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Healthcare Experts Propose Both Market and Regulatory Changes to Reduce Prescription Drug Costs Amid the Trump Administration’s Call to Cut Medicare Drug Prices

Escalating US pharmaceutical costs can be tempered through a variety of market-driven and regulatory strategies, among them pricing drugs based on value or at different levels in different markets, curtailing manufacturers’ profits, and incentivizing drug discoveries, according to a series of articles published today in the latest issue of Health Management, Policy and Innovation (HMPI).

“By discussing a whole spectrum of alternative pricing systems, we propose finding a viable balance between cost-effectiveness and the continued development of innovative medicines that support health and healthcare in the United States and globally,” said Will Mitchell, HMPI’s editor and business professor at the University of Toronto.

The diverse models laid out by Mitchell and other scholars and clinicians at Stanford University, Duke University and Sloan Kettering Memorial Cancer Center, come a week after President Trump proposed that Medicare base prices of some prescription drugs on prices paid in other advanced industrialized countries.

The Administration reports that manufacturer prices for prescription drugs are 1.8 times higher in the U.S. than average prices from 16 different countries. Spending on prescription drugs in the U.S. rose approximately 10 percent between 2016 and 2018 and is projected to climb an additional 12 percent over the next two years. These costs are passed on to patients through copays, deductibles, premiums, and out-of-pocket expenses for those without coverage.

“This market is really not functioning for consumers or payers such as the government,” said Dr. Kevin Schulman, professor of medicine at Stanford and author of the article “The Supply-Side Effects of Moral Hazard on Drug Prices.” “While the president’s pricing proposal is intended to save money for both the government and Medicare beneficiaries, it only addresses part of the problem.”

Dr. Schulman examines how four strategies – market competition, economic value, drug discovery prizes, and profit regulation – could revamp pricing in a marketplace that he says is shaped not by the actual cost of therapies but by the costs insured patients will absorb.

“The absence of new mechanisms to induce real tension between buyers and sellers over how prices are set will continue to lead to price escalations,” he said.

Memorial Sloan Kettering’s Anna Kaltenboeck and Jennifer Ohn argue that new drugs should be priced to reflect incremental benefits over existing therapeutic options. The goal should be to offer treatment to eligible patients, maximize value for the healthcare system, and provide drug manufacturers data on desired attributes of any new therapies – excluding purchasing and reimbursement costs.

Mitchell takes a different tack in his article, “Pharma Prices Are Not Too High (Usually).” He argues that the most efficient way to accomplish the dual goal of incenting innovation while achieving cost effectiveness and access to therapies, is to price drugs at different prices in different markets based on both an ability and willingness to pay.

“It is the job of payers to negotiate a price that meets their own definition of value, not a price that is either ‘too high or too low,’” Mitchell said. “The overall revenue drug companies receive from payers should align with the health system’s complementary goals of creating incentives for ongoing innovation and broad access as possible to appropriate health services.

The HMPI authors will discuss their pharmaceutical pricing models in a global webinar on Nov. 15 from noon to 1 pm EST. To attend, click here .


About the Business School Alliance for Health Management

Formed in 2010, the Business School Alliance for Health Management (BAHM) is a consortium of 17 leading business school health management programs that supports faculty, students, and graduates in advancing education and thought leadership in the field. BAHM initiatives include an annual case competition, educational webinars, and Health Management, Policy and Innovation (HMPI), a quarterly journal that examines the challenges of the health sector from a business perspective.

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Last Updated: 01-Nov-2018