The Washington PostDemocracy Dies in Darkness

Why America pays so much more for drugs

Placeholder while article actions load

In a subterranean ballroom Wednesday morning, a panel representing three corners of the health-care system took on one of the most perplexing questions about drug prices: Why does the U.S. pay so much more for brand-name drugs than other wealthy nations?

The U.S. drug price premium has been shown again and again. It depends on the drug and the country, but a Reuters analysis found that the U.S. pays as much as seven times more than the United Kingdom for some top-selling drugs. A study published last month in the journal BMJ Open examined four cancer drugs and found the U.S. list prices dwarfed drug prices in a range of countries, including other rich ones. A somewhat tongue-in-cheek analysis by Parexel Consulting showed two options, comparing the list price of a hepatitis C treatment in the U.S. ($84,000) to its cost in Egypt, finding a person could take a luxury vacation and buy the drug  for the same price.

The price disparities don't make sense to most people. If the high prices are necessary to incentivize pharmaceutical companies to develop new drugs, why should the U.S. be the one to underwrite the cost of developing drugs for the rest of the world? And if the reverse is true -- if companies are able to make money selling the drugs at much lower prices in other high-income countries -- why should the U.S. be paying so much more?

As part of the American Medical Association's National Advocacy Conference this week, representatives of three pillars of the health-care system took on the question: the patient, the drug industry and the middleman pharmacy benefit management company that negotiates discounts for health plans.

Lori Reilly, executive vice president of policy and research for the pharmaceutical trade group, PhRMA, contested the premise that the U.S. always pays more for drugs, arguing that rebates and discounts negotiated in secret make the price gap  smaller than comparisons suggest.

In fact, she pointed to a tweet from another speaker on stage -- Steve Miller, chief medical officer of Express Scripts, a middleman company that negotiates discounts -- as evidence the system was working.

"Steve mentioned in a tweet he did earlier that he's actually getting better prices for the new hep C medicines than Europe, and in part it's because he's negotiating on behalf of 85 million people and there's a lot of leverage there," Reilly said.

Not so fast, Miller replied. He tweeted it, he said, because it was the first time it had happened.

"The U.S. is 4.6 percent of the world's population, we're 32 percent of the world's drug revenue, and we're somewhere between 50 and 70 percent of world drug profitability," Miller said. "The United States has been spending money to protect the world for decades. We're now being asked to essentially fund all pharmaceutical drug development. ... We cannot continue to carry this burden."

The exchange was a clear reminder that the "health-care industry" isn't one monolithic thing, and solutions to cost problems are in part driven by who has the upper hand at any given time. Reilly represents the drug industry, which wants to develop new products but also fights to keep their prices and profits high; Miller represents big drug benefits middlemen, who have a lot of negotiating power to keep prices low, but can also trigger patient anger by restricting what drugs they can get. They both use the word "patient" a lot, but generally the shifting alliances they strike with sick people end up being in their own interests.

"What many countries do around the world is they set prices for medicines. They decide a price they're willing to pay and it's a take-it-or-leave-it approach. We don't think that's the right approach for patients," Reilly said.

Reilly argued that the system in the U.S., in which drug prices are higher than in other developed countries, allows for patients to have more choices and access.

"I just want to say that choice sounds great, access sounds great. But if you can't afford it, you don't have access," said David Certner, legislative counsel for the AARP, who sat on stage as a representative of the patient.

The costs of innovation and negotiation

Miller got a round of applause for suggesting that the rest of the world take up some of the burden that the U.S. currently shoulders for high drug prices. But it raises the question: If prices in other countries were to come more in line with those in the U.S., what would happen? Would prices here drop, or would everyone simply pay more?

Reilly agreed that other countries should pay more for drugs: "Unfortunately, we're the only country in the world that still values some of the innovation that is coming to market," she said.

Certner had a different take:

"I would say we're the only country in the world that doesn't use the marketing power the rest of the world does" to bring prices down, he said.

The elephant on the sidelines is the U.S. government itself, which would have significant negotiating power -- if it were allowed to negotiate, which it's not. This part of the issue is one of the wonkiest subjects to have percolated into the 2016 presidential race, with Hillary  Clinton and Bernie Sanders both promising to combat high drug prices by allowing Medicare to negotiate. Among  Republicans, using the government's bargaining power against the drug industry is a non-starter -- with the notable exception of Donald Trump, who perhaps can't resist the chance to use the government's  power to wheel and deal on a truly grandiose scale. Trump has claimed that allowing Medicare to negotiate could save $300 billion, but that is almost certainly a huge overestimate since, in 2015, the total Medicare prescription drug spending for its part D benefit was projected to be $85 billion.

Trump’s truly absurd claim he would save $300 billion a year on prescription drugs

Miller, who is very familiar with the business of negotiating drug prices, said that the ability to negotiate itself would have only a limited impact -- unless Medicare could also exclude some medications by creating a formulary of covered drugs, something that it doesn't currently do. Playing hardball by refusing to cover other pricy hepatitis C drugs was how Miller's company was able to negotiate a discount on the drugs that allowed Express Scripts to save $1 billion in 2015. Negotiating without being able to say "no" to any particular drug is a weak bargaining position -- and possibly not a solution that any of the players on the stage would readily embrace.