Prescription drug prices in the U.S. are much higher than in other countries for a variety of reasons, including a limitation on Medicare’s ability to negotiate with manufacturers.
That may change, depending on what happens next.
The White House finally released text of an executive order first signed in July that would tie Medicare payments for outpatient and pharmacy drugs to the lowest price in similar developed countries.
Medicare Part D
Medicare Part D, the prescription drug purchasing portion of Medicare, makes up a large share of drug spending in the U.S., given that Medicare covers such a large portion of the population.
As an example of Medicare’s spending, Medicare spent over $3.17 billion in 2018 on Humira alone, a notoriously expensive medication that treats rheumatoid arthritis. This was spent on just under 82,000 beneficiaries, for an average spending of about $38,000 per beneficiary. Depending on the delivery method, the average cost per beneficiary came out to nearly $45,000 in 2018.
Pharma Pushes Back
Unsurprisingly, the pharma lobby is not a fan of the bill. The Pharmaceutical Research and Manufacturers of America called the policy “irresponsible and unworkable” in a statement.
PhRMA President and CEO Stephen Ubl said the order is “overreach that further threatens America’s innovation leadership and puts access to medicines for tens of millions of seniors at risk.”
The reality is not so clear.
What Does The Order Do?
The order would mandate that the price paid for a drug matches the lowest price paid among a set of comparable nations. This is a significant shift from how Medicare currently purchases drugs, as it is prohibited from negotiating prices it pays to drugmakers.
But this isn’t going to change overnight. According to Larry Levitt, a health economist with the Kaiser Family Foundation, the executive order “does not by itself do anything. It has to be followed up by regulations, which will take time.”
And drugmakers have indicated they may sue to stop implementation, which could slow down a process that was already going to take some time.
Of note, the draft plan put forth by the administration appears to be limited to a few high-cost drugs, which could make it easier to implement.
One of the key questions to address in healthcare today is the “cost, cost-effectiveness, and comparative utility” of pharmaceutical drugs, according to Elisabeth Rosenthal in An American Sickness.
And while the drug industry claims that reducing prices would stifle innovation, it’s important to look at data investigations, such as the one by John Fauber and Elbert Chau, published in the Milwaukee Journal Sentinel, published in 2014. They found that 74 percent of cancer drugs approved by the FDA during the prior decade did not extend life of even a day.
To what degree this order may accomplish that is unclear. The July order was never fully released, and was less an actionable order and more a tool for leverage in bringing the drug industry to the table.
It remains to be seen how they may negotiate, given that the U.S. pharmaceutical industry has grown twice as fast as the economy at large since 1990
“Trump signs new, expanded executive order to lower U.S. drug prices.” Reuters. September 15 2020.
Medicare Part D Drug Spending Dashboard & Data. Centers for Medicare & Medicaid Services.
“The Slippery Slope: Is a Surrogate Endpoint Evidence of Efficacy?” John Fauber & Elbert Chu. MedPage Today. October 26 2014.
“White House expands international reference pricing to pharmacy drugs.” Rachel Cohrs. Modern Healthcare. September 13 2020.
“An American Sickness.” Elisabeth Rosenthal. Penguin Randomhouse. Pub. March 13 2018.