Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Milliman Pharmaco-Actuarial Advisor Price controls on pharmaceuticals: Pros and cons The disparity in drug prices between the United States and other nations has led to political outcry that consumers in the U.S. are bearing the cost burden for the rest of the world. With a new presidential administration and health care reform at the top of many political agendas, the debate over pharmaceutical price controls may begin anew. Health Affairs reports that real spending on pharmaceuticals grew at an average annual rate of 9.9 percent from 1997 to 2007. According to an analysis by the Centers for Medicare and Medicaid Services, prescription drugs accounted for approximately 10 percent of total health care expenditures in 2007. Many legislators hope that by reining in drug costs through price regulation, pharmaceuticals will become more affordable and accessible for all Americans. However, an unintended consequence of pharmaceutical price controls may be that firms have less incentive to invest in research and development. Pricing of Prescription Drugs At present, the United States is the only country in the Organization for Economic Cooperation and Development (OECD) that does not impose any price regulation on the drug industry. Not only does this allow prescription drug prices to respond to market forces, but this policy has allowed pharmaceutical companies to utilize differential pricing, or price discrimination, in the U.S. market. The U.S. Department of Health and Human Services (HHS) estimated that prescription charges for Americans with insurance are 14.6 percent less than for cash-payers, reflecting health plans’ ability to negotiate better prices in exchange for more volume in sales. By way of contrast, a 2004 study by the U.S. Department of Commerce of drug pricing policies in OECD countries found some type of pharmaceutical price controls in place in all 11 countries studied. These include direct price ceilings, reference pricing, approval delays and procedural barriers for new drugs, restrictions on prescribing, and reimbursement limitations. As a result, aggregate pharmaceutical prices for OECD countries are 18 percent to 67 percent less than U.S. prices. The disparity in drug prices between the United States and other nations has led to political outcry that consumers in the U.S. are bearing the cost burden for the rest of the world. This seems a fair sentiment. To remedy the matter, legislators have suggested either allowing the reimportation of drugs purchased at controlled prices abroad or implementing price regulations similar to those of other OECD nations. Adverse Effects of Price Controls The U.S. Department of Commerce has reported that for OECD countries with price controls, regulated prices have resulted in lost revenue estimated at $18 billion to $27 billion annually for pharmaceutical companies, a loss that has led to a reduction in global research and development spending of $5 billion to $8 billion per year. These sacrifices in global R&D spending have resulted in approximately 3 to 4 fewer new molecular entities (NMEs) being developed per annum. These NMEs would have had an estimated benefit of $4.9 billion to $7.5 billion to U.S. consumers, according to an analysis by the HHS. An example of the powerful impact that price control legislation has upon R&D spending occurred between 1992 and 1993 when the Clinton administration proposed a healthcare plan that would have placed caps on the prices of breakthrough drugs. During that time period, the market value of pharmaceutical firms plunged, and a 2005 study estimated that the industry reduced overall R&D spending by $1.6 billion. It was not until the defeat of the plan that research spending returned to prior levels. Because of the favorable market, U.S. consumers have access to the newest and most effective treatments on average within 4 months of the when a drug first becomes available anywhere in the world, while their counterparts in other OECD countries have faced longer delays. For instance, Germany and France both face delays of 9 months and 15 months, respectively, for new treatments to reach their markets. In the United States (unlike in these other countries), there are not time-consuming negotiations with the government over how to price a new drug. This monthly newsletter is written by Jill Van Den Bos to provide information on timely topics pertaining to the pharmaceutical market. Van Den Bos, who is part of Milliman’s Denver Health practice, specializes in bringing an actuarial perspective to the field of pharmacoeconomics. Her interests and expertise include budget impact modeling, benefit design, and collaborative research with other disciplines. January 2009 Jill Van Den Bos Consulting Actuary Direct: 303 299.9400 [email protected] milliman.com Milliman Pharmaco-Actuarial Advisor Price controls on pharmaceuticals: Pros and cons The disparity in drug prices between the United States and other nations has led to political outcry that consumers in the U.S. are bearing the cost burden for the rest of the world. The Price Control Conundrum It is a difficult choice – price control policies provide shortterm aid for individual purchasers, but at the expense of longer-term healthcare technology innovation. In difficult economic times and with a new balance of power in Washington, pharmaceutical companies need to be especially concerned about the possibility of major changes in the structure of the prescription drug market. Changes could include greater involvement by the government in providing or paying for health insurance, or Medicare beginning to use its purchasing power to negotiate lower drug prices. It will be increasingly important for pharmaceutical companies to be able to demonstrate the value of their products in the face of increasingly budget-conscious payers. This monthly newsletter is written by Jill Van Den Bos to provide information on timely topics pertaining to the pharmaceutical market. Van Den Bos, who is part of Milliman’s Denver Health practice, specializes in bringing an actuarial perspective to the field of pharmacoeconomics. Her interests and expertise include budget impact modeling, benefit design, and collaborative research with other disciplines. January 2009 Jill Van Den Bos Consulting Actuary Direct: 303 299.9400 [email protected] milliman.com