Politico reports that the Trump Administration believes that foreign countries are not treating the US fairly as they negotiate lower drug prices than the US systems and now there will be an announced “or else”.
President Donald Trump on Friday will unveil a sweeping strategy for lowering drug prices that aims to reshape Medicare, boost competition and pressure foreign governments that the White House believes are “freeloading” off of the U.S. pharmaceutical industry…
Tell me the story as to why increasing the prices paid by OECD countries will lower prices in the US?
For this story to make sense we have to assume that assume that Big Pharma is not composed of profit maximizing sociopaths who will sell their own grandmother to the glue factory and pay access fees to Michael Cohen.
Under that assumption, the C-level is profit satisficing. They set a goal for total profitability and if one division or linked contract chain pulls in more profits, other divisions are allowed to slide and give better deals to their customers and be less profitable than they otherwise would be. An extra $1 in the UK division’s profit margin because NICE recalculated their QALY threshold would mean a $1 in price cuts in the US or other OECD country’s costs according to this story.
Do we think Big Pharma is composed of generally A-Ok folks who look to systemically walk old ladies across the street?
Or do we think that Big Pharma is composed of profit seeking and profit maximizing individuals who will sell their own grandmother to the glue factory, pay Michael Cohen access fees and make the US intellectual property system a Rube Goldberg-esque contraption of landmines, trip wires and quadruple double secret probation pass throughs in order to collect economic rents?
And even if Trump proposes to link US prices to G-7 best prices that won’t raise the prices for the rest of the G-7. The rest of the G-7 gets good pricing from Pharma because they have negotiators who can credibly walk away from the table after only choosing to buy one drug. The state ballot questions to link state drug purchases to the VA systems’ prices are similar so I will steal that analysis:
The basic thrust of the proposition would be to effectively make the VA the rest of the G-7 the proxy price negotiator for a significant chunk of California, Ohio US prescription drug budget….
why does the VA the rest of the G-7 get such good pricing on their drugs?
They have decent size although there are several pharmacy benefit managers with much larger patient pools…
The VA rest of the G-7 gets good drug pricing because they say no.
If the US insisted on a best price match, we would be outsourcing our negotiating leverage to bureaucrats in London, Ottawa, Brussels, Berlin, Paris, Oslo, Rome and Amsterdam. And they would be walking into their conversations with Pharma reps with several hundred million more potential cover lives in their back pocket which means their ability to say no just got a whole lot more valuable. We would expect US prices to fall dramatically for preferred brand drugs while also seeing somewhat lower prices for those same drugs in the G-7.
That would be a good outcome from a price point of view (although there is an argument that the high price US market funds an innovation incentive) but it is not a matter of free loading by the rest of the G-7 which makes us pay more, it would be a matter of the US finally leveraging its huge purchasing power by implicitly authorizing a very credible No in the price negotiation.
I am having a hard time seeing a pricing policy that makes Canada, the UK, the rest of the EU and Japan pay more in order for the US to pay less.
So what is the story here beyond bluster?