The White House review of drug prices: Don’t hate the player — hate the game

Foreign nations are sponging off American investment into pharmaceutical R&D and taking advantage of by US patients by systematically underpaying for drugs, a new study by the White House has concluded.

Surging drug prices in the United States are a thorny yet rare bipartisan issue as another presidential election beckons. While President Trump struggles to make good on his promise to lower drug prices, the biopharma industry, which has long thrived in its laissez-faire ecosystem, has persistently argued that government intervention will stifle innovation.

Meanwhile, US lawmakers left, right and center have argued drug prices in the United States are too high — and the industry holds the crown for the least favored sector by Americans, falling behind the federal government itself. In December, the HHS opened the door to a policy that allows for the limited importation of drugs from Canada.

This new White House analysis, however, suggests that US drug prices aren’t unreasonable — its that foreign governments aren’t paying enough for American pharmaceutical breakthroughs.

This new study — conducted by the Council of Economic Advisers (a White House group tasked with offering the US president advice on economic policy) — compared the prices of 200 top-selling branded drugs in the United States against 15 developed countries. European countries went from paying about half (51%) of US prices for many bestselling drugs in 2003 to about a third (32%) by 2017, the report found, noting that governments abroad negotiate drug prices on behalf of their citizens and thereby artificially depress prices.

“These practices abroad disproportionately cost U.S. patients and taxpayers because they prevent the United States from undertaking domestic policies to lower drug prices without slowing down the pace at which new and better products enter the market,” the researchers wrote.

“We find that if free-riding abroad was reduced and foreign relative drug prices reflected relative GDP per capita, total innovator revenues from those countries would have been $194 billion higher in 2017, raising global revenues by 42 percent. Reducing foreign price controls would increase profits and innovation, thereby leading to greater competition and lower prices for U.S. patients.”

For instance, Canada paid 35% of US prices in 2017 — even though its GDP is 78% of the United States. If Canada were to shoulder a proportionate cost — it would have paid $27.2 billion instead of the actual $12.2 billion it parted with that year, CEA researchers claimed.

In other words, the White House is suggesting its impotence in implementing drug price controls is linked to foreign governments not paying their fair share for benefitting from American investment into pharmaceutical R&D.

Critics of that argument will be quick to note that drug prices in the United States — a fractured system of health care that runs on public and private insurance, further complicated by pharmacy benefit managers — are unreasonably high and are not necessarily linked to the investments in R&D. Annual and sometimes biannual hikes that often exceed the rate of inflation add another layer of frustration.

GoodRx, a company that tracks prescription drug prices in the United States and offers discounts on medications, has found that since 2014 (when it started tracking the data) the pace of annual price hikes has increased, and the number of drugs that are getting price upgrades has also become pronounced.

However, as political scrutiny into drug pricing intensified in recent years, a handful of big drugmakers pledged to keep their annual price hikes under 10% — and the general spotlight on pricing has also begun to thaw the overall magnitude of hikes.

This January, over 100 drugmakers raised the price for 619 branded drugs by an average of 5.2%. In January 2019, 486 branded drugs saw increases by an average of 5.2%, while 580 branded drugs increased by an average of 8% in January 2018, according to GoodRx data. These numbers should look different when the total number of hikes over the rest of the year are accounted for.

Drug manufacturers often argue that they raise list prices to account for higher rebates that are negotiated by PBMs — and that net prices and what the patient on average pays in certain cases are in fact lower.

“Rebates are kind of hard to notice because they’re kind of very hush-hush,” Tori Marsh, a GoodRx health insights analyst, noted in an interview with Endpoints News.

When list prices increase, that hike is passed on to insured patients through co-payments and premiums, she said. “And so inevitably, later on down the line, they’re likely going to be paying more because drug prices are just increasing — so they might not experience it immediately at the pharmacy but it will trickle down.”

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