U.S. consumers pay more for drugs

Posted: April 10, 2013

U.S. consumers and taxpayers usually pay more - often much more - than people in other developed nations for brand-name drugs, according to a series of papers published Monday in the journal  Health Affairs.

Moreover, consumers here can't see through the fog of the pricing system to know how much their medicines should cost.

"On a personal level, U.S. citizens pay prices sometimes twice as high as most other countries for identical drugs," Gerard Anderson, director of the Center for Hospital Finance and Management at Johns Hopkins University and a coauthor of one of the studies, said.

"From a policy standpoint, we are supporting the drug companies' innovation for the rest of the world," Anderson said. A link to the Health Affairs paper he helped write is here.

Most other developed nations use various mechanisms to keep prices lower. Direct government payments to drugmakers are lower. Some compare the value of similar medicines and will not pay more than the average price for the group, not simply the price applied by the manufacturer. Some reduce the number of entities negotiating to lessen drug-company leverage.

In the United States, the biggest government medical insurance program, Medicare, has been restricted by law from imposing many such measures.

One paper, whose lead author, Joshua Cohen, is a researcher at Tufts University in Massachusetts, said that European evidence-based approaches appear to have led to reduced prices for those drugs deemed worthy of approval and reimbursement. Evidence-based approaches include patient outcomes and how well a medicine works, among other measures.

Drug companies have argued for years that richer nations should pay more than poorer nations for the same medicine, which might not be developed at all if higher prices are not paid by somebody.

"I don't have a problem charging Bulgaria less," Ken Frazier, chief executive officer of Merck & Co., said during the question-and-answer session after a speech at Princeton University on Thursday. "I have a problem when Germany wants to be charged what Bulgaria is charged."

Even if they generally follow U.S. government pricing practices, U.S. private insurers and the pharmacy benefit managers who run drug plans for employer-based health-care plans negotiate complicated deals with drug manufacturers on prices and do not reveal the numbers. The same insurance company might pass on different prices for the same drug to different clients, which results in a different out-of-pocket co-payment for two patients taking the same drug.

Within the U.S. pricing system, there are "average wholesale prices," "average sale prices," "federal supply schedule prices," and "Medicare Part D prices," along with rebates and discounts, one paper noted. But none is simple, clear and enforceable, perhaps even for the army of people employed in those public and private bureaucracies built around the U.S. system.

Prices are "confusing and camouflaged," said University of Michigan business professor Erik Gordon, who follows the industry.

"True prices are nearly impossible to ascertain," he said. "Average wholesale prices are neither wholesale nor average. Rebates and discounts that are based on sales of single drugs and on sales of baskets of unrelated drugs make it impossible to calculate the actual price paid for a particular drug."

Contact David Sell at 215-854-4506, dsell@phillynews.com, or follow on Twitter @phillypharma. Read his blog at www.philly.com/phillypharma.

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