© Bloomberg
Experimental feature

Listen to this article

00:00
00:00
Experimental feature
or

The soaring cost of prescription medicines has become a sensitive issue in the US, which operates a free-market system where drugmakers can name their prices.

A host of pantomime villains have captured the public imagination, not least Martin Shkreli, the 32-year old pharma entrepreneur who last year became an international pariah after purchasing and then hiking the price of a drug given to Aids and cancer patients from $13.50 to $750 per pill.

Meanwhile, presidential candidates are tripping over themselves to promise a crackdown if elected to the White House in November. Hillary Clinton, the Democratic frontrunner, has decried “outrageous price gouging” and pledged to “go after” miscreant drugmakers. Donald Trump, the presumptive Republican nominee, has said he wants to reduce the amount taxpayers spend on medicines by hundreds of billions of dollars.

At times, it seems as though the constituent parts of the privatised US healthcare system are engaged in open warfare, with health insurers and employers warning that the bill for medicines is unsustainable and must come down.

Martin Shkreli © AFP

Conversely, pharmaceutical companies argue they will be unable to spend billions more dollars discovering new drugs unless they can charge premium prices and reward their investors for backing risky scientific research.

Yet just about everybody agrees on one thing, however: that the US is spending too much on discovering and developing medicines relative to the rest of the world. It has just 4.6 per cent of the world’s population, but is responsible for a third of global drug spending.

“The US worker is being gouged to fund innovation for everyone,” says Dr Steve Miller, chief medical officer of Express Scripts, which negotiates drug prices on behalf of employers and insurers. “America can no longer be solely responsible for all of pharma’s profits.”

The problem has arisen because in the US drugmakers can set prices according to what the market will bear, whereas other developed economies have gatekeepers to keep a lid on costs, such as the National Institute for Health and Care Excellence (Nice) in the UK. In developing countries, many drugs are given away for free.

However, the rest of the world is not rushing to pick up a bigger share of the bill. Europe and Japan — faced with ageing populations and big fiscal challenges — are trying to contain rising healthcare costs. China and Brazil also want to keep a tight lid on prices as they nurture their fragile health systems.

Many in the pharmaceuticals industry had hoped that the negotiation of the Transatlantic Trade and Investment Partnership (TTIP) between the US and the European Union might be a way to even the score.

But they have been sorely disappointed; despite the best efforts of US trade officials, European negotiators have resisted any measures that would make it easier for drugmakers to drive a harder bargain outside of America.

“There was a push — US policymakers and sponsors would like to see the burden borne more equitably across the globe, especially in wealthy EU countries — but it’s been incredibly unsuccessful,” explains Kristina Lybecker, an economics and business professor at Colorado College.

“The authority that exists within member countries to institute price controls will continue, so there shouldn’t be a ramping up of prices as a result of this agreement,” she says.

Clare Moody, a Labour MEP, says that she asked the European Commission whether the TTIP would allow profiteering in Europe, and received an answer that was “pretty unambiguous”.

Commission officials told her that US trade officials had inquired about “including provisions for the pricing and reimbursement of medicines, but the commission does not think it’s appropriate”.

However, efforts to streamline the process whereby new medicines are approved by regulators could allow drugmakers to squeeze a little more revenue and profit from their medicines.

If the European drug regulator, the European Medicines Agency, were allowed to rubber-stamp the decisions of the US Food and Drug Administration, rather than subjecting medicines to a second, lengthy review process, that would also cut the amount the pharma industry spends on drug development.

Ms Lybecker says it might also allow the industry to “get their drugs to market more quickly in Europe”, giving them a longer period of market exclusivity before losing patent protection and facing competition from cheaper, generic copycat medicines.

Such a provision would do little to solve rampant drug price inflation in the US, however, nor to close the disparity between what Americans and Europeans pay for medicines.

Instead, Ms Lybecker expects the US to follow Europe in introducing measures designed to dampen drug price inflation. “Congress especially has gained a great interest and whether there is anything to be done,” she says. “Their approach is more likely to be to adopt price controls in the US, as opposed to spreading the burden more equally across other countries.”

Copyright The Financial Times Limited 2017. All rights reserved.
myFT

Follow the topics mentioned in this article

Follow the authors of this article