Jonathan D. Alpern et al., “High-Cost Generic Drugs—Implications for Patients and Policymakers,” The New England Journal of Medicine 371 (2014): 1859-62, accessed Oct. 15, 2019. doi: 10.1056/NEJMp1408376,
http://www.nejm.org/doi/full/10.1056/NEJMp1408376?viewT#t=article.
154Zachary Brennan, “Generic Drug Backlog at FDA: A Dive Into the Confusing Numbers,” Regulatory Focus, Nov. 1, 2016, http://www.raps.org/Regulatory-Focus/News/2016/11/01/26106/Generic-Drug-Backlog-at-FDA-A-Dive-Into-the-Confusing-Numbers/.
155Andrew Pollack, “Drug Goes From $13.50 a Tablet to $750, Overnight,” The New York Times, Sept. 20, 2015, https://www.nytimes.com/2015/09/21/business/a-huge-overnight-increase-in-a-drugs-price-raises-protests.html.
156Trueman W. Sharp to Abbreviated New Drug Applications, memorandum, Jan. 17, 2017, “Decision to Waive the Requirement for a Single, Shared System REMS for Sodium Oxybate Oral Solution,” https://www.fda.gov/media/102913/download.
157“FDA Approves a Generic of Xyrem with a REMS Program,” US Food & Drug Administration, updated Jan. 19, 2017, https://www.fda.gov/drugs/drug-safety-and-availability/fda-approves-generic-xyrem-rems-program.
158“Orange Book: Approved Drug Products with Therapeutic Equivalence Evaluations,” UFDA, accessed Nov. 1, 2019, https://www.accessdata.fda.gov/scripts/cder/ob/patent_info.cfm?Product_No=001&Appl_No=021196&Appl_type=N.
159Jayne O’Donnell, “FDA Chief Says Drug Makers Are Gaming the System to Slow Generic Competition; Vows Action,” USA Today, Aug. 15, 2017, https://www.usatoday.com/story/news/politics/2017/08/15/fda-chief-says-drug-makers-gaming-system-slow-generic-competition-vows-action/568698001/.
160“Daraprim Prices, Coupons and Patient Assistance Programs,” Drugs.com, accessed Oct. 15, 2019, https://www.drugs.com/price-guide/daraprim.
161Shefali Luthra, “’Pharma Bro’ Shkreli is in Prison, But Daraprim’s Price is Still High,” Kaiser Health News, May 4, 2018, https://khn.org/news/for-shame-pharma-bro-shkreli-is-in-prison-but-daraprims-price-is-still-high/.
162Adam Feuerstein, “Martin Shkreli’s Drug Company is Losing Money—And Its Salesforce Feels Cheated,” Stat, Sept. 18, 2019, https://www.statnews.com/2019/09/18/martin-shkrelis-drug-company-is-losing-money-and-its-salesforce-feels-cheated/.
163Zachary Brennan, “Gottlieb: ‘End the Shenanigans’ on Delaying Generic Drug Competition,” Regulatory Focus, Nov. 8, 2017, http://raps.org/Regulatory-Focus/News/2017/11/08/28846/Gottlieb-End-the-Shenanigans-on-Delaying-Generic-Drug-Competition/;
US Congress, House, Creating and Restoring Equal Access to Equivalent Samples Act of 2019, HR 965, 116th Cong., 1st sess., introduced in House May 10, 2019, https://www.congress.gov/bill/116th-congress/house-bill/965/text.
164Though, if one were very specific about particular formulations, the number is over 300;
Zachary Brennan, “More Competition: Senator Proposes Priority Reviews for Some Generics, New Voucher Program,” Regulatory Focus, March 3, 2016, http://www.raps.org/Regulatory-Focus/News/2016/03/03/24466/More-Competition-Senator-Proposes-New-Priority-Reviews-for-Some-Generics-New-Voucher-Program/.;
FDA, List of Off-Patent, Off-Exclusivity Drugs Without and Approved Generic (FDA, 2017), https://www.fda.gov/media/105829/download.
