Pharmaceutical Price Controls in OECD Countries
Implications for U.S. Consumers, Pricing, Research and Development, and Innovation
U.S. Department of Commerce International Trade Administration
The International Trade Administration (ITA) has as its mission the creation of economic opportunity for U.S. workers and firms by promoting international trade, opening foreign markets, ensuring compliance with trade laws and agreements, and supporting U.S. commercial interests at home and abroad. To learn more about the ITA, write to: International Trade Administration, Office of Public Affairs, U.S. Department of Commerce, Washington, DC 20230, or visit the ITA’s Internet site at www.ita.doc.gov.
Pharmaceutical Price Controls in OECD
…show more content…
Department of Commerce, International Trade Administration
Executive Summary
Improvements in health care and life sciences are an important source of gains in health and longevity globally. The development of innovative pharmaceutical products plays a critical role in ensuring these continued gains. To encourage the continued development of new drugs, economic incentives are essential. These incentives are principally provided through direct and indirect government funding, intellectual property laws, and other policies that favor innovation. Without such incentives, private corporations, which bring to market the vast majority of new drugs, would be less able to assume the risks and costs necessary to continue their research and development (R&D). In the United States, government action has focused on creating the environment that would best encourage further innovation and yield a constant flow of new and innovative medicines to the market. The goal has been to ensure that consumers would benefit both from technological breakthroughs and the competition that further innovation generates. The United States also relies on a strong generic pharmaceutical industry to create added competitive pressure to lower drug prices. Recent action by the Administration and Congress has accelerated the flow of generic medicines to the market for precisely that reason. By contrast, in the Organization for Economic Cooperation and
There are multiple health concerns worldwide and more and more drugs are needed every day. Many drugs however, are extremely expensive to develop, test, and produce. According to the Tufts Center for the Study of Drug Development (2002), it costs up to $802 million to bring a new drug to the market. In 2002, pharmaceutical companies spent $34 billion in research and development (Center-Watch, 2003). In addition to the costs, the overall time from the discovery to approve and market the drug can take up to 15 years.
Pharmaceutical companies are provided with temporary monopoly rights on the production of new drugs which result in a higher cost on consumers. If competing companies were allowed to produce generic forms of those drugs, consumers will be able to afford those medications even in cases where those consumers have no insurance coverage. The company responsible for developing and inventing the original medication could be offered incentives to invent in the future by either obtaining tax breaks or NIH funding for future research. They could even be offered a percentage of the sales of the generic drugs. Economist Gary S. Becker advocates dropping many FDA requirements that, in his opinion, provide no additional safety measures but rather delay the development of new drugs.[12] Betamethasone, for example, has been part of the standard prenatal care in Europe since the late 1970’s while it got adopted in the U.S. after 1997. On many occasions, the FDA ignores all scientific evidence concerning certain drugs because the manufacturer did not follow their mandated bureaucratic standards.
Prescription drug prices are on the rise in the United States. Currently, the United States does not implement a price control on prescription drugs. Every day the supply and demand for prescription drugs fluctuates. Pharmaceutical companies produce drugs that are necessary for survival. Therefore, it is necessary for research and development to continue in the United States. Those suffering the effects of exorbitant prices must do so until a generic form of a prescription drug is produced. Once approved by the FDA, new drugs will make their appearance on the market and patients will no longer suffer financially. Until then, it is necessary for pharmaceutical companies to price their drugs based on the idea of supply and demand. This produces the profit used to fund research. Price controls discourage innovation. If a price control were set in place, of course the price of prescription drugs would decrease. However, the development of new drugs decreases with it. Today’s generation would benefit from lower prices, while future generations would suffer from the loss of drug innovation.
Other opponents charge that the high prices of drugs aren’t examples of price gouging at all, but necessary increases for drug makers to recoup costs of research and development. Yet a Health Affairs study shows otherwise: enough money is made by US drug companies that they could cover research and development and still save “US patients, businesses, and taxpayers approximately $40 billion” per year, if they operated like the rest of the world.
Merck & Co. Inc. is one of the world’s largest pharmaceutical companies in the world for producers of prescription drugs. Merck had sales of 1.98 billion and net income of 307 million in 1978 and continues to steadily rise. Merck invested hundreds of millions of dollars each year in research and allocate the funds amongst various projects. On average it would take approximately 12 years and 200 million dollars to bring a new drug into the market. Many potential drugs offered little chance of financial returns, as some diseases were so rare that treatment could never be priced high enough for the company to recoup the investment. Congress sought to encourage drug companies to
This is a great present to the drugstore industry. There are new drugs to treat previously untreatable illnesses, and new diseases, e.g. Viagra for men’s unhappiness, Zoloft for depression, Avastin for colon cancer, Herceptin for breast cancer, Nicotine patches for smokers to kick the habit, Tamiflu for a potential bird flu pandemic, vaccine for swine (H1N1) flu pandemic, Tekturna/Rasilez for hypertension and various new drugs for AIDS and Attention Deficit Disorder (ADD). The new medicines are very expensive, e.g. a year’s supply of Avastin costs about $55,000. Eli Lilly has sold about $4.8 billion of Zyprexa in 2007 for schizophrenia and yet most people have never heard of this medicine. There are existing drugs now approved to treat new illnesses and thus increase their sales revenue. For example, Lyrica was originally intended to treat pain caused by nerve damage in people with diabetes. It is now approved by FDA to treat Fibromyalgia which affects 5.8 million Americans per WebMD. Big advances in genetics, biology and stem cells research are expected to produce a new class of drugs to treat diabetes, Parkinson’s and various rare genetic disorders. For example the new drug Ilaris from Novartis targets genetic causes of an inherited disorder that there are only 7000 known cases worldwide. However, Novartis hopes to gradually broaden its drugs to a blockbuster drug to more common disorders caused by similar genetics. Technology and modern life introduce and
The Pfizer case provides an introduction to external analysis. The case highlights the pharmaceutical industry, which has enjoyed extraordinary long-run profitability. The case also demonstrates how broad changes in broad environmental factors (i.e. demographics, technology, culture, etc.) have an impact on industry competition. The case is not especially complex, so it is not overwhelming as a first case.
