Experts debate drug pricing policies

Jul 15, 2019

While some are concerned that President Trump’s proposed “favored nations” policy would harm pharma makers, one analyst is not as concerned.

While some are worried that President Trump’s proposed “favored nations” policy, in which drug prices in the US would be capped at the lowest price being paid by other countries, would harm pharma makers, one analyst is not as concerned.

“US drug prices will certainly fall. However, prices outside the US will rise,” Jason Shafrin, PhD, senior director of policy & economics at Precision Xtract, told FormularyWatch. "A naïve evaluation of the favored nation approach would assume that US prices would be required to fall to the lowest price internationally. Thus, there could be concern that consumers overall benefit, but there could be a negative impact on innovation.

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The more likely result of a “favored nations” policy would be that drug makers would take a global pricing strategy in which “there is a single price that is lower than the current US price, but higher than what most or all ex-US countries pay,” Shafrin said. “If the total revenue manufacturers expect from future innovations is the same or does not change much, in this dynamic equilibrium any impacts on decreased innovation could be modest.” 

The US currently has the highest drug prices in the world. In addition, a new Pharmaceutical Research and Manufacturers of America (PhRMA)-commissioned study found that hospitals continue to charge patients 5 times more, on average, than their cost for medicines.

The Moran Company study analyzed 20 medicines and found the amount hospitals receive after negotiations with commercial payers is, on average, almost twice what they paid to acquire the medicine, according to PhRMA.

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Plus, while hospitals that participate in the 340B program are given a significant discount on medicines, “it doesn’t appear that all of them are using the money to help patients as was intended by the program. In fact, their own data show they are providing less and less care to needy patients," PhRMA said on its web site.

The number of ‘340B entities,’ which include a number of hospitals, has grown substantially over the last decade or so, James Baumgardner, PhD, senior research economist at Precision Xtract, told FormularyWatch. However, the law does not require the 340B hospital to pass savings-typically 50%-along to a patient or their insurer, “so hospital pharmacies can charge the typical market price even though they receive the drugs at a big discount, making money on the spread,” Baumgardner said.

“Medicare did change its reimbursement policy for Part B drugs to recoup some of this spread, but it’s likely that a healthy gap still exists, on average, especially when non-Part B drugs and payers other than Medicare are included,” Baumgardner added.

Read more: New Bills Aim To Lower Drug Prices

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