PharmExec Blog

US Pharma: An Expensive Free Market

Jacky LawUS citizens may have politicians that ask probing questions on their behalf, but that doesn’t translate into them getting a better deal from pharma, says Jacky Law.

You have to hand it to Senator Herb Kohl for keeping the industry on its toes. For years the Democrat from Wisconsin has been asking awkward questions to get US citizens a better deal. He has asked why federally funded Medicare pays for expensive drugs such as Genentech’s Lucentis for wet macular degeneration when cheaper ones (Avastin) do the same job. Along with Republican Senator Chuck Grassley, he was critical in getting legislation passed so the public can know how much their doctors earn from pharma companies. If he had his way, prescription data-mining would be banned and pay-for-delay deals to keep generics off the market consigned to history.

Sometimes he wins, as in opening up a roller-coaster wave of transparency on the back of the Physicians Payments Sunshine Act that was recently passed as part of the healthcare reform bill. Sometimes he loses, as in the same bill being passed without outlawing the practice of settling patent disputes with cash payments to generics companies. Sometimes the questions simply get lost, as in why Lucentis gets prescribed on Medicare rather than Avastin.

Last month, he was on the offensive again, this time asking why the US pays so much more for its prescription drugs than anywhere else in the world. This is an interesting question for which there are a million answers, but rarely the simple truth that there is no single negotiating power forcing prices down. The Senator must know this but wrote anyway to the companies that make the 12 most prescribed drugs in the US. He wanted an explanation.
He cited evidence from the Organisation for Economic Co-operation and Development (OECD) that shows the US spends an average of $878 per person on prescription drugs while the average for other industrialized countries is just $446. By not specifying how many, or which, drugs people take, these figures are fairly useless as far as price is concerned. But it is no secret that the US pays way over the odds for identical products.
The companies he wrote to, including AstraZeneca, GlaxoSmithKline, Lilly, Novartis, Pfizer and Sanofi-Aventis, haven’t exactly been rushing forward with answers.  But Lilly did volunteer the notion that the free market is to blame. Or rather, that Americans rely “on competition rather than government-imposed price controls.”

As any student of economics knows, a free market is supposed to bring prices down. So the culprit where pharmaceuticals are concerned must therefore be the machinations of state for trying to contain healthcare costs on behalf of its people.  Indeed, a few days after Senator Kohl sent his letters, an example of such machinations could be seen at work by the coalition government in Germany. These brought about new rules on March 26 that stand to cut healthcare costs — and pharma company revenues — by as much as E2 billion because they allow pharma companies to set their own prices only for the first year a drug is on the German market. After that prices have to be negotiated with the insurers who are able to impose mandatory rebates.

Health Minister Philipp Roesler was unapologetic when he told a press conference, “We will ensure that pharmaceutical companies will no longer be able to set the prices for medicine one-sidedly and on their own.”

Germany, without doubt, gets the better deal for its citizens than the US, a point that will not be lost on Senator Kohl. Ditto the UK with its complex Pharmaceutical Price Regulation Scheme that controls profits rather than prices. European citizens generally pay lower prices than the US but, sadly, not because they have elected representatives that ask questions of big business or force issues of transparency on their mighty empires. Rather, they have governments that can cut prices, just like pharma companies can charge high ones in the US. What is not clear from all this, however, is which country is the more democratic.

Jacky Law

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