165Meghana Keshavan, “With One Manufacturer and Little Money to be Made, Supplies of a Critical Cancer Drug Are Dwindling,” Stat, Feb. 20, 2019, https://www.statnews.com/2019/02/20/supplies-bladder-cancer-drug-bcg-dwindling/.
166Matthew Cohen et al., “Policy Options for Increasing Generic Drug Competition Through Importation,” Health Affairs, Jan. 7, 2019, https://www.healthaffairs.org/do/10.1377/hblog20190103.333047/full/.
167Zachary Brennan, “More Competition.”
168https://www.katherineeban.com/
169Kevin Kelleher, “The Biotech Bubble May Finally Have Popped,” Time, Sept. 29, 2015, https://time.com/4053640/biotech-bubble/.
170Peter Loftus, “Cancer Drug Price Rises 1,400% with No Generic to Challenge It,” The Wall Street Journal, Dec. 25, 2017, https://www.wsj.com/articles/cancer-drug-price-rises-1400-with-no-generic-to-challenge-it-1514203201?mg=prod/accounts-wsj.
171Rachel Nall et al., “The Cost of HIV Treatment,” Healthline, March 4, 2019, https://www.healthline.com/health/hiv-aids/cost-of-treatment#current-drug-costs.
172“Competitive Bidding: What is Competitive Bidding,” FindRFP, accessed Oct. 15, 2019, https://www.findrfp.com/Government-Contracting/competitive-bidding.aspx.
173Wikipedia Contributors, “New England Compounding Center Meningitis Outbreak,” Wikipedia, The Free Encyclopedia, last updated Nov. 8, 2019, https://en.wikipedia.org/wiki/New_England_Compounding_Center_meningitis_outbreak.
174From some of what’s reported, I think I would trust earnest high school students more than some compounding pharmacies.
Marissa Martinelli, “John Oliver Explains How Certain Pharmacies Get Away with Fraud and Worse,” Slate, Sept. 30, 2019, https://slate.com/culture/2019/09/last-week-tonight-john-oliver-compounding-pharmacies.html.
10
Why Drugs Are Cheaper in Other Countries— and Why That’s Still Good for Us
Many countries played a role in the development of Harvoni, the first single-tablet cure for hepatitis C. In the lead up to its release, Gilead Sciences ran over 100 studies all across the world.175 To support its application for FDA and EMA (European) approval, Gilead enrolled more than 1,500 US and Western European patients with the type of hepatitis C most common in Western countries. That makes sense since those are the major markets in which Gilead would later sell billions of dollars of Harvoni. But Gilead also ran trials in other countries—including 47 that enrolled patients in Australia, 43 in Central America, 37 in Canada, 38 in Africa, 40 in China, 13 in India, nine in Russia, and nine in the Middle East.176 Why did Gilead take such an international approach? Hepatitis C is an international disease, one that hits developing countries especially hard. In fact, the majority of those infected by hepatitis C worldwide live in 91 developing countries—at the time of Harvoni’s launch in 2015, that meant tens of millions of people.177 However, most of those countries cannot afford to pay much for novel drugs. Was Gilead being altruistic or was a global clinical trial strategy aligned with Gilead’s profit motive? As it happens, enrolling patients in even poorer countries allowed Gilead to prove that Harvoni cured types of hepatitis C that are rare in the US but more common elsewhere, which later also allowed patients in the US with those rarer types of hepatitis C to be treated.
When it was first approved in 2015, Harvoni launched with a list price of $94,500 in the US. Soon after, Gilead launched Harvoni in France at closer to $50,000, and less than that elsewhere in Europe. In many developing countries around the world, the price was approximately $600-900,178 in part because Gilead allowed seven India-based generics companies to produce a generic for the 91 developing countries hit hardest by hepatitis C.
Although it might seem that Gilead was being altruistic by almost giving away the drug, Gilead was also being realistic. These countries are poor and could never manage to pay much more than that given that they are home to tens of millions of patients infected with hepatitis C. Gilead makes a relatively small amount of money on the deal and many more patients get treated at prices those countries could afford. Besides, the plan had always been to profit from the US, and to a lesser extent, Europe and Japan, which remain the world’s major markets for nearly all branded drugs. So the whole rest of the world benefitted from the fact that Gilead had a profit-motive to cure the minority of hepatitis C-infected patients who live in the few major pharmaceutical markets.