The cost of new medical drugs seems to be accepted by many people who use them. These pharmaceutical companies increase their profits more and more each year because many people assume that it does cost a lot of money for research and development. Where in reality, they are only spending about 15% of their profit margins on research and development alone. A huge percentage of these drugs are actually tested in other countries where people are more willing to do trials with these drugs because they cannot afford them. Not only are there more people who are more willing to try them, but also there is less regulation and oversight when it comes to testing. Conducting these clinical trials overseas not only saves
The biopharmaceutical industry has historically been dominated by large companies. The threat of new entrants is low, but not impossible. The main path for entry into this market is through development of novel new drugs. New entrants are limited to this method of entry due to patent thickets surrounding incumbent drugs. The largest barrier to entry for companies attempting to enter the biopharmaceutical industry is high research and development costs. Not only must new firms develop and test new therapies, but they must also obtain approval from regulators in order to bring their products to market. Approval of a new drug requires highly capital intensive clinical test in addition to navigating a heavily bureaucratic approval process. The process is time consuming and
In the US, the drug pricing is a highly discussed issue as there is a substantial skyrocketing increase in the prices of the branded and the generic drugs. The panelists at the Forum, Harvard Medical School of Public Health addressed the extraordinarily high drug pricing issue in the US and it’s public health implications.
Scientists, Physicians, and Researchers strive every day to understand how medicine can positively affect the lives of people within their community and around the world. They also work towards discovering new medicine that will be safe and effective for the public, which often leads to a new breakthrough for diseases and other controlled conditions. “ The progress made in reducing death rates from heart disease and stroke for example, is saving the lives of more than 1 million Americans each year” (Williams & Torrens, 2008). Pharmaceutical research plays a major role in giving medical staff options to adapt treatment plans to the patient’s needs. The use of pharmaceutical drugs can also reduce hospitalizations and prevent future complications or side effects from the patient’s illness. Funding a new drug can cost billions of dollars for research companies and has a major effect on the indirect and direct cost to treat diseases for consumers. “The drug makers have benefited from their ability to set and raise prices for patented products” (Hao & Nwaeze, 2015). Conclusively, in healthcare, pharmaceutical companies help improve the quality of life in society and are involved in setting the standard to live more productive lives.
Employing big-scale medical patenting legislation to fight abusive pharmaceutical monopolies (like discussed in the third perspective of the Literature Analysis and the second article in the Media Analysis) is not a new trend. These powerful laws have been around since the late 1900s, starting with the prominent Bayh-Doyle Act of 1980 that allowed the government to exercise “march-in rights”. The next milestone bill was the Leahy-Smith America Invents Act (AIA) of 2011, or the “Patent Reform Act”, which regulates patents of all industries and “represents the first major legislative adjustment to the U.S. patent system in decades” (Dobson). This demonstrates the symbolic purpose of this bill of bringing hope to
When it comes to market access mechanisms, there are many legal entry barriers into the healthcare industry relating not only to the preparation of a portfolio of prototype and innovative medicines but also to the control and determination of the respective prices by the applicable health policies (patents, drug approval process, health facilities, clinical procedures etc.). In contrast, healthcare organizations focusing on treatment for rare diseases face a low threat of potential substitute products (medicines) regarding treatment for rare diseases, whilst they have a strong bargaining power against various industry players that focus mainly in the production and/or distribution of highly marketable drugs and substances. In addition, traditional market access mechanisms relate to a great extent to payer cost control mechanisms and strategic pricing, factors that are mainly affected by market demand and the supply capacity of the healthcare
The report talks about the news article “Pharmaceutical Pricing: The New Drug War” and how the concept of “Cooperation, Collision and Competition” & Intellectual Property are related to it. The report also discusses the news article in the light of some theoretical background and talks about Trans Pacific Partnership (TPP) deal, which will have some significant impact to certain industries e.g. Pharmaceutical industry, of the countries that will become a part of this deal.
Nicholas Capaldi (2003) addresses another issue within the pharmaceutical industry, stating that it is caught up in a “perfect storm.” He also mentions how there are a various of interest groups that have conspired to present this industry as profiteers who “……(a) spend obscene sums on marketing1 instead of research, (b) engage in differential pricing at home and abroad in an effort to gouge the American consumer, and (c) deprive developing countries of life-saving medicines” (2003). Because of the high costs of medications, as a result, this is forcing the pharmaceutical industry to make medications more affordable to consumers.