Other countries control drug prices the US could, too

Public opinion surveys show that most Americans are deeply concerned about rising drug prices. That’s not surprising: Overall, we spend twice as much on drugs as our counterparts in other developed countries. For example, in 2015, the most recent year for which data are available, an American patient and insurer could expect to pay about $2,670 for a month’s supply of adalimumab, a drug commonly used to treat rheumatoid arthritis. A patient and insurer in the United Kingdom would pay about $1,360 for the same supply of the same drug; in Switzerland, about $820.

That’s because while drug prices in the United States have continued to rise, with insurance companies and public programs such as Medicare and Medicaid struggling to rein in the cost, their counterparts in Europe and elsewhere have used a variety of payment and coverage policies to more effectively manage their drug spending.

{mosads}Of course, not every solution that works well in another country could be easily applied here. But strategies used abroad could help inform U.S. efforts to control rising health care costs and make lifesaving drugs more affordable and accessible. A recent report by The Pew Charitable Trusts, “Payment Policies to Manage Pharmaceutical Costs,” examined six policies that have been used successfully by other countries to control pharmaceutical spending.

External benchmarking

In 29 of 31 European countries, the health care systems consider a drug’s price in other countries when determining what they are willing to pay for it. Use of such a model could lead to short-term cost savings for Medicare in the United States. Over time, however, the effect could diminish since drugmakers could increase list prices around the world and then enter into agreements with payers to provide confidential discounts and rebates. 

Internal benchmarking

Australia is among the many countries that set payment rates for drugs based on the cost of clinically comparable products, when such comparables exist. This strategy has been shown to sharply reduce drug prices in many health systems. A similar approach was used for some drugs in Medicare from 1995-2010 and could help the program significantly reduce costs for drugs when comparable therapeutic alternatives exist. 

Value-based benchmarking

Australia, England, Italy, the Netherlands, New Zealand, the U.K., and most Canadian provinces use some kind of value-based benchmarking, which draws on various analytic methods to help determine coverage or the appropriate price for a drug based on its health benefits. In the U.S., stakeholders disagree over how to determine value, but individual payers and hospitals may decline to cover or use a drug if they determine that a lower-cost alternative is equally effective. Evidence suggests, however, that certain value-based benchmarks may help U.S. payers determine the correct price, particularly for specialty drugs, which are typically priced much higher than their traditional counterparts.

Restricting off-label uses

Australia, Canada, Germany, and Japan limit coverage for medicines that are prescribed for purposes other than those approved by regulatory authorities, which is known as off-label use. This practice could produce savings in the U.S. by prioritizing use of lower-cost, Food and Drug Administration-approved on-label drugs. Off-label use of medications is widespread and may be appropriate in some cases; however, there is often insufficient data on the safety and effectiveness of these uses. Therefore, it’s unclear what effect restricting off-label use could have on health outcomes. 

Payer-seller agreements

These agreements between payers and pharmaceutical companies take many forms and can reduce drug costs through discounts, rebates, protection from higher than expected utilization, or linking payment to patient outcomes. Health systems in European countries including Germany, Italy, and the U.K. have used payer-seller agreements to negotiate price discounts of up to 50 percent off the list price.

While these types of agreements are used in the U.S., the large number of private insurance providers limits each insurer’s individual negotiating power, since each represents only a share of the national market. And Medicare, which does have significant negotiating power, is legally prohibited from using these agreements.  

Denying coverage for medicines deemed unaffordable

This approach, used in Australia, Canada, and New Zealand, can reduce costs but would face significant social, cultural, and legal barriers in the United States. Although U.S. payers can consider a drug’s cost in reimbursement decisions when therapeutic alternatives exist, there are few mechanisms for an insurer to deny payment for an effective medicine based on price alone. 

Pharmaceutical spending in the U.S. reached an estimated $477 billion in 2016, according to HHS. These costs are expected to rise as new, high-priced, brand-name and specialty medications hit the market. To address this challenge, momentum is building in Congress, federal and state governments, and private payers to address the issue of high drug costs. As these decision-makers look for solutions, the strategies other countries use could offer lessons here at home.

Allan Coukell is The Pew Charitable Trusts’ senior director for health programs.