We in the U.S. spend more on prescription drugs than any other country on earth. Put another way, we spend per capita more on pharmaceuticals alone than the following countries spend in TOTAL on healthcare (normalized in U.S. dollars) – Ukraine, Peru, Iran, Columbia, South Africa, Mexico, Poland and Russia. This brings an interesting perspective.
In 2014, U.S. drug spending was up 12.2%; however, actual out-of-pocket spending for prescription drugs is actually down 14% since 2007. Where is this difference being spent? Government and private insurance programs.
The argument is that the U.S. pharmaceutical innovations are keeping long-term costs lower and increasing quality of life and productivity. Some also believe that healthcare labor is the real issue in healthcare cost, comprising over 40% of all increases in annual healthcare expenditures. Some in academia and ‘think tanks’ have argued that using more software, info-tech equipment, telemedicine, and other technologies can make healthcare more productive and responsive.
On the last point, the reality is even today, with the mandates for electronic healthcare records (EHR) and electronic prescribing, not nearly enough money is being invested in the research and development of healthcare technology. True investment in healthcare, according to the Bureau of Economic Analysis (BEA), is actually down by 9% in real terms since 2007. Over the same stretch of time, the U.S. direct funding of healthcare research and development (R&D) is down by 4%, also in real terms. Yet, pharmaceutical industry R&D is up by a corresponding 15% since 2007.
One of the options we could consider is changing how the U.S. Food and Drug Administration (FDA) work on approving new drugs to reduce the cost of development, currently averaging $2.5 billion. One can be to work closer with other drug regulators, as in Japan and the European Union, to reduce redundancy and time to market. The other can be to release promising drugs sooner and monitor them longer and in real time, by having both access to, and reporting of via interconnected EHRs. We have the technology to do that today.
You would be shocked to know the last 10 drugs approved to treat cancer have averaged annual price of $190,000 (USD). Go back and read it again; that was the annual price. We have zero doubt they save lives today, and tomorrow. Let us ask a few questions here. Does the U.S government have an interest, as it does with eminent domain, to possibly purchase the full rights to certain drugs for its citizens, and license them for production in the U.S., at lower cost? What if a company spends $2.5 billion in the development of a new, revolutionary and lifesaving drug, which has no alternative, no competition? Should the U.S. have the right to either guarantee the revenue or buy the territorial rights for the U.S. for $2, or $5 billion USD? Does that make it better or worse?
One interesting point about drug cost, the U.S. Affordable Care Act (ACA) and the pharmaceutical industry, is in 2009-2010 the industry spent $80 billion (USD) to support the passage of the ACA. Did that investment pay-off with today’s higher reimbursement?
Recently the U.S. government executed the Trans-Pacific Partnership (TPP) trade accord. The TPP has provisions that will, should, could or might (not sure anyone knows) impact the pharmaceutical industry, and perhaps a signal of this is, some pharmaceutical companies are “relocating” headquarters overseas. As we get it, this focuses us on one of our favorite subjects, patents. In this case, the TPP appears to cut materially into the protection currently afforded new drug patent protection. Maybe more on this in the future, maybe when we talk about “corporate inversions,” which is a strategy a company can employ to reduce their U.S tax burden by moving their legal domicile. A company can re-incorporate abroad by having a foreign company buy its current operations. Assets are then owned by the foreign company, and the old incorporation is dissolved or becomes a subsidiary of the new parent.
Inversions have been a hot U.S topic that have reached a feverish level with the announcement of the deal between Pfizer and Irish-headquartered Allergan, in a record-breaking $155 billion deal. It is reported to be the largest so-called tax inversion move to date that could bring huge tax savings to Pfizer as it shifts its headquarters from the U.S. to lower taxed Ireland. Hillary Clinton has proposed the idea of a new “exit tax” aimed at cracking down on corporate inversions, and has also called the move “un-American.”
– Noel J. Guillama, President