Prescription Drugs

Why the U.S. Pays More Than Other Countries for Drugs

12/2/15
from The Wall Street Journal,
12/1/15:

Norway and other state-run health systems drive hard bargains, and are willing to say no to costly therapy.

Norway, an oil producer with one of the world’s richest economies, is an expensive place to live. A Big Mac costs $5.65. A gallon of gasoline costs $6. But one thing is far cheaper than in the U.S.: prescription drugs. A vial of the cancer drug Rituxan cost Norway’s taxpayer-funded health system $1,527 in the third quarter of 2015, while the U.S. Medicare program paid $3,678. An injection of the asthma drug Xolair cost Norway $463, which was 46% less than Medicare paid for it.

Drug prices in the U.S. are shrouded in mystery, obscured by confidential rebates, multiple middlemen and the strict guarding of trade secrets. But for certain drugs—those paid for by Medicare Part B—prices are public. By stacking these against pricing in three foreign health systems, as discovered in nonpublic and public data, The Wall Street Journal was able to pinpoint international drug-cost differences and what lies behind them. What it found, in the case of Norway, was that U.S. prices were higher for 93% of 40 top branded drugs available in both countries in the third quarter. Similar patterns appeared when U.S. prices were compared with those in England and Canada’s Ontario province. Throughout the developed world, branded prescription drugs are generally cheaper than in the U.S.

The upshot is Americans fund much of the global drug industry’s earnings, and its efforts to find new medicines. “The U.S. is responsible for the majority of profits for most large pharmaceutical companies,” said Richard Evans, a health-care analyst at SSR LLC and a former pricing official at drug maker Roche Holding AG.

The reasons the U.S. pays more are rooted in philosophical and practical differences in the way its health system provides benefits, in the drug industry’s political clout and in many Americans’ deep aversion to the notion of rationing. The state-run health systems in Norway and many other developed countries drive hard bargains with drug companies: setting price caps, demanding proof of new drugs’ value in comparison to existing ones and sometimes refusing to cover medicines they doubt are worth the cost.

The government systems also are the only large drug buyers in most of these countries, giving them substantial negotiating power. The U.S. market, by contrast, is highly fragmented, with bill payers ranging from employers to insurance companies to federal and state governments. Medicare, the largest single U.S. payer for prescription drugs, is by law unable to negotiate pricing. For Medicare Part B, companies report the average price at which they sell medicines to doctors’ offices or to distributors that sell to doctors. By law, Medicare adds 6% to these prices before reimbursing the doctors. Beneficiaries are responsible for 20% of the cost. The arrangement means Medicare is essentially forfeiting its buying power, leaving bargaining to doctors’ offices that have little negotiating heft, said Sean Sullivan, dean of the School of Pharmacy at the University of Washington.

Research spending The pharmaceutical industry says controls such as those seen in Europe discourage investment in research and deny patients access to some drugs. “The U.S. has a competitive biopharmaceutical marketplace that works to control costs while encouraging the development of new treatments and cures,” said Lori Reilly, an executive at the Pharmaceutical Research and Manufacturers of America, a trade association. If U.S. pricing fell to European levels, the industry would almost certainly cut its R&D spending, said Mr. Evans, the health-care analyst. “Does the U.S. subsidize global research? Absolutely, yes,” he said.

Cost-effectiveness In Norway the state pays for most prescription drugs, though patients pay for some used for short periods. The government controls costs in part by setting maximum prices. To do that, it reviews prices in nine neighboring countries and takes the average of the three lowest. This system automatically holds prices low because the countries consulted also have government-controlled prices. Companies know Norway will sometimes deny coverage, and this threat is often “enough to get them to offer a discount,” said Kristin Svanqvist, head of reimbursement at the NMA. If rejected, they can offer a lower price.

When Amgen Inc. and GlaxoSmithKline PLC sought coverage of the osteoporosis injection Prolia for certain women, the NMA concluded it wasn’t cost-effective compared with an existing infusion called Aclasta.

After Norway’s rejection, Amgen and Glaxo lowered Prolia’s price, according to Ms. Svanqvist. The NMA then ruled the health system would provide it for women 75 or older, for whom it appeared to work somewhat better, she said.

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