White House Says Other Countries Don’t Pay Enough for Drugs

(Bloomberg) -- The Trump administration criticized foreign governments’ efforts to reduce drug prices in a new report, even as the president and Congress consider measures of their own to control the cost of medicines in the U.S.

The report published Thursday by the White House Council of Economic Advisers argues that coordinated drug-purchasing efforts in other countries, often by government-run programs, result in lower drug costs compared to the U.S. The report describes the practice as “free-riding.”

The CEA report strongly echoes arguments of the pharmaceutical industry. It claims that lower drug spending globally erodes the resources available for researchers to develop new drugs. The analysis shows that other industrialized countries spend much less than the U.S. on drugs, and argues that a truly free market would see them all pay more -- rather than the U.S. paying less.

The report was published as the U.S. considers policies that would essentially copy those countries. President Donald Trump called for bipartisan legislation to cut drug prices in his State of the Union speech last week -- a move that, if the logic of the White House’s report is followed, would reduce funding for research and breakthroughs. Trump is also weighing whether to index certain U.S. drug prices to those of other nations, many of which are criticized in Thursday’s report as “free-riders.”

“There’s no question other countries are not paying for the true value of our innovation. But instead of exporting the solution, the Trump administration wants to import the problem,” said Brian Newell, a spokesman for the Biotechnology Innovation Organization, an industry group. “A race to the bottom with other countries on pricing will destroy the development of new treatments, as well as delay or deny patient access to biomedical breakthroughs.”

A representative for the drug industry’s largest trade organization, the Pharmaceutical Research and Manufacturers of America didn’t return requests for comment.

“This report looks like it’s about increasing pharma revenue -- it’s certainly not about lowering prices for Americans,” said Michael Rea, the founder and chief executive of RX Savings Solutions, which collects drug-pricing data to help large employers get better deals on medications. “Are you trying to lower prices or beef up pharma profits? This is disingenuous as to what the real motives are.”

Health care looms as a vulnerability for Trump in his 2020 re-election. Democrats have criticized him for pushing to overturn Obamacare -- and its protections for people with illnesses and health conditions that would otherwise cause them difficulty obtaining insurance -- without specifying an alternative. U.S. health care costs are meanwhile the highest in the world, and Trump has struggled to arrive at policies to constrain them.

Thursday’s CEA report, in chart after chart, notes that other countries pay much less for pharmaceuticals and that the U.S. is an outlier. The U.K., for instance, spends 34% of the price paid in the U.S. for the top 200 selling patented drugs that CEA researchers examined. Canada pays 35% of U.S. prices, France 42% and Germany 43%, the report says.

“U.S. patients and taxpayers have largely financed global revenue for the biopharmaceutical industry,” the report says, while also noting the U.S. is a leader in pharmaceutical research and development. “Stringent government underpricing in foreign countries has substantially increased foreign free-riding on the United States.”

The report criticizes “monopsonistic purchasing arrangements” -- or purchasing power -- of government-run drug plans for sapping the coffers of U.S. drug researchers. “Lower prices obtained by single-payer systems have the effect of undermining the original purpose of patent policy for prescription drugs: creating a strong financial incentive for innovative R&D,” the report says.

“Drug prices are lower in other countries because those countries negotiate prices – we are the only first-world country that doesn’t provide universal health care and the only country that doesn’t negotiate prices,” said Erin Fox, the senior director of drug information at University of Utah Health. “Until the U.S. has the ability to negotiate for prices, we will always pay higher prices.”

Trump’s administration has expressed support for a bill by Republican Senator Chuck Grassley and Democratic Senator Ron Wyden which would lower certain drug costs. Congress is expected to pass a health bill this spring to avoid the expiration of some U.S. health programs, teeing up the prospect of an election-year deal on drug prices.

However, Trump is also weighing whether to act on his own and order cuts in prices for some drugs bought by the Medicare program for the elderly and disabled.

©2020 Bloomberg L.P.

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