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May 17, 2018

Fixing the drug price crisis in the US

On May 11, President Trump announced measures that his administration plans to use to bring down the prices of prescription drugs in the US.

By GlobalData Healthcare

On May 11, President Trump announced measures that his administration plans to use to bring down the prices of prescription drugs in the US. The strategic actions contained in these measures include expanding access to generic drugs, requiring drug manufacturers to advertise list prices, and forcing foreign governments to pay more through renegotiated trade deals. While the first two methods seem plausible for causing a reduction in drug prices, many are dubious about the last method, as asking other countries to pay more to reduce the price of drugs manufactured in the US seems questionable. Questions have also been asked surrounding whether or not the US healthcare system is responsible for the current prescription drug price crisis in the country.  To help answer these questions, a quick review of how the US healthcare system works should prove helpful.

The concept of healthcare has always been simple; it provides patients with access to beneficial, cost-effective treatment regimens. This means putting patients first. However, an analysis of the healthcare system in the US shows that it appears to work in favor of drug manufacturers rather than patients. The US healthcare system involves multiple stakeholders: patients, healthcare providers, and insurers. The basic figure from which the price of a drug is calculated is called the list price.

Manufacturers usually consider different factors to help them arrive at a list price, including the cost of the drug’s R&D and, most importantly, the clinical value of the drug. In the US, the list price undergoes further discounts thanks to the role played by pharmacy benefit managers (PBM), wholesaler chains, and insurers. However, because the list price serves as the basis for calculations of other price points, there is a need to scrutinize the base figure in order to understand if the number is an exaggeration or a fair estimation of the development costs of the drug. In the absence of full price transparency, it is probable that the list price of the drug is a major contributing factor for high healthcare costs. As such, questions need to be asked about whether drug companies are hampering patients’ drug access by focusing on high profit margins, thereby influencing the list prices of the drugs.

Having a central purchasing organization negotiate with manufacturers will help to lower drug prices, as has been shown in many European countries. In the UK, for instance, healthcare is publicly funded and the prices for prescription drugs are set through discussions between manufacturers and the government. This means that the government can refuse to pay for a drug when its performance does not indicate favorable analysis in terms of cost or quality of life. In such cases, patients who wish to have access to such treatments may need to do so by traveling abroad where the drug is available and pay for the drug out of pocket.

A pharmacoeconomic analysis of each drug plays an important role in determining drug pricing in European markets. Such purchasing behavior is in sharp contrast to that seen in the US market, where the government does not directly regulate drug prices; this is a major reason why drug prices in countries outside the US are cheaper. Decisions regarding drug prices in European countries are determined by clinical evidence of drug efficacy combined with the power of a central negotiating authority. As such, it seems unfair to ask foreign countries to pay more for drugs made in the US.

Prior to his election, one of President Trump’s proposed policies was to enable the government to directly negotiate drug prices with manufacturers. While this would seem like a good place to start drug pricing reform, no trace of that policy was present in the measures announced last week.

For more insight and data, visit the GlobalData Report Store – Pharmaceutical Technology is part of GlobalData Plc.

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