Transcript Pharmaceutical sector and single payer reform

Pharmaceutical Sector and
Single-Payer Reform
PNHP NOLA 2014
Source{
UK Pharmaceutical
Price Regulation
Scheme Report 2011
CMS
Pharmacists United for Truth and
Transparency (PUTT)
http://www.truthrx.org/
Drug Manufacturer
$
Drugs
Drugs
VA
Patient
R&D, Prices, and Profits
• “The conventional fallacy is that the cost of
R&D drives prices. In reality, it’s the other
way round: prices drive cost.”
Frederic Scherer, Emeritus Professor of
Economics, Harvard.
• The more a company can charge for its
drugs, the more it will spend on
development and marketing.
• Econ 101: Cost never justifies price.
2004 Revenue Allocation for Top 7 US Pharmaceutical Cos
Other, including
production cost
Marketing, Advertising
and Administration
32%
36%
18%
14%
Research & Development
Profits (net income)
Source: PhARMA, 2005
High Prices in the USA
• Why do companies charge such high prices in the
USA? Because they can!
• Monopoly price discrimination and price
increases across patent life, with discounts
– Consumers, especially the uninsured, face a wide disparity
in reimbursement, rates, and co-payments.
• The demand for prescriptions is a “derived
demand”- decision-maker is doctor acting as
patient’s clinical and financial agent.
– Prescribers are not price-conscious
• Access to drugs is limited by insurance.
Global Pricing of a Drug: Monopoly power &
price discrimination in USA
1. Firms set launch (“wholesale”) prices, and
have routine, announced price increases.
2. Large health insurers are able to negotiate
volume discounts for their members.
3. Generics make-up greater than 45% of
prescriptions.
4. Parallel trade is forbidden across US border.
Global Pricing of a Drug: Monopoly power &
price discrimination in USA
5. Pharmacy Benefit Managers receive rebates for
volume agreements with insurers and suppliers.
6. Medicare is forbidden to set prices for a selected
formulary of drugs, public drug benefit
management is illegal.
•
Medicare Part D denies the health care authorities the power to
obtain monopsonistic prices, at the same time use price
discrimination (bundling) in the new Medicare Part D segment of a
therapeutic market.
7. Medicaid must receive the lowest price
available to private insurers, after discounts,
(if they can discover the prices paid).
Market Access Ex-USA
• Central Health Authority determines which
drugs are to be subsidized or reimbursed.
• The entire population has access to this
formulary of drugs. Positive list with public
subsidy.
• (Medicare Part D explicitly forbids this form of
regulation.)
Global Pricing of a Pharmaceutical Product Monopsony
power by public health schemes
1. Health care authorities (HCAs) free-ride on
information produced for FDA approval. They
are willing to wait to market in their countries.
2. For the firm, R&D is sunk cost and the goal is to
maximize revenue from a country’s population.
3. Many HCAs rule on the level of therapeutic
advancement of a new drug, as in France, and
base access and subsidy accordingly.
4. Many HCAs require economic evaluation of each
new drug prior to subsidization. Unless a drug
can be shown to be cost-effective, access and
price may be restricted.
Global Pricing of a Pharmaceutical Product Monopsony
power by public health schemes
5. Many HCAs set expenditure limits (volume
agreements) on new drugs.
6. Most HCAs subsidize patented medicines for a
selected formulary of drugs for all of the
members of the society.
7. Some health care schemes have limited drug
coverage, and patients pa out of pocket.
8. Maximum price regulation based on reference
pricing is also used.
Monopsonists (Ex-USA) vs. Monopolists
(USA)and the Global Pharmaceutical Firm
1. Health authorities outside the USA act as
“monopsonists” in the pricing of drugs in their
countries. Access to care is good and the number
of prescriptions per capita is high.
2. Drug companies use monopolistic price
discrimination to price drugs in the USA. Companies
negotiate with insurers, doctors, PBM’s,
wholesalers and pharmacies to get the greatest
amount of revenue from each type of patient and
each type of payer.
Pharmaceuticals under
a single-payer in the USA?
How should we do it?