How can it be that the county that leads in drug development lacks the ability to offer it at affordable pricing to its constituents? Are we paying to keep the rest of the world healthy? Should we be doing this? We added an audio transcript this week of our newsletter. Select “Listen Online” to get started!
-The Editors

🏥Health Cost Insights:

Why Are Prescription Drug Prices in the U.S. So High?

It’s well documented that Americans pay significantly more for healthcare, including prescription drugs, than people in other countries. Research shows that drug prices in the U.S. can be two to four times higher compared to other wealthy nations. But why is this the case?

Studies consistently reveal that Americans pay more for prescription drugs than residents of other high-income, industrialized countries. For example, a 2024 Rand study found that, on average, U.S. drug prices were 2.78 times higher than in 33 other countries. The gap was even larger for brand-name drugs, with U.S. prices averaging 4.22 times as high as those abroad. While unbranded generic drugs are cheaper in the U.S., these savings don’t offset the higher prices of brand-name medications.

One key reason for the disparity is that the U.S. lacks a centralized body to negotiate drug prices on behalf of the entire population. In contrast, other countries often have a single negotiator, usually the government, which has the power to accept or reject the prices set by pharmaceutical companies. This centralized approach gives these countries more leverage to negotiate lower prices.

The U.S. healthcare system is fragmented, with drug price negotiations divided among thousands of health plans. This results in weaker bargaining power compared to countries with a single negotiating entity. Additionally, the U.S. system is burdened by a complex web of middlemen, such as pharmacy benefit managers (PBMs), who often profit from higher drug prices. This further complicates efforts to reduce costs.

Another factor contributing to high drug prices in the U.S. is the extensive use of patents and market exclusivity by pharmaceutical companies. These legal protections prevent generic competitors from entering the market and driving down prices. In some cases, companies have amassed patents on minor modifications to extend their monopolies, keeping prices high for longer periods.

As a result of these factors, Americans face higher out-of-pocket costs for prescription drugs compared to people in other countries. This financial burden is particularly heavy for those without insurance or with high-deductible plans, leading to difficult choices between affording medications and other necessities.

Here is a really interesting study done by the Kaiser Family Foundation:

Read more here!

🚦Poll

Imagine. You were given the keys to the White House and asked to solve the drug pricing issue. What is your next move?
Hint: There is no correct answer here (that we know of)!

📚Interesting Study:

Medicare's First Negotiated Drug Prices: What to Watch For

As the Biden administration prepares to announce the first-ever Medicare drug price negotiations, all eyes are on the potential impact of this historic move. This policy shift aims to lower prescription drug costs, a cornerstone of recent healthcare reforms. However, the negotiations have been conducted largely behind closed doors, leaving many in the industry and the public speculating about what the final outcomes will be.

The upcoming announcement is more than just a milestone in healthcare policy; it could redefine the pharmaceutical landscape in the U.S. For years, prescription drug costs have been a significant burden for Medicare beneficiaries, and the administration's efforts represent a direct challenge to the pricing power of pharmaceutical companies. The stakes are high, not only for patients who stand to benefit from lower prices but also for the pharmaceutical industry, which is watching closely to see how aggressive the administration has been in these negotiations.

The initial focus is on 10 drugs that account for some of the highest costs within Medicare. These include widely used medications like Bristol Myers Squibb and Pfizer's blood-thinner Eliquis, and Boehringer Ingelheim's diabetes drug Jardiance. While drug makers have suggested that the negotiated prices for these medications may not drastically alter their financial outlooks, the results could provide a glimpse into how future rounds of negotiations might unfold, especially as more drugs, including potential blockbusters like GLP-1 weight-loss treatments, are added to the list.

Several crucial questions remain unanswered as we await the official announcement. First, the level of transparency from the Centers for Medicare and Medicaid Services (CMS) will be critical. Will CMS disclose specific savings achieved for each drug? And if so, will these savings be measured against the current list prices, which are often higher than what patients pay after rebates and discounts, or will a different benchmark be used?

Additionally, the reaction from pharmacy benefit managers and Medicare Part D insurers could shape the market response. These entities will be required to cover all 10 selected drugs, but the Inflation Reduction Act does not dictate where these drugs must be placed on formularies. This could lead to insurers giving more favorable placement to competing products, potentially affecting patient access.

Pharmaceutical companies are also closely monitoring the situation. The release of these prices could influence how large pharmaceutical companies approach future acquisitions, especially in the biotech sector. Moreover, there is curiosity about how Medicare-negotiated prices will compare with international drug prices, where the U.S. has traditionally seen higher costs.

The negotiated prices are set to go into effect on January 1, 2026. However, the implications of this announcement will likely reverberate much sooner. By February 1, 2025, CMS is expected to announce up to 15 additional drugs for the next round of negotiations. As the landscape continues to evolve, stakeholders across the healthcare spectrum will be closely watching how these changes play out and what they mean for the future of drug pricing in the U.S.

Read more here!

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