1. Prescription Drugs International Trade Price Controls Doughnut Holes Have in Common? Gerard Anderson, PhD Johns Hopkins University What Do…

2. Mark McClellan Other countries are not all paying their fair share of the costs of bringing new medicines to market The U.S. cannot carry the lions share of this burden much longer

3. Proposed Solution Have U.S. Trade Representative Argue That Other Countries Should Pay More For Pharmaceuticals

4. Two Questions What is the price differential between the U.S. and other countries? Should the U.S. trade representative pressure other countries to raise prices?

5. Danzon and Furukawa Our findings suggest that U.S.- foreign price differentials are roughly in line with income and smaller for drugs than for other medical services Health Affairs, 2003

6. Data Source- IMS January to September 2003 30 pharmaceutical products with highest sales volume U.S., Canada, France, United Kingdom

7. Methods Matched products, forms, and doses –(e.g. 10-mg Lipitor tablet) Then created price index by creating weighted average of prices for all 30 products U.S. volume used as base

8. Method Calculated relative prices using average wholesale price and 20% discount from average wholesale price

9. Exchange Rates Converted from countrys currency to dollars using exchange rates as of January, 2003

10. Price Differential Example- Lipitor 10 mg $1.81 in U.S. $.99 in Canada $.90 in United Kingdom $.67 in France

11. Relative Prices of Thirty Pharmaceuticals in Four Countries, 2003

12. Should U.S. Trade Representative Pressure Other Countries To Raise Pharmaceutical Prices? Pros and Cons

13. Arguments- Yes Uncertainty of development process - 5000 medicines tested - 5 approved clinical trials - 1 approved for patient use Research and Development Costs - $57-71 million (Public Citizen) - $802 million (Tufts)

14. Research and Development Investment in U.S.- 1999 $33.9 billion- Pharmaceutical companies $18.9 billion- NIH $3.6 billion- Other

15. Free Loading Other countries are free loading on U.S. by paying marginal costs and not paying for research and development costs

16. However Other industrialized countries have developed sophisticated initiatives to determine: - appropriate use - control prices U.S. has not

17. Would U.S. Prices Fall? If Pharmaceutical CEO said: I got great news. We can lower prices in U.S. because we made enough money overseas. What would shareholders say?

18. International Price Fixing Who should determine what price each country should pay?

19. Opportunity Costs What do we give up with higher prices? New Drugs or Better Access to Existing Drugs

20. Are We Getting New Drugs? Between 1989 and 2000 FDA approved 1035 new drug applications 116 identical to existing drugs 558 incrementally modified -88 real clinical improvement 361 new ingredients - 152 real clinical improvement Source: National Institute of Health Care Management

21. Better Access Many people do not have drug coverage Most privately insured people have 2-3 tier copays Medicare beneficiaries will soon get a doughnut hole

22. Doughnut Hole Medicare pays: - 75% of bill up to $2250 - 0% of bill $2251-$5100 - 95% of bill above $5101

23. Simulation Model With 45% price reduction Medicare could: - Eliminate the doughnut hole Medicare would spend same amount as current law Out-of-pocket spending much lower Supplemental insurance would pay less

24. Total Drug Spending (Billions) MedicareOut Of PocketThird Party Payors $101.9$44.5$31.0$26.4 $73.6$44.5$19.1$9.9 Spending on Medicare Prescription Drug Benefits in 2006 Drug Spending by Medicare Beneficiaries in 2006 (Billions of Dollars) Current Law 45% Discount

25. Summary Price differential 34-59% U.S. unlikely to get lower prices if U.S. trade representative increases prices in other countries If U.S. paid same prices for pharmaceuticals as other countries, we could fill in the doughnut hole

26. Prescription Drugs International Trade Price Controls Doughnut Holes Have in Common? Gerard Anderson, PhD Johns Hopkins University What Do…