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In the US, buying Eliquis, one of the most popular blood thinning medications, costs over three times more than in the next cheapest western world country – Switzerland. It is four times more than in the UK. The pricing system is antiquated and for the US, surprisingly underregulated, leading to a playground of abuse for consumers.
The estimated net price of Eliquis in the US is still higher than the list retail price of the second-highest country, Switzerland
With the US Presidential election looming large, it is no surprise that drug pricing, a long-standing political issue, is back in the spotlight. In 2022, the US spent over $600 billion on prescription drugs, surpassing the combined spending of 33 other leading OECD countries. Research reveals that US drug prices are nearly 2.8 times higher than the average in comparable countries, primarily due to patent protection and the absence of centralised negotiation capabilities. The simple maths on the spend per prescription data shows an even bigger multiplier, over five times.
Prescription drug spend (USD billions)
Spend per prescription (USD)
The significant price premium in the US market was bolstered by the Medicare Modernization Act of 2003 that prohibited direct price negotiations between the government and drug companies. Unlike many other countries, the US has no centralised price setting body. Instead, drug companies have benefited from the market becoming fragmented, relying on a complex network of intermediaries like the Pharmacy Benefit Managers, Insurance Companies and Wholesale Distributors, who sit between the manufacturers and the consumers. These intermediaries negotiate rebates and discounts, but the savings do not always reach the end consumer. This dysfunctional system encourages pharmaceutical companies to set high list prices, leaving room for subsequent discounts with no standard pricing – so much so that pharmacies in the same neighbourhoods often quote vastly different prices for the same medications. The table below illustrates this by comparing the prices of a basket of medicines across various pharmacies.
Source: Consumerrports.org, April 2018.
This is unsustainable so what can be done to tackle the issue? Several strategies have been proposed. First, allowing more centralised and transparent negotiations between the parties involved. Second, introduce transparency by requiring drug manufacturers to justify their pricing decisions and publish prices in direct-to-consumer advertisements. Third, enhance competition by promoting generic drug alternatives and encouraging competition for new drugs after the brand name products’ market protection period. Fourth, align US drug prices with lower prices in other OECD countries. Finally, introduce efforts to reduce patient cost sharing spend with the aim of improving access to affordable medication.
In the run up to the election, we anticipate significant noise and political rhetoric around this issue. However, the impact on companies is likely to be muted due to the formidable army of lobbyists in Washington, D.C. The pharmaceutical industry ranks high in lobbying spending and wields substantial power over government policy. Consequently, proposed reforms often get toned down or blunted. Nevertheless, the Inflation Reduction Act of 2022 granted Medicare, the federal health insurance program, some negotiation powers concerning specific drugs. These changes will be phased in gradually, affecting only a small number of drugs each year, resulting in a modest initial impact, but it is a step in the right direction.
Top 5 lobbying industries in the US – 2023 lobbying spend (USD millions)
In investment terms, complex and irrational systems, as drug pricing is, create an opportunity for disruption and this is no exception. GoodRx is an example of a company that has thrived by helping consumers navigate the complex environment of opaque drug pricing. Its digital healthcare platform processes over 320 billion pricing data points each day and identifies the best deals available, automatically simplifying the complex maze of price structures aimed at boosting big pharma profits at the expense of the consumer.
A GoodRx user can quickly see where the best prices are and secure them accordingly. The opportunity for advanced AI to further level the playing field is immense, one of the many ways it will be used in the future to improve automatically so many of the David and Goliath iniquities.
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