prescription drugs international trade price controls doughnut holes have in common? gerard...
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Prescription Drugs International Trade
Price Controls Doughnut Holes
Have in Common?
Gerard Anderson, PhDJohns Hopkins University
What Do…
Mark McClellan
• Other countries “are not all paying their fair share of the costs of bringing new medicines to market”
• The U.S. “cannot carry the lion’s share of this burden much longer”
Proposed Solution
Have U.S. Trade Representative Argue That Other Countries Should Pay More For
Pharmaceuticals
Two Questions
• What is the price differential between the U.S. and other countries?
• Should the U.S. trade representative pressure other countries to raise prices?
Danzon and Furukawa
“Our findings suggest that U.S.- foreign price differentials are roughly in line with
income and smaller for drugs than for other medical services”
Health Affairs, 2003
Data
• Source- IMS
• January to September 2003
• 30 pharmaceutical products with highest sales volume
• U.S., Canada, France, United Kingdom
Methods
• Matched products, forms, and doses– (e.g. 10-mg Lipitor tablet)
• Then created price index by creating weighted average of prices for all 30 products
• U.S. volume used as base
Method
Calculated relative prices using average wholesale price and 20% discount from average wholesale price
Exchange Rates
Converted from country’s currency to dollars using exchange rates as of
January, 2003
Price Differential Example- Lipitor 10 mg
• $1.81 in U.S.
• $.99 in Canada
• $.90 in United Kingdom
• $.67 in France
Relative Prices of Thirty Pharmaceuticals in Four Countries, 2003
1.00
0.480.41
0.53
1.00
0.60
0.52
0.66
0.0
0.2
0.4
0.6
0.8
1.0
1.2
United States Canada France United Kingdom
Pri
ce
In
de
x
No US Discount
20% US Discount
Should U.S. Trade Representative Pressure Other Countries To Raise Pharmaceutical Prices?
Pros and Cons
Arguments- Yes
• Uncertainty of development process
- 5000 medicines tested
- 5 approved clinical trials
- 1 approved for patient use
• Research and Development Costs
- $57-71 million (Public Citizen)
- $802 million (Tufts)
Research and Development Investment in U.S.- 1999
• $33.9 billion- Pharmaceutical companies
• $18.9 billion- NIH
• $3.6 billion- Other
Free Loading
Other countries are “free loading”
on U.S. by paying marginal costs and not paying for research and development costs
However
• Other industrialized countries have developed sophisticated initiatives to determine:
- appropriate use
- control prices
• U.S. has not
Would U.S. Prices Fall?
If Pharmaceutical CEO said:
“I got great news. We can lower prices in U.S. because we made enough money overseas.”
What would shareholders say?
International Price Fixing
Who should determine what price each country should pay?
Opportunity Costs
What do we give up with higher prices?
New Drugs or Better Access to
Existing Drugs
Are We Getting New Drugs?
Between 1989 and 2000 FDA approved 1035 new drug applications
• 116 identical to existing drugs
• 558 incrementally modified
-88 real clinical improvement
• 361 new ingredients
- 152 real clinical improvement
Source: National Institute of Health Care Management
Better Access
• Many people do not have drug coverage
• Most privately insured people have 2-3 tier copays
• Medicare beneficiaries will soon get a doughnut hole
Doughnut Hole
Medicare pays:
- 75% of bill up to $2250
- 0% of bill $2251-$5100
- 95% of bill above $5101
Simulation Model
• With 45% price reduction Medicare could:
- Eliminate the doughnut hole
• Medicare would spend same amount as current law
• Out-of-pocket spending much lower
• Supplemental insurance would pay less
Total Drug Spending (Billions)
Medicare Out Of Pocket Third Party Payors
$101.9 $44.5 $31.0 $26.4
$73.6 $44.5 $19.1 $9.9
Spending on Medicare Prescription Drug Benefits in 2006
Drug Spending by Medicare Beneficiaries in 2006 (Billions of Dollars)
Current Law
45% Discount
Summary
• Price differential 34-59%
• U.S. unlikely to get lower prices if U.S. trade representative increases prices in other countries
• If U.S. paid same prices for pharmaceuticals as other countries, we could fill in the doughnut hole
Prescription Drugs International Trade
Price Controls Doughnut Holes
Have in Common?
Gerard Anderson, PhDJohns Hopkins University
What Do…