HEALTHCARE
May 7, 2019

Save Billions in Healthcare Costs

If the US switched to pricing models used in Canada and the UK, the cost of drugs to Medicare could drop by as much as $73 billion a year.

The cost of prescription drugs is a major reason medical care costs so much in the United States. Prices for some of the most frequently prescribed drugs are far lower in other countries. Researchers at Johns Hopkins Bloomberg School of Public Health looked at what would happen to Medicare's bottom line if the prices for these drugs were more in line with those in other parts of the world.

They found the savings would be in the tens of billions.

Many advocate setting U.S. drug prices the same way most European countries and Australia, New Zealand, Brazil and South Africa do. The exact methods vary by country, but generally use the costs of drugs in other countries as benchmarks for setting their own prices, an approach called external reference pricing.

If the Medicare program had adopted a pricing structure similar to those seen in the study, Medicare spending would have been reduced by more than 70 percent in 2018.

“Every year we pay more for brand-name drugs and other countries pay less for the same drugs, ”says Gerard Anderson, professor in the Bloomberg School's Department of Health Policy and Management and the paper's senior author, in a statement. “Medicare beneficiaries pay much higher prices for the same drugs that seniors in other countries pay. If they paid the same prices as other countries, their drug bills would drop considerably.”

The study looked at the prices of 79 brand-name prescription drugs in the United Kingdom, Japan and the Canadian province of Ontario and compared them to costs for the same drugs in the U.S. The countries were chosen because they had per capita incomes and pharmaceutical markets similar to those of the U.S.

The drugs covered by the study were popular brand-name prescription drugs for a range of conditions, from diabetes to anti-clotting drugs, antivirals and immunosuppressants. All the drugs were still under patent, without any available generic versions.

$73 Billion in Savings

The researchers found that if prices in the U.S. were in line with those in these countries, the savings to Medicare Part D — the optional drug benefits available to Medicare patients and administered by private insurance companies — would have been almost $73 billion in 2018.

There was a wide range of variations among the drug prices. In some cases, the price of a drug was only 30 percent higher in the U.S., but other drugs were 7,000 percent more expensive in the U.S. Diabetes medications had the largest average price differences. One diabetes drug was nine times more expensive in the U.S. than the same drug in the U.K. Injectable drugs were 11.5 times more expensive in the U.S. as compared to the U.K. and around eight times higher in price than Japan and Ontario.

The researchers found, for example, that if the U.S. purchased the same drugs at the U.K. price, Medicare spending would have been reduced by more than 70 percent in 2018.

“Ideally, the U.S. should be paying similar prices to other countries,” said Anderson. “In fact, Medicare beneficiaries and taxpayers are paying much more for the same drugs as other countries. Given that many Medicare beneficiaries cannot afford their drugs, this is a serious problem that does have a solution.”

The cost of healthcare can seem like a huge and unsolvable problem. The study suggests one way to reduce considerably the price tag for drugs would be by spreading the cost of pharmaceutical development more evenly among developed nations.

The findings are published in Health Affairs.

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