Using reference pricing, or prices based on what other countries pay for drugs, the authors found that the price differential for individual drugs varied from 1.3 to 70.1 between the U.S. and other countries. So-Yeon Kang and coauthors from the Johns Hopkins Bloomberg School of Public Health compared prices across the U.S., the United Kingdom, Japan and the Canadian province of Ontario for 79 top-selling single-source brand-name drugs that had been on the market for at least three years.
In fact, the research, published in Health Affairs, showed that the longer the drug had been on the market, the greater the price differential.
The 79 drugs examined accounted for 40% of all Medicare Part D drug spending and 52% of total Medicare Part D spending on single-source drugs. The average total spending per drug in the study was $711 million, with 175,000 Medicare beneficiaries on average taking the drug. The average annual spending per drug per patient in the U.S. was $4,055.
The pre-rebate price for drugs in the U.S. was 4.3 times higher than the United Kingdom’s price, 3.8 times higher than the Japanese price and 3.4 times higher than the Ontario price.
And while each country had different pricing methods, prices across the U.K., Japan and Ontario had similar price ratios in pre-rebate comparison, suggesting that all three countries pay similar prices for drugs. However, high-cost specialty drugs had more similar price comparisons in the U.S. to other countries.
Moving forward, the authors noted that if Medicare Part D adopted the average price of drugs in other countries, the estimated cost savings would have been $72.9 billion in 2018. For comparison, the same drugs in the U.K. price would have resulted in a reduction of 72%, $41 billion, in Medicare spending in 2018. Moving forward, the team recommends that Medicare use external reference pricing in Part D to improve the affordability of drugs for patients.
So why such an increase in differential pricing for U.S. drugs as it increased years on the market? The authors hypothesize that maybe the U.S. raises the prices the longer a drug has a proven track record on the market. Another possible reason is that U.S. companies offer significantly larger confidential rebates to payers and providers than to those in other nations.
“The most surprising discovery was that while drug prices for branded drugs keep increasing in the U.S., they actually decline in other countries,” Gerard Anderson, Professor at Johns Hopkins Bloomberg School of Public Health, told FierceHealthcare.
The authors do believe external reference pricing could be implemented in the U.S. through legislation and regulation. For example, Medicare could add a requirement that manufacturers submit international price information as part of their annual rebate calculations. Another policy option would be to implement external reference pricing as a pilot program for some drugs in Medicare Part D, according to the study.
The government could also regulate price increases for single-source brand name drugs with prices higher than the external reference pricing, the authors said.
“Compared to other countries, the U.S. pays substantially higher prices for single-source brand-name drugs that have been on the market for longer than three years,” the study concluded. “Using external reference pricing as a method to monitor or negotiate prices for established drugs could provide significant savings to the Medicare program. Most importantly, it would contribute to improving the affordability of drugs for patients.”
Still, implementing external reference pricing would mean overcoming several big challenges.
“First is overcoming the opposition of the pharmaceutical industry since the U.S. patient pays much higher prices for the same drugs as patients in other countries and the U.S. is a big percentage of pharmaceutical profits,” Anderson said. “Second, it’s convincing policymakers that prices paid in other countries are applicable to the U.S.”