We’re not accustomed to openly managing this trade-off in the United States, partly because of the power of health care interest groups, and perhaps because of a more individualistic culture.
The New Washington
A 2011 German law, for example, established a system by which a central body evaluates the benefits of new drugs. Then health insurers jointly negotiate prices, which are capped relative to existing drugs for the same condition if the new drug has no demonstrable additional benefit. Those prices apply to all statutory health insurance plans, which cover 90 percent of the population, and are typically adopted by private payers as well.
France, Britain and other nations also have systems to limit drugs’ prices and assess the value they provide, seeking to balance innovation and profit. Many countries peg the prices of drugs to those established by other nations — something the Trump administration had proposed for drugs purchased by Medicare.
For the last few decades, Canada has relied on a mixture of national and provincial organizations to protect against what it considers “excessive” prices. But the Trudeau government “has judged these approaches insufficiently effective, appearing to have concluded that the high prices have not led to sustained research and development investment in Canada,” said Christopher McCabe, chief executive of the Edmonton-based Institute of Health Economics. So starting in July, after a delay because of the pandemic, the Patented Medicines Price Review Board will set Canadian prices “without consideration of the prices paid in the United States and Switzerland, and for some drugs, with explicit consideration of cost effectiveness,” he said.
In the United States, drug prices reflect what the market will bear, under the influence of government-granted monopolies for novel medications. Because of the byzantine political compromises they reflect, there is no good reason to believe that the duration of those monopolies — or the prices they support — match the value of the drugs for which they’re provided or the degree of innovation they motivate.
The tool is blunt, so in some cases drug prices are arguably too low, even if they’re very often arguably too high. (This problem of pricing is not unique to prescription drugs, but pervasive throughout the health system. Both health care markets and policy have flaws that lead to prices for health services that are often too high and sometimes too low relative to their value.)