Regulating Prescription Drug Prices
In the perennial debate over drug pricing, U.S. policymakers have proposed lowering domestic prices by tying them in some way to international prices. But policymakers seem less interested in understanding or adapting the regulatory frameworks that produce these lower prices in other countries. In a recent paper in JAMA Internal Medicine, my colleagues and I outlined what we learned from studying different regulatory frameworks while writing a book, "Which Country has the World’s Best Health Care?"
The six countries we review in our paper—Australia, France, Norway, Germany, Switzerland, and the United Kingdom—have diverse financing, delivery, and reimbursement systems. These systems range from socialized medicine to markets with competing private insurers and providers. So, what can we learn from them?
These six countries have nearly universal health insurance, covering more than 99% of their population. None of them have the monopolistic pricing and marketing exclusivity found in the U.S. We found no evidence that the regulatory regimes resulted in meaningful delays in access to new drugs. Put simply—it is possible to have universal health insurance, quick access to new drugs, and lower prices than the U.S. currently pays. While no country’s system can be adopted wholesale, we identified several specific lessons learned along the path from approval to purchasing.
Uniform national price through either negotiation or government price setting
The U.S is unusual in that it lacks any centralized mechanism for negotiations between payers and drug manufacturers. In the private market, pharmacy benefit managers and insurers individually negotiate with manufacturers. Medicaid and Medicare have separate prices. This results in different prices for each insurer and wide variation in out-of-pocket exposures for patients.
Many other countries have a uniform price that applies to all patients. In Germany, for example, non-profit sickness funds insure nearly the whole population. Rather than entering into separate negotiations, German law requires insurers to negotiate through their federal association with manufacturers. This results in a single price that applies to all patients. In Australia, the Department of Health negotiates with the manufacturer to set a single national reimbursement rate for drugs covered through the national Pharmaceutical Benefits Scheme (PBS), the sole payer for retail drugs and pharmaceutical coverage arm of the national Medicare program. Private insurers cannot cover drugs reimbursed through the PBS.
It is notable that these national prices can either be set by governments or negotiated by private insurers. It is not surprising that countries like Australia and the U.K., which have single-payer style systems, have uniform national prices. However, the German experience demonstrates that it is possible to have a uniform national price even when there are dozens of competing private insurers. For patients in these systems, there are national controls on out-of-pocket costs.
Drugs reimbursement informed by objective standards, linked the therapeutic value, and considering total cost
High-priced drugs are not necessarily the best ones, as demonstrated by budget-busting cancer drugs that do not appear to offer additional survival benefits. Despite some experimentation with value-based pricing, the U.S. trails other countries when it comes to linking drug prices to therapeutic value. In the U.K., for example, all drugs reimbursed through the National Health Service—the socialized medical system through which all residents are insured—are priced using cost effectiveness analyses (CEA). The U.K. National Institute for Health and Care Excellence (NICE) assesses the incremental cost effectiveness of all new drugs by calculating the cost per additional quality-adjusted life year (QALY). The manufacturer must set a price that hits a threshold of £20,000-£30,000 per incremental QALY in order to be reimbursed, though the range is higher for drugs used at the end of life and drugs that treat rare disease.
Strict cost effectiveness thresholds are not the only way to price based on value. In Canada, the Patented Medicines Prices Review Board (PMPRB) sets a maximum national price for provincial Medicare plans (which cover prescription drugs). The PMPRB uses reference pricing based on drug prices in seven comparator countries and therapeutically similar drugs covered in Canada. However, the reference pricing mechanism changes based on the drug's effectiveness. For example, for drugs that have substantial improvement over existing drugs, the maximum price is set to the higher of the seven comparator country average or the highest price of a substitutable domestic therapy. For drugs with slight or no additional benefit, the maximum price is the lower of the seven comparator country average or a substitute domestic therapy.
However, even “cost-effective” drugs can be budget-busting when they are both very effective and expensive—such as recent CAR-T therapies—or if utilization is high. Therefore, some countries have mechanisms to consider the total budget impact. In Australia, drugs expected to cost the system more than $20 million AUD require full cabinet approval. In France and the U.K., pharmaceutical companies must repay the government if revenues exceed a pre-set cap.
Lessons for future drug-pricing proposals
Lower drug prices internationally do not emerge by government declaration; they are the product of difficult policy decisions and systems that approve new drugs, pay for them through different insurance schemes, and limit the financial burden for patients. Even in a health system that relies on private insurers, it is possible to reduce drug prices and differentiate them based on therapeutic value—with or without strict cost effectiveness thresholds. Price cuts do not need to come at the cost of decreasing access to valuable new drugs. If U.S. policymakers want to bring domestic drug prices closer to international ones, they should learn from international regulatory frameworks, and adapt them to change our current pricing structure.