Skyrocketing drug prices key question in Trump health care reform
Skyrocketing drug prices key question in Trump health care reform
Recent controversies surrounding dramatic increases for prices of EpiPen and HIV drugs have placed pharmaceutical costs near the top of American public policy debates.
Trump has railed against the industry and vowed to bring prices down. But experts say Trump will struggle to realize that goal due to a system that involves a complex web of players and incentives.
On Friday, he tapped Scott Gottlieb, a physician who has deep ties in the pharmaceutical industry, to head the Food and Drug Administration (FDA), a powerful regulatory agency.
US drugs often cost about two-and-a-half times what they cost in France or Britain, for instance. The difference is especially pronounced for cutting-edge remedies to treat cancer, rare illnesses and other maladies, such as hepatitis C.
Unlike in France or Britain, there is no central public entity in the US with the power to negotiate with private pharmaceutical companies.
Rather, the US market consists of multiple systems for different populations, each with their own rules:
l Private insurance: The biggest group of Americans get their health care through their employers via private insurers who negotiate drug prices with pharmaceutical companies.
Insurers also negotiate through intermediaries, such as pharmacy chains and pharmacy benefit management companies like Express Scripts.
l Medicaid: The public health program for the low-income population negotiates for drug prices at the federal or state level through a private intermediary.
l Medicare: The public health program for the elderly hires private companies to negotiate drug prices with pharmaceutical companies.
l Veterans Administration (VA): A public health insurance system for those who have done military service, this program comes closest to the model employed in Europe on drug prices.
“The administration specifies the drugs they are going to cover and they basically set prices for these drugs,” Darius Lakdawalla, a professor at the University of Southern California, said of the VA.
Whether for generic drugs or those still under patent, drug companies have broad authority to set prices based on supply and demand, said Eric Lail of the insurance group Blue Cross and Blue Shield.
Pharmaceutical companies set prices on the basis of numerous factors, including costs in research and development, and in marketing.
The US is one of the few industrialized economies to permit drug companies to directly advertise to consumers. New Zealand is another.
Yet to a large extent, drug prices are determined not by research and development costs, or the effectiveness of remedies, but “on the basis of what the market will bear,” concluded a 2016 paper by Harvard researchers Aaron Kesselheim, Jerry Avorn and Ameet Sarpatwari.
The paper said most blockbuster drugs are partly the result of public funding, either through subsidies or research funding.
For example, the lucrative Sovaldi hepatitis C drug now owned by Gilead Sciences has its origins in academic labs that received public support.
To stimulate innovation, the FDA grants companies with patents 20 years of exclusivity before there can be a generic version. Generic drugs also must complete a lengthy authorization process before they are permitted. In nearly 30 states, pharmacists also must receive approval from doctors before prescribing a generic drug, another hurdle to their use.
Within generics, “there has been a lot of consolidation,” said Lakdawalla. “As a result, there is no competition, so there is an opportunity for the companies to set higher prices.”
The manufacturer sets the price and then negotiates with insurers, who typically win rebates that are not publicly disclosed, said Ed Schoonveld, a principal at ZS Associates, a sales and marketing consultancy.
Insurers have less leverage in cases where there is a drug with no direct competitor, said Lakdawalla.
“It will require a new law to make a major progress,” said Joshua Sharfstein, professor at Johns Hopkins Bloomberg School of Public Health. “I do not expect this to be resolved anytime soon.”
“If the government does the negotiating, that only works if you are also going to let the government make the decision about what drugs people are going to use or not,” said Lakdawalla.
“I do not know if Americans would appreciate that.”
Others recommend efforts to ease the path for generic drugs to come to market, or to reward companies with effective remedies and penalize those who sell drugs that underperform.
Iran sanctions shadow falls on smaller German banks
- Some German companies plan to press on with Iran dealings
- German exports to Iran rose 15.5 percent last year
Germany’s biggest lenders have shied away from business with Iran after past penalties for breaching US sanctions, but smaller banks have leapt on opportunities afforded by the nuclear deal rejected by Donald Trump.
There are just months to go until a November deadline issued by Washington after the US president abandoned a hard-fought agreement that loosened business restrictions on the Islamic Republic in exchange for Tehran giving up its pursuit of nuclear weapons.
But some firms plan to press on in their dealings with Iran despite the looming threat of penalties.
“We will continue to serve our clients,” for now, said Patrizia Melfi, a director at the “international competence center” (KCI) founded by six cooperative savings banks in the small town of Tuttlingen in southwest Germany.
The center, which supports companies operating in sensitive markets like Iran or Sudan, has seen demand “rising sharply in the last few years, from firms listed on the Dax (Germany’s index of blue-chip firms), from all over Germany and from Switzerland,” she added.
German exports to Iran have grown since the nuclear deal was signed in 2015, adding 15.5 percent last year to reach almost €2.6 billion ($3.0 billion) after 22-percent growth in 2016.
Such figures remain vanishingly small compared with Germany’s €111.5 billion in exports to the US — its top customer.
Nevertheless, the KCI will “wait and see what the sanctions look like” before turning away from Iran, Melfi said.
Already, firms dealing with Tehran must take great care not to fall foul of US restrictions.
Transactions are carried out in euros, and the KCI does not deal with businesses that have American citizens or green card resident holders on their boards.
What’s more, products sold to Iran cannot contain more than 10 percent of parts manufactured in the US.
One of the most important inputs for the business is “courage among our managers” given the high risks involved, Melfi said.
Germany’s two biggest banks, Deutsche Bank and Commerzbank, avoid Iran completely after being slapped with harsh fines in 2015 over their dealings there, with Deutsche alone paying $258 million in penalties.
DZ Bank, which operates as a central bank for more than 1,000 local co-op lenders, is withdrawing completely from payment services there, a spokesman told AFP.
That left KCI to seek out the German branch of Iranian state-owned bank Melli in Hamburg.
Even that linkage could break if Iran’s biggest business bank appears on a US list of barred businesses as it has before.
Meanwhile, among Germany’s roughly 390 Sparkasse savings banks, business with the regime is mostly limited to producing documents linked to export contracts.
“We will be looking even more closely at those” in the future, a person familiar with the trade told AFP.
Elsewhere in the German economy, the European-Iranian Trade Bank (EIH) founded in 1971 is another conduit to Tehran.
Also based in Hamburg, it for now remains “fully available to you with our products and services,” the bank assures clients on its website, although “business policy decisions by European banks may result in short term or medium term restrictions on payments.”
Neither does the Bundesbank (German central bank) believe that much has so far changed for business with Iran.
“Only the European Union’s sanctions regime will be decisive,” if and when it is changed, the institution told AFP.
Any payment involving an Iranian party would have to be approved by the Bundesbank if things return to their pre-January 2016 state.
German banking lobby group Kreditwirtschaft has called on Berlin and other EU nations to clarify their stance — and to make sure banks and their clients are “effectively protected against possible American sanctions.”
KCI’s Melfi said time is running out for EU governments to act.
“Many firms just want to stop anything with Iran, since they can’t calculate the risk of staying,” she noted.
On Friday for the first time since the Iran nuclear deal came into force in 2015, China, Russia, France, Britain and Germany gathered in Vienna — at Iran’s request — without the US, to discuss how to save the agreement.