Prescription drug prices in the US continually rank among the highest in the world. According to a report by the OECD, the US spent $1220 on pharmaceuticals per capita in 2017. This compares to $823 in Germany, $469 in the UK and $391 in the Netherlands(1). Health care costs make up 52% of consumer credit(2) and many patients report that significant out-of-pocket costs forces the self-rationing of their medicines, with severe consequences for their health(3). It is therefore not surprising that the high cost of branded medicines has become a potent political issue in the US. And whilst on the surface this may appear to be a domestic issue, the rest of the world may wish to take note.
American Patients First
Prescription drug pricing reduction was one of Trump’s key electoral promises and in May 2018 the US Department of Health and Human Services published ‘American Patients First’ as a blueprint for how he would meet this goal. Amongst other proposals to introduce a flat fee for pharmacy benefit managers so more savings are passed on to consumers and to increase the approval and prescription of generic drugs, the plan included an action “to assess the problem of foreign free-riding”(4). Essentially, the US government is looking to make other countries pay higher prices for drugs developed in the US. By forcing higher prices in Europe and framing this as these countries taking more of the burden of R&D costs, could Trump be more successful in reforming drug pricing at home? Previous proposals to reduce drug costs, have come up against the pushback from drug manufacturers and politicians alike; the enduring belief being that reducing prices would stifle innovation within the pharmaceutical industry. Under Trump’s plans to force other countries to shoulder more of the responsibility for R&D that argument would hold less weight. Indeed, the bipartisan Prescription Drug Pricing Reduction Act (PDPRA) aimed at lowering prescription drug prices and out-of-pocket costs(5) may well become law in 2020.
Raising ex-US prices through trade negotiations
So how could the US force European countries to pay a higher price for their medicines? Trump believes the answer is through trade deals. During remarks issued in May 2018 the President stated:
“It’s time to end the global freeloading once and for all. I have directed U.S. Trade Representative Bob Lighthizer to make fixing this injustice a top priority with every trading partner(6).”
Of course, this depends on European countries agreeing to these trade deals. However, a review article published in the Journal of Market Access and Health Policy concluded that the objective of raising prices abroad was attainable and cited recent negotiations with South Korea as evidence that other countries are willing to give concessions to the US, primarily in exchange for military protection. According to the authors, even the EU has a “striking military dependence on the US(7)”.
Lowering US prices through international reference pricing
According to a Department of Health and Human Services (HHS), it is estimated that Medicare Part B pays an average of 1.8 times the price that other developed countries pay for the same pharmaceutical product (8). To address this, the Centers for Medicare Services and Medicaid (CMS) published, in 2018, an advanced notification of the proposed regulation (ANPRM) to modify the current pricing model for Part B drugs to a model of the International Price Index (9). With this new model, the CMS aims to reduce by 30% the spending on Part B drugs as these drugs’ would be priced taking into account their prices in 14 other countries. Although the details of the policy have not been released, this new pricing model is expected to enter into force in 2020. The impact of this potential regulation is already being felt in Europe, we are aware of two orphan disease products that have been withdrawn from the EU market due to concerns over the impact of the EU price on the US.
Drug prices will be a key battleground in the upcoming presidential elections, and given the current progress of the PDPRA through Congress, some form of drug price control in the US would seem imminent. How far these measures go may ultimately depend on the outcome of the election. One impact of this is whether the US is successful in raising prices in Europe, however, will depend on what else is on the table when it comes to trade negotiations and how much European countries are willing to give up. Of all European countries, the UK will be acutely aware that the US will be looking to seek concessions on pharmaceuticals in any post-Brexit trade negotiations. It will be interesting for all concerned to see how these negotiations play out. Considering the bi-partisan willingness to decrease US drug prices, we anticipate some form of international reference pricing to be implemented in the near future in addition to other price reductions reforms that will be included in the PDPRA legislation.
- OECD (2019), “Pharmaceutical expenditure”, in Health at a Glance 2019: OECD Indicators, OECD Publishing, Paris, https://doi.org/10.1787/3b2d8ac1-en.
- Consumer Financial Protection Bureau (2014) “Consumer credit reports: A study of medical and non-medical collections” chrome-extension://oemmndcbldboiebfnladdacbdfmadadm/https://files.consumerfinance.gov/f/201412_cfpb_reports_consumer-credit-medical-and-non-medical-collections.pdf
- Herkert D, Vijayakumar P, Luo J, et al. Cost-Related Insulin Underuse Among Patients With Diabetes. JAMA Intern Med. 2019;179(1):112–114. DOI: 10.1001/jamainternmed.2018.5008
- Department of Health and Human Services USA “American Patients First. The Trump Administration Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs” May 2018 chrome-extension://oemmndcbldboiebfnladdacbdfmadadm/https://www.hhs.gov/sites/default/files/AmericanPatientsFirst.pdf
- Congress.gov S.2543 – Prescription Drug Pricing Reduction Act of 2019 https://www.congress.gov/bill/116th-congress/senate-bill/2543/text accessed 10th February 2020
- Trump D. Remarks by President Trump on Lowering Drug Prices https://www.whitehouse.gov/briefings-statements/remarks-president-trump-lowering-drug-prices/ accessed 9th January 2020
- Monique Dabbous, Cyprien Milea, Steven Simoens, Clement François, Claude Dussart, Lylia Chachoua, Borislav Borissov & Mondher Toumi (2019) Why “American Patients First” is likely to raise drug prices outside of the United States, Journal of Market Access & Health Policy, 7:1, DOI: 10.1080/20016689.2019.1650596
- Comparison of U.S. and International Prices for Top Spending Medicare Part B Drugs U.S. (2018) Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation https://aspe.hhs.gov/system/files/pdf/259996/ComparisonUSInternationalPricesTopSpendingPartBDrugs.pdf
- Medicare Program; International Pricing Index Model for Medicare Part B Drugs (2018) Centers for Medicare & Medicaid Services (CMS), HHS. https://www.federalregister.gov/documents/2018/10/30/2018-23688/medicare-program-international-pricing-index-model-for-medicare-part-b-drugs#citation-13-p54550