiu (D-San Francisco), is just the sort of policy change study authors at Kaiser’s Institute for Health Policy said are needed to deal with rising prices.

The study was presented earlier this month during the Sustainable Rx Drug Pricing Forum staged by Partnership for Quality Care, a national coalition of providers and stakeholders.

“We believe it is important to engage in a broader discussion around specialty drug pricing and to look at this issue from an economic, scientific and social perspective,” said Bernard Tyson, chair of Partnership for Quality Care and CEO of Kaiser Permanente.

“While the Partnership for Quality Care supports medical innovation, we are concerned about the impact specialty drug prices will have on the affordability and accessibility of health care in this country,” Tyson said in a prepared release.

U.S. Spends Most on Drugs

The U.S. spends more on pharmaceuticals than any other developed nation in the world, according to the study — $1,010 per capita, representing 12% of the country’s total annual health spending. Spending on specialty drugs, which accounts for a disproportionate share of the total, is expected to grow from $87 billion in 2012 to $400 billion by 2020.

Federal efforts to slow the growth of drug prices have not met with much success in the U.S. The Clinton administration’s attempt at health reform – the Health Security Act of 1993 — included the creation of a national advisory panel to evaluate “reasonableness” of new drug prices. But the advisory panel — along with the entire reform package — crashed and burned.

An attempt to give the federal government the right to negotiate drug prices under Medicare Part D failed when it was deleted from the Medicare Prescription Drug and Modernization Act of 2003.

President Obama has called on Congress to give Medicare the right to negotiate drug prices, but stakeholders don’t expect that to happen anytime soon.

How Other Countries Regulate Prices

The Institute for Health Policy study examines three methods of drug price regulation used in other countries:

  • The German government establishes reference prices for different drug groups. Maximum reimbursement levels are established for all drugs, patented and generic. If a drug rises to offer particular merit, price caps can be negotiate;
  • Australia has a government agency dedicated to negotiating prices with pharmaceutical manufacturers; and
  • In the U.K., the Pharmaceutical Price Regulation Scheme is a voluntary agreement between the government and the pharmaceutical industry aiming to create an environment that can support research and development as well as reasonable prices for new drugs.

Officials at the Pharmaceutical Research and Manufacturers of America declined to comment on the study, saying they haven’t had a chance to examine it yet. They referred to a PhRMA position paper — “Why Cross-Country Comparisons on Drug Pricing are Misleading,” written in April by Robert Zirkelbach.

“Many industrialized nations seek cost containment through price controls, which restrict access to medicines and discourage the research and development of new treatments,” Zirkelbach wrote. “The U.S. relies on its competitive marketplace to control costs, while encouraging the development of new therapies. Because of the ecosystem that exists in the U.S., patients enjoy access to innovative medicines far earlier than patients in countries with centralized price controls and leads the world in drug discovery and development.”

More Expensive ‘Must-Have’ Drugs on Horizon

Study authors surmise that “[i]f the U.S. adopted policies similar to those abroad, pharmaceutical spending would likely go down. However, critics say these policies would also stifle innovation. … The real policy question that should be evaluated is whether reduced R&D spending stifles the development of medicines that have a true net benefit to society. Pharmaceutical companies tend to invest in drugs that are profitable, but what is profitable is not always the most beneficial to society.”

Dennis Rivera, secretary of the Partnership for Quality Care and senior advisor to the Service Employees International Union, said high drug prices are not an isolated problem … and it’s going to get worse.

“This is not just affecting a handful of people. Families across the country are already having to make tough cutbacks in order to fill necessary prescriptions, with little to no relief in sight,” Rivera said. “This is particularly concerning since there are dramatically more ‘must-have’ expensive drugs on the horizon, drugs that promise cures, longer and healthier lives that neither plans nor people can soon afford.  It’s unsustainable. What we need is a solution, and we need one now.”

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