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The Golden Goose

Why it’s so hard for the US to curb runaway drug prices

US drug pricing

In 2014 when Gilead tried to launch Sovaldi and Harvoni in the UK, the NHS, concerned it would be unable to budget for the expensive drugs, delayed bringing them to market. 

When the NHS finally did approve the life-saving hepatitis C treatments, it rationed access to only the sickest patients. Everyone else had to get by on older, less effective therapies.

Something like this would have never happened in the US – not without riots in the streets anyway. The idea that a fully insured patient might be denied immediate, gold-standard, top-shelf treatment, no matter what the cost, is anathema to Americans. Indeed, 20 years ago, this mindset played a key part in destroying managed care.

Despite staunch support from our corporate and political elite, capped healthcare insurance plans were unable to survive a populist backlash once word leaked that very sick patients with little chance of survival were receiving less-than-optimal care.

But our distaste for collectivism is just one in a bewildering mix of reasons why it’s proving so difficult for the US to rein in the soaring costs of branded drugs these days.


A big part of the problem is that high-priced American drugs are a linchpin of the existing international drug market. Few people will come out and say it in public, but the fact of the matter is a laissez-faire pricing structure in the United States subsidises the ability of multinational drug manufacturers to comply with price controls in other countries.

When President Trump complains of global ‘freeloaders’ in the drug trade, he is not completely off the mark.

A recent white paper puts it more tactfully: “The pharmaceutical industry is a truly international industry with drug research and development, manufacturing and distribution occurring across national borders...Manufacturing firms need to make enough money in aggregate [emphasis added] to cover initial research costs...but [this] leads manufacturers to price discriminate across markets and may lead to a sense that some markets are subsidising others.”

Which, from a global perspective, might not sound like such a bad idea. After all, the US is the world’s wealthiest country. Why shouldn’t Uncle Sam shoulder a little more of the drug cost burden?

“It’s not a palatable argument,” said Robert M Ehrlich, owner of DTC Perspectives, a marketing and consulting firm based in Atlanta, Georgia.

“People in government and business understand it, but it’s hard to explain to your constituents.”

Drug manufacturers have mounted ambitious PR campaigns to highlight the industry’s many life- saving innovations, but to no avail. “The American consumer says, ‘That’s great, but I don’t want to pay more than the French or the Germans or the Canadians,’” explained Ehrlich.

The significance of the US market is also why Ehrlich, along with many others on the business/ marketing side of the industry, has little faith that importing cheaper drugs into the US from Canada or other countries will result in lower costs.

Drug companies could simply stop or lower the volume of products shipping to those countries. “Drug-makers will not allow their golden goose US market to be destroyed by a Canadian end run,” Ehrlich has stated.

Biosimilar fail

Another stumbling block has been our over-reliance on market-based solutions to this problem, ie, generics. Generics seem like a good idea because they were so successful for us in the past:

Responding to rising drug prices in the 1970s and 1980s, Congress passed a law in 1984 called the Hatch-Waxman Act, which lowered the regulatory burden for copycat versions of already approved pharmaceutical products.

It has been enormously successful, paving the way to market for thousands of small-molecule generic products. Generic prices here are often reduced by as much as 80-90%. (Something that is seldom mentioned in the drug pricing debate: the US has a greater number of generics sold at cheaper prices than any other country in the world, with 90% of all pharmaceuticals sold in the US being generic.)

Ten years ago, around the time the Affordable Care Act, ie, Obamacare, became law, Congress passed the Biologics Price Competition and Innovation (BPCI) Act, hoping it would do for biologics what Hatch-Waxman did for small- molecule drugs.

Unfortunately, this failed to happen. Only 18 biosimilar products have been approved in the US so far, with just a handful actually available for sale. And they tend to be priced closely to their competitors.

Biologics is the hot field right now, a fertile ground for the most innovative and life-saving products – but also a source of the ever-soaring price tags fuelling consumer outrage.

It is not totally clear why competition failed to flourish, but at least part of the reason is biosimilars are more difficult to duplicate than small-molecule drugs, according to Ed Haislmaier, senior research fellow at the Heritage Foundation, a Washington, DC think tank.

“This [the BPCI] was sort of tacked on to the back of the Affordable Care Act,” he said. “The thinking was at that time we’d solved the biosimilar problem, and here we are nine years later saying, no, we haven’t. So that’s still an important issue out there.”

A hard bargain

Yet another market-friendly idea that enjoys broad support among patient advocacy groups is allowing Medicare to negotiate with drugmakers. As it stands now, Medicare – the government programme that provides healthcare to some 60 million senior citizens – must pay without question whatever manufacturers charge for their products.

It strikes many as a no-brainer to leverage these 60 million consumers at the bargaining table. What could be more businesslike, indeed more American, than buyer and seller hashing out a mutually agreeable price in a free and open marketplace?

Unfortunately, on closer inspection, this pathway also presents difficulties. To negotiate effectively, Medicare would need to retain the option of walking away from the table. In other words, deny drug-makers access to the marketplace. “You would have to hold seniors hostage,” Haislmaier explained.

Anyone familiar with US politics knows senior citizens are among our most powerful and feared constituencies. Many believe it would be difficult for politicians to drive hard bargains and still keep these voters happy.

Hard to explain

Politically, reducing drug prices, or at least appearing to do so, has been at the forefront of the federal government’s goals for the past two years. When efforts by the Trump administration to repeal and replace Obamacare lost momentum, it shifted to reducing drug costs.

Although pharmaceuticals account for only 10-15% of national healthcare spending, targeting drugmakers has largely become the public face of healthcare reform.

But short of price controls analogous to those in other developed countries, it is unclear what could work. “The problem we have in the United States is hard to explain and probably not solvable,” commented Ehrlich.

He expressed hope that the mere threat of government action would convince drugmakers to self-regulate prices. If things continue as they are, and a leftist candidate such as an Elizabeth Warren or a Bernie Sanders wins the presidency, price caps would cause unemployment and a reduction of innovation in the sector, he predicted: “I don’t really see a good outcome here.”

Another question: how serious is Trump about confronting this problem? His administration has floated several cost reduction ideas, the latest being a pilot programme to import drugs from Canada.

But for every step it takes toward regulation, it takes another one back. For example, Trump abandoned plans to outlaw rebates, forbade shortening drug patents in the new version of the NAFTA treaty and sought to weaken a 1980 law known as Bayh-Dole that could be used to curb ‘unreasonable’ drug prices.

Meanwhile, as the federal government vacillates, states continue to pass laws of their own aimed at the problem. “It’s safe to say that every state is trying to think of ways to fix this drug issue,” said Trish Riley, executive director of the National Academy for State Health Policy.

Riley conceded plans to import drugs from Canada or other countries might not work but saw those concerns as beside the point. “The important thing is that this is new ground,” she said. “States have very few tools in their toolbox, and this is one of them.”

States have been forced to step in, she said, if for no other reason than to compel Congress to act: “In states we try everything. We can make mid-course corrections and do what we can. Some things work and some don’t. But all of them inform the importance of federal reform.”

Frank Celia is a freelance healthcare journalist based in the Philadelphia area of the United States

17th October 2019

Frank Celia is a freelance healthcare journalist based in the Philadelphia area of the United States

17th October 2019

From: Regulatory


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