Global Drug Pricing Faces Potential Shift Amid US Efforts too Lower Costs

The United States’ pursuit of lower drug prices could trigger a ripple effect on global pharmaceutical markets, possibly reshaping how medications are priced worldwide.

A recent declaration by a former US President expressing a desire for US drug prices to align with the lowest global prices sent shockwaves through the pharmaceutical industry, causing stock values to plummet.However, the initial panic subsided when the subsequent executive order lacked specific details, leading to skepticism about it’s immediate impact.

Currently, the US, with a population of 340 million, accounts for approximately 45% of global pharmaceutical sales, spending around US$5 trillion (S$6.5 trillion) annually on healthcare. This notable expenditure is attributed to higher per capita medicine consumption and, more notably, the elevated prices of patented drugs compared to other nations.

Pharmaceutical companies justify the higher prices in the US by stating that they enable American consumers to access new treatments sooner. As an example, the diabetes drug Ozempic, also used for weight loss under the name Wegovy, costs considerably more in the US than in other developed countries. A 2023 comparison revealed that a month’s supply of Ozempic in the US costs US$936, which is five times the price in Japan (US$169) and ten times the price in countries like Sweden, the United Kingdom, Australia, and France.

Drug companies often employ tiered pricing strategies, charging wealthier countries more while offering lower prices to those with less purchasing power. The Singapore Association of Pharmaceutical Industries (Sapi) explained that pharmaceutical companies collaborate with local governments and healthcare systems to provide flexible pricing solutions tailored to each country’s needs, enhancing medicine and vaccine affordability and accessibility, notably in resource-limited nations.

While Singapore’s medication costs are higher than those of its neighbors, allowing individuals to seek more affordable options across the Causeway, wealthier nations can sometimes negotiate better prices due to thier purchasing power. Australia, for example, caps the prices of drugs sold within its borders, which can limit the availability of certain medications as some companies opt not to sell at the set prices.

Within the US, drug prices vary due to individual negotiations between drug companies and buyers like insurance companies, pharmacy chains, and hospitals. A former US President’s executive order asserted that inflated prices in the US subsidize global innovation while foreign health systems benefit unfairly.

Factors Influencing High Drug Prices in the US

Associate Professor Wee Hwee Lin of the Saw Swee Hock School of Public Health pointed out that the absence of direct price control mechanisms in the US, unlike many other developed countries, is a primary reason for high drug prices. In the US, drugs only need to prove safety, efficacy, and quality, not cost-effectiveness. Many pharmaceutical companies prioritize launching in the US to capitalize on the higher prices.

The Inflation Reduction Act (IRA) of 2022 seeks to change this by empowering Medicare to negotiate prices directly with drug companies. Previously, the Medicare Prescription Drug, Improvement and Modernisation Act 2003 prohibited Medicare from negotiating drug prices. Medicare, which covers over 55 million Americans, is the single largest payer of healthcare in the US.

Prof Wee noted that prior to the IRA,drug prices in the US were largely market-based,determined by supply and demand. Although the IRA has been passed, the negotiated prices will not take effect untill 2026.

Medicare has already concluded negotiations on 10 drugs, costing US$50.5 billion in 2022, which will see price reductions of 38% to 79% starting in January 2026. The IRA allows for the negotiation of prices for 10 drugs in the first year, 15 in the subsequent two years, and 20 each year thereafter. Negotiations for the next 15 drugs, including Ozempic, are underway and are set to take effect from January 2027.

However,the drug negotiation program faces legal challenges from pharmaceutical manufacturers and trade associations,who argue that it is unconstitutional. While most challenges have failed, some court cases are ongoing. conversely, some members of Congress are advocating for the expansion of the program to include more drugs.

Prof Wee stated that most developed countries exert control over drug prices through government intervention, which introduces market failure.Britain’s National Institute for Health and Care Excellence assesses whether the benefits of new treatments justify their prices. If not, the treatment is not recommended to the National Health Service.

Singapore has tasked the Agency for Care Effectiveness with evaluating new treatments to determine their value for money, shifting the nation from a passive price taker to one that influences drug pricing. This led to the Cancer Drug List, which has resulted in savings of about 30% in the public sector, with some cancer drug prices falling by as much as 60%.

pharmaceutical companies can still sell their cancer drugs at any price, but unless the price is deemed cost-effective, they will not be covered by MediShield Life or Integrated Shield Plan insurance. Despite these efforts, Singapore continues to pay more than countries like Australia, Taiwan, and south korea for many drugs.

The Role of Pharmacy Benefits Managers (PBMs)

Prof Wee highlighted the role of pharmacy benefits managers (PBMs) as another major factor contributing to high drug prices in the US. Originally intended to streamline procurement and reduce costs for insurers and employers, PBMs have led to unintended consequences, such as a lack of transparency regarding rebates received from pharmaceutical companies.

Mr Stephen J. Ubl, president and chief executive of the Pharmaceutical research and Manufacturers of America, stated that the US is the only country were pbms, insurers, and hospitals take 50% of every dollar spent on medicine. He suggested that giving this money directly to patients would lower their costs and reduce the gap with European prices.

Prof Wee added that PBMs may prioritize purchasing drugs based on rebates rather than cost,and many are owned by insurance companies,raising questions about whose financial interests are prioritized.

While drug companies argue that reduced revenue could hinder research and growth,there is no concrete evidence to support this claim. A former US President has advocated for drugs in the US to be sold at the “most-favoured-nation price,” which could potentially increase drug prices elsewhere.

The former President’s order stated the intention to end global freeloading and take aggressive action if drug manufacturers fail to offer American consumers the lowest price. However,the specific actions were not detailed.previous attempts to control drug prices have been blocked by the courts, and most efforts require congressional approval, which could take years.

The former President also directed the Secretary of Health and Human Services, Mr Robert F. Kennedy Jr, to