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Comparative Drug Prices in the US and Other Developed Countries

By October 29, 2018Commentary

In light of the current administrations proposal to index Medicare’s Part B drug payment to prices around the world, an analysis from HHS comparing these prices is timely.   (Part B Drug Analysis)   The Part B drugs are physician-administered, often infused, and tend to be specialty pharmaceuticals with very high prices.  They account for a large percentage of all drug spending.  Medicare spending per beneficiary on these drugs is growing at a double-digit rate.  Many other developed countries have single payer systems which basically dictate the price they will pay.  Seventeen other countries’ prices were explored on a per gram basis, to avoid some equivalence issues that might be caused by different dosing and other issues across nations.  About 30 drugs were included in the analysis.  They accounted for about two-thirds of all Part B drug spending.  On average, drug companies charge 1.8 times more in the US than elsewhere, or 80% higher.  Only on one of the products was the US price lower than the average of the other nations’ prices.  For 20 of the compounds the US price exceeded the average international price by more than 20%.  HHS calculates that the US would save $8 billion in Medicare spending if it just paid the average international price.

The Wall Street Journal has already weighed in on the administration’s proposal with a, for that paper, surprisingly uninformed and unintelligent response, defending the drug industry and the supposed sanctity of free market pricing, which simply does not exist for a patented product.  Others, including drug companies, have raised their voices to whine about the threat to drug company profits, although they try to say they are just concerned about patients.  There can be legitimate concerns about the effect of the patent system on innovation, but there should be even more concern about the abuse of government-granted monopolies to make really, really absurd profits.  The government which grants patents is completely justified in using those patent rights to control pricing of products.  In the absence of the patent, there would be a competitive market for the product. And unlike phones or other products which may have some patent protection, there often isn’t an ability to create a competing drug, there are only so many options.  And even when patented drugs are in the same therapeutic class, they mysteriously still manage to have exceptional margins, despite the supposed competition.  Something should be done and the best way to encourage more responsible behavior is to threaten shortening patent lives if companies engage in abusive pricing.  And any pricing not set in a truly free market is to some extent abusive.

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