New pharma cost control ideas could tank Canada's drug market: CBO analysts

The list prices of prescription drugs are often much cheaper outside the United States.

Limiting U.S. prescription drug prices to what the manufacturers are charging in other countries might be the only strategy Congressional Budget Office analysts considered that could cut domestic pharmacy prices more than 5%.

But the CBO analysts predict that the drugmakers would respond with a strategy that could cause big prescription drug price increases in other countries.

If prices for drugs in other countries capped how much the makers could charge in the United States, the makers would probably put off introducing drugs in other countries and pull drugs out of small countries, to avoid creating a comparison price, Phillip Swagel, a CBO director, writes in a report summarizing the analysts’ work.

Gaming reference pricing: “Manufacturers could also prevent a comparison price from being available by altering the product distributed in other countries to make it less directly comparable to the U.S. version,” Swagel says.

Swagel suggests that drugmakers would also work hard to push drug prices up in other countries.

“Any increase in foreign drug prices would reduce the price gap and thereby enable manufacturers to charge higher prices in the United States,” Swagel says.

Still another drugmaker defense could involve using rebates or other mechanisms that would make it hard for U.S. observers to understand what the drugmakers were really charging in other countries.

“As an example,” Swagel says, “donations from drug manufacturers to other sectors of a reference country’s health system, such as hospitals, might effectively reduce that drug’s cost to that health system without directly changing that drug’s observed price.”

Uh oh, Canada: Swagel predicts drugmakers would be especially tough on relatively small drug markets.

“For example, if a reference pricing policy was based only on prices in Canada,” Swagel says. “Manufacturers would then have great leverage to increase prices there because of the credible threat that they would abandon the entire market rather than allow large price reductions in the much larger U.S. market.”

The rest of the ideas: The analysts conducted the analysis at the request of Sen. Sheldon Whitehouse, D-R.I., the chair of the Senate Budget Committee, and Sen. Bernie Sanders, a Vermont independent, the chair of the Senate Health, Education, Labor and Pensions Committee.

They also considered some other strategies, such as requiring manufacturers to pay inflation rebates, eliminating direct-to-consumer ads and increasing drug price transparency.

The other strategies analyzed “would have small or very small effects on prices,” Swagel says.