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The GOP Administration has announced a new drug price reduction program that will use a basket of prices that 16 nations pay for certain drugs in the Medicare Part B Plan (hospital and health services plans) to determine the price the federal government will pay. Biotech drugs which are extremely expensive, yet have high efficacy are to be targeted. The price reductions will be phased in over a 5 year period.
The difference between what the U.S. pays for many often prescribed medicines is huge as the following chart shows:
Sources: Bloomberg, The Washington Post – 10/26/18
How did U.S. prices get so much higher than other nations? Simply, the other countries negotiated tougher than we did. The pharma industry lobby in Washington spends tens of millions of dollars every year to persuade lawmakers and the White House to give drug makers complete pricing freedom. In effect, Americans are paying for the low prices other countries receive where the drugs are being sold with low margins or below margin. Pharma companies do not have a problem with this inequitable situation as long as they make money.
For example, in the U.S. Genentech, a division of Roche, prices a single dose macular degeneration drug Lucentis at $1000 while the same exact bio medicine – Avastin costs 10 times less. The firm says that the extra testing for the eye version requires a higher price. This premise disputed by scientists who worked in the Lucentis division and left in part due to the greed of management.
The administration is also planning on developing ways to give the private sector more leverage in negotiating prices with drug makers. Plus, HHS wants to create new policies that would reduce incentives for doctors to prescribe expensive drugs.
We applaud the GOP Administration for taking on the drug companies and their money making over all else approach to drug pricing. The pharma companies most affected are stung by the plan and charged it with ‘socializing medicine’. We don’t see their gouging prices to Americans as fair and equitable, so controlling prices to reasonable margins is common sense not a value shift of the health industry.
A good place to start cutting costs is to end prescription drug TV advertising like over 100 countries worldwide ban – that would allow the firms to cut billions off prices each year. Next, they need to end stock buybacks which take shares off the market to increase share price.
Sources: Leerink Group, Market Watch – 10/30/18
These are the top 6 of all pharma firms wasting money on goosing their stock price with stock buybacks to increase stock compensation to executives while patients get hit with soaring drug prices. Nearly $100 billion dollars spent in the last year would go a long way to bringing down the price of drugs. When the industry cries it does not have funding for research it needs to start here and drug advertising if they tried harder to find the money they could. The executives just don’ want to take a pay cut and run their firm with reasonable margins, yet are fine with driving patients into bankruptcy or adding thousands of dollars of debt to patient accounts.
The GOP plan does not go far enough, all medicines purchased by Medicare and HHS should be negotiated. The negotiating authorization for HHS has been in numerous bills in Congress repeatedly defeated in by the drug lobby. Congress needs to pass the bill, and get moving with a fair drug pricing model, with complete transparency from insurers and pharmacies to patients. The federal government can learn from the assertive approaches many states are taking by looking a efficacy based pricing to bring prices within reason as well.
It is time the pharma industry took a hard look at its financial engineering and redesign a more equitable pricing and reasonable profit model for patients, hospitals and suppliers.