Since 2014, more than five million of people around the world have been cured of hepatitis C, thanks to Harvoni and other similarly effective drugs
. This includes about one million in the US.179 No one can deny the effectiveness of Harvoni or overestimate the difference it has made to millions of patients and families. But some people took note of the price discrepancies across markets and Gilead’s revenue numbers (more than $59 billion in worldwide revenues from Hepatitis C drugs from 2014-18, 34% of which came from outside of the US) and weren’t happy.180 In the US, there were calls for price reductions. Some countries, including Spain, asked courts for permission to break Gilead’s patents so that they could manufacture generics and get access to Harvoni at a lower price.181
Large price discrepancies across markets are not uncommon, and, to some, they are evidence that pharmaceutical companies charge gratuitously high prices in the US, that they are price-gouging, and that they could charge less and still earn a profit. Even those willing to concede that price discrepancies between wealthy nations and developing countries are justified might question why prices are so much higher in the US than in comparatively wealthy countries. These are good questions, and the simplest answer is this: For-profit companies, regardless of industry, attempt to maximize their profits based on all the rules they have to play by.
But before we get into the rules drug companies have to play by, let’s look at the big picture.
Why Do Branded Drugs Cost More in the US?
A drug that costs $20 to manufacture might sell for $1,000 in the US and $50 in Mexico. Given the cost to make the drug, it’s profitable for the manufacturer either way, and Mexico is not as wealthy a nation as the US. But let’s reframe the question: While one might justify charging so little for the drug in Mexico, what justification can there be for charging a lower price, say $700, in Germany, a country that is comparably wealthy to the US?
List prices are often higher in the US than Japan or Western Europe, and so are out-of-pocket costs for drugs, though none of that would matter to patients if our insurance system worked like it is supposed to (see Chapter 4). But America pays more—quite a bit more—at the societal level, as well. The US market accounts for roughly one third to one half of the drug industry’s revenues and more than half of its profits.182 So, why does America bear the majority of the cost burden, and is that fair?
The fact that America spends more than other countries on drugs seems to fit with the theme of America spending more on healthcare overall. America spends 17.8% of its GDP on healthcare as a whole, much more than the 9% average of comparably wealthy European nations.183 That’s not because Americans necessarily “consume” more care than citizens elsewhere. Rather, the main driver is that prices—for drugs, yes, but also for healthcare services and the professionals that provide them (doctors, nurses, specialists)—are much higher in the US.184
There are many reasons for this. For example, the US system suffers from inefficiency. America wastes more on paperwork and bureaucracy, which contributes to the high overall cost of healthcare. According to research published in the Journal of the American Medical Association (JAMA) in March 2018, 8% of America’s healthcare budget is spent on administrative costs for our healthcare system.185 That is far higher than the 1-3% spent by comparably wealthy nations for administration, which includes things like coding insurance claims, billing, and handling pre-authorizations. Streamlining that one source of waste could offset half of what America spends on branded drugs.
Real Waste
A broader study of waste published more recently in JAMA looked at other opportunities for improvement and concluded that our system wastes $760-935 billion, or 20-25% of $3.8 trillion in total healthcare spending (and more than twice what we spend on all drugs) on fraud, failure of coordination, administrative complexity, unnecessary procedures, etc. Of that remarkable number, they attribute about $20 billion to inappropriate drug pricing.186 $20 billion is not a small number in an absolute sense, but if they are right, that’s only 5.8% of all drug spending in the US. It would be worth fixing (for example, contractual genericization would cut spending on drugs that should have gone generic), but a 5.8% discount on all drugs won’t solve affordability for patients—only insurance reform can do that. Meanwhile, the authors point to hundreds of billions of dollars of other waste that could be cut to free up resources to pay for those reforms. The authors propose that America could save up to $93 billion by improving “care delivery,” which includes helping to prevent diabetes and obesity, reducing smoking, detecting cancers earlier with screening programs, and generally making sure that patients don’t fall through the cracks in the system and fail to be properly treated. Compare that to the $61 billion patients spend out-of-pocket on all drugs. It’s clear that America can make drugs affordable to patients without raising healthcare costs if it just cut a portion of truly wasteful healthcare spending. And if it isn’t up to the task, then it hardly seems ethical or wise to solve the problem at the expense of biomedical innovation.
Another reason America spends more in general is that educating healthcare professionals costs much more in the US, which results in higher salaries, which, in turn, results in higher prices for the services they provide.
But do these reasons also explain why America spends more on drugs? I don’t think so. Healthcare services such as surgery, which are necessarily provided locally (so-called medical tourism, where people travel abroad to receive medical care to save money, is rare and impractical on a large scale) are affected by land costs, education costs, and the cost of living. But drugs are manufactured products with typically one, low price of production regardless of where they are ultimately used.
A more credible explanation, at least in part, for why the US spends more on drugs than other countries is that Americans get earlier access to innovative medicines.187 Sometimes, that’s the result of the approvals process being slower in other places. Other times, it’s because a country has tougher reimbursement policies, which makes the market less lucrative, which, in turn, makes bringing the drug to that market less of a priority for companies. In these cases, governments being tough on drug prices saves money but delays the arrival of new, expensive medicines. For a patient that could benefit from a new drug, that hardly seems like a worthwhile tradeoff. By that rationale, the world can save a ton of money—all we have to do is put off funding medical innovation indefinitely.
Companies may even sell their drugs overseas at very low prices to protect their US market share. Because Genzyme had chosen to make its first-in-class Cerezyme available to every patient with Gaucher’s disease it could find in every country, even if that meant giving it away for free, Shire and Pfizer had a hard time finding untreated patients to enroll in trials of their competing enzyme replacement therapies. As a result, Genzyme enjoyed a longer monopoly than its patents alone would have made possible.
Drug companies have their business strategies, but they also consist of people, many of whom who are inspired to do what they do because they want to help patients and ease suffering. I’ve found that often to be the case with people drawn to a career in healthcare, including some I’ve met who work for insurance companies. And it’s hard for good people to ignore the pleas for help from patients who can’t access a treatment that could help them because their government thinks it’s too expensive. Which hints at the main reason why drugs are more expensive in America.
America pays more for drugs because it remains unwilling to outright deny patients access to treatment on the basis of their ability to pay, which makes the American market a reliable source of funding for the drug industry. I hope that doesn’t change, because that empathy drives medical progress and, as long as drugs continue to go generic, that progress will be cost-effective.
By threatening to deny their patients access to new drugs, other wealthy countries, such as France and Germany, often win price concessions (but sometimes don’t and may follow through on their threats) precisely because the industry exists first and foremost to serve the large, price-insensitive US market.188 If the US played by Europe’s ru
les, there would be so much uncertainty as to whether a successfully developed drug would be paid for or how much a company would be allowed to charge that investors would have a much harder time justifying the risk of supporting new drug development.
Thankfully, that is not the case—at least not yet. Drug companies know that almost any drug that improves on the standard of care stands a good chance of generating high-enough sales in the US to have made the effort and risk worthwhile. America’s unyielding willingness to pay for better medicines rather than deny them to patients has made the US the guarantor of the drug industry’s continued viability.
Without wielding a credible threat of denial, the US cannot truly negotiate with drug companies that have uniquely effective drugs (when there are me-too drugs and generics to play off one another, American payers should and do negotiate). In addition, drug companies see America as their primary profit center, so every price concession risks setting a dangerous precedent that could undermine the future profitability of other drugs that company might sell. Investors and executives concerned by the viability of the drug industry as a whole watch for signs that payers in America might actually start exhibiting a willingness to deny on the basis of cost.
By contrast, the drug development industry sees Europe as a fragmented secondary market that is more willing to deny its residents the latest medical advances.189 It is a source of supplemental profits where companies find a price in each country that maximizes profit and minimizes what economists call “deadweight.” Simply put, some profit is better than no profit. If anything causes companies to hesitate to price a drug low in a given country, it is the concern that the drug will be imported and sold in wealthier countries, but this practice is generally kept in check by international law and each country’s fear that it would be cut off from further supply.
The Great American Drug Deal Page 16