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Why are U.S. drug prices so high? It's complicated

One idea to help U.S. consumers facing high prescription drug prices? Import drugs from Canada, where prices are far lower on lifesaving medications like insulin. That’s an idea President Donald Trump floated last summer.

But that prompts a question: why are prices so much lower in Canada? And if that country — and many other countries — can control drug costs, why can’t the United States?

The answer is complicated, as is the health care landscape in this country. But underlying the nuances is a simple truth: the political will has not existed to make it happen, experts say.

Whether that will change as consumer dissatisfaction rises along with the prices of once-affordable drugs is still an open question. Bipartisan efforts are underway in Congress and with the White House to find common ground on controlling prices. Democrats in Congress have gotten behind a bill to cap out-of-pocket drug costs for those on Medicare and to allow Medicare to negotiate prices on some drugs. But even that has stirred resistance by those who prefer to keep the power of the government out of the marketplace.

“The U.S. has not been willing to use the clout that it has as a regulator and purchaser,” said Eric Schneider, senior vice president for policy and research and an expert in health care delivery reform at the Commonwealth Fund, a philanthropy that researches health and social policy issues. “Other countries are willing are paying less for medications. There are many reasons why, but in the end, these are political choices.”

Or, as Daniel Polsky, a professor of health policy and economics at Johns Hopkins University said, “The prices are higher in the U.S. because they can get away with it.”

In the United States, the pharmaceutical and health product industries are among the highest spenders on political lobbying and contributors to political campaigns and political PACs. Its contributions in the first six months of this year to the 30 senators facing re-election still more than a year away in 2020 approached $845,000, according to Kaiser Health News, which tracks industry contributions.

The contributions may help the industry make its case that high prices are necessary to fund research and development, and access to innovative medications. They also argue that insurance companies and benefits managers utilize rebates and discounts to lower the prices they actually pay, although savings may not be passed on to consumers.

But the pharmaceutical companies accept lower, if still profitable, prices in countries where governments regulate and centrally negotiate drug prices or refuse to pay for drugs deemed too expensive or where cheaper alternatives are available. In the United States, the negotiating power of insurance companies is diluted in a fragmented and opaque health care system that leaves more negotiating power — and higher profits — in the hands of the pharmaceutical companies.

“Other countries negotiate as a single entity so it becomes a take-it-or-leave-it negotiation. Because the price is always much higher than the cost of production, of course the drug company will accept the price,” said Gerard Anderson, a health care expert at Johns Hopkins University. “The U.S. has many entities negotiating with the drug companies and no single health plan can say 'no' to the drug companies and not have a drug available to their subscribers.”

Until now, some of the opposition to centralized negotiations in the U.S. has come from the Congressional Budget Office itself, said Anderson. “It is the CBO’s belief that the government can’t say 'no' ” to paying for any drug offered by a pharmaceutical company. “And if the government cannot say 'no,' then they cannot negotiate effectively.”

Currently, he said, Medicare is barred from direct negotiations with insurance companies under what is known as the “noninterference” clause. “The challenge is to find something that will allow the government the power to negotiate,” he said.

The impact of high drug prices falls heavily on U.S. consumers because many do not have insurance covering drug purchases, or have high deductibles and out-of-pocket expenses. Maria Curcio, a dietitian who works with diabetes patients at Long Island Community Hospital in Patchogue, said she scrambles to find programs to help patients get the insulin they need if they don’t have adequate insurance.

“It’s very expensive: for anyone who has a chronic disease the cost of medications is very high even with insurance coverage,” she said. “Most of these people are on multiple medications. I’ve seen people have to make a decision, in extreme cases, between buying food, medication and a roof over their heads.” Curcio said she didn’t see that the changes in insulin technology “warrant the tremendous increases in prices we’ve seen over the last few years.”

Proposals to ease entry of cheaper generic drugs to compete with brand-name drugs (and prevent pharmaceutical companies from paying competitors to keep generic drugs off the market), and to tighten patent laws to make it harder for companies to maintain long monopolies on older drugs, all could help foster downward pressure on drug prices. But the key to lowering prices is allowing Medicare to negotiate prices, said Rep. Tom Suozzi (D-Glen Cove).

“It’s not enough to do these ‘around the edges’ legislation — we need something big,” he said, predicting that the Democratic legislation, which has passed the House Ways and Means Committee on which he sits, could come up for a full vote before Thanksgiving.

“One of two things are going to happen," Suozzi said. "The President will say I’ve been campaigning on this for years and I’m going to force the Republicans to go along with the Democrats on this, or two, the Republicans will see the Democrats pass this in November and come up with some credible compromise with the President … right now the momentum is with the Democrats getting something done. What I believe is if the Republicans and Democrats can work together we’re more likely to get this done.”

He also cited the high costs of drug marketing in the United States, saying only the U.S. and New Zealand allowed the kind of direct-to-consumer marketing that blankets the airwaves here, and leads to consumer demand for costly drugs that may not be significantly more effective than cheaper alternatives. And that marketing outreach also extends to persuading doctors to prescribe the drugs, he said.

The Democratic legislation in Congress would enable Medicare — which accounts for nearly a third of retail pharmaceutical spending in the United States — to negotiate prices for all consumers for up to 250 name-brand drugs with no competition and penalize companies that failed to come to an agreement. It would cap seniors' out-of-pocket drug expenses at $2,000 a year and force companies that raised drug prices above the rate of inflation to offer rebates or pay the excess profits to the government. The measure has not won Republican support.

Anderson of Johns Hopkins questioned the pharmaceutical industry’s argument that it needs high prices to pay for research and development, noting that while 17% of revenues go toward R&D, 25% is spent on marketing. “If they stopped doing R&D, they would have no more products to sell, so R&D is the last thing to go,” he said.

Hopkins professor Polsky said that cutting drug company profits might actually influence where their investment goes: from very expensive new cancer drugs that don’t add much to survival rates but are in demand because patients see them as lifesaving, to less costly but more broadly useful drugs like new antibiotics. “It’s a lot easier to charge a high price for a drug to keep you alive than for a drug that would cure symptoms that aren’t life-threatening,” he said.

But Polsky saw no easy way out from the forces keeping costs high. “I think we’re in this pickle right now and there’s no easy solution out of it,” he said. ”We’re in a situation where no one is minding the store.” Doctors, he said, want to make sure they can prescribe whatever drug they want to prescribe, consumers want lifesaving drugs no matter the cost as long as insurers pay for it, pharmaceutical benefit managers benefit off higher prices.

“The people benefiting from the current situation, of course they don’t want to make changes,” Polsky said. “Everybody acts in their own interest and wields the power they have available to them.”

He said he believed there would be some action on insulin prices, which, he said were “obscene.” And there would be some legislation, all moving in the right direction. But, he said, he thought the policies most likely to end up in legislation “will be addressing symptoms rather than the underlying engine for what drives up prices”

Polsky added, “There’s tons of pressure to make change. Is it really going to make a difference and change things dramatically? I doubt it. The power of the moneyed interests are great and it will be hard to make major changes.”

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