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Vital Signs The Analyst's Perspective - February 2016 Issue

  • ID: 3673370
  • Report
  • Region: Global
  • 6 Pages
  • Frost & Sullivan
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Why the US Pays More than Other Countries for Drugs

FEATURED COMPANIES

  • Life Sciences
  • Medicaid
  • Medicare
  • Wall Street Journal
  • MORE
Why the US Pays More than Other Countries for Drugs

On December 1, 2015, the Wall Street Journal reported that the United States pays more than any other country for prescription drugs. The single largest purchaser of drugs in the US is the government-run Centers for Medicare and Medicaid Services (CMS), Medicare. CMS drug prices are publicly available. Compared to Norway, the UK and Canada, the US spends more for the same drugs. CMS is unable by law to negotiate drug pricing.

The rest of the US drug market is highly fragmented, with multiple insurance company and employer payer negotiating the best deals they can, ultimately to the benefit of the pharmaceutical companies selling the drugs. The Analyst’s Perspective by Barbara Gilmore, Senior Industry Analyst, Life Sciences. Internationally, drug prices are held in check by government-monitored drug pricing regulations. Country specific, government-run health systems have long regulated country-specific drug pricing.

The most commonly used practice to set drug pricing is based on a process called “reference pricing.” In the European Union (EU), member countries are free to develop their own country’s national and regional pricing. Historical practices coupled with political, legal, and economic considerations mean there are presently a variety of different country-specific pricing regulations implemented across EU. Reference pricing is the most commonly used practice to contain costs and reduce pricing for on-patent drugs in the EU.

Most countries set the price for a given drug by looking at the price for the same drug in a variety of countries. The “group” of countries used to compared prices are referred to as “country baskets.” The most referenced country is France (19), followed by the UK and Germany (17 each). The least referenced countries are Switzerland (two), Iceland (three), and Norway (six). Where there is no reference price available for a reference country for a drug, or the drug is not yet approved in some of the reference countries, the available country data is used. Prices can be adjusted as products become more widely available.

Germany was the first EU country to institute reference pricing. At first it was based on the class of drug, but has evolved to a system of therapeutic comparability, looking at active ingredients, therapeutically comparable active ingredients, and comparable pharmacological profiles.

In Norway, the state-run health system, in addition to looking at reference country pricing, bargains with the drug company, requesting proof of the drug’s value in comparison to the existing marketed therapeutics. In Norway, the state pays for most prescription drugs, though patients sometimes have co-pay requirements.

In Canada, reference pricing was introduced for five drug classes, which represent the largest portion of the national drug budget, including NSAIDs, histamine-2 receptor antagonists, oral nitrates, ACE inhibitors, and calcium channel blocker.

In Japan, the Ministry of Health, Labor and Welfare (MHLW) establishes the drug reimbursement prices for pharmaceuticals. The MHLW works with the Central Social Insurance Medical Council (CSIMC) to set reimbursement rates. When a new drug is launched, the reimbursement for that drug depends on whether there is an approved comparable drug. If there is, the new drug must be innovative or more efficacious to be able to get premium pricing, which is considered to be X% higher. If no comparable drug exists, the price is determined by taking the manufacturing costs, administration, and marketing costs into account. If there are generics already available, the new drug is set at the lowest price of an available generic. If there is no generic available, the price is set at X% of the original drug price.
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FEATURED COMPANIES

  • Life Sciences
  • Medicaid
  • Medicare
  • Wall Street Journal
  • MORE
1. Why the US Pays More than Other Countries for Drugs

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- Life Sciences
- Medicaid
- Medicare
- Wall Street Journal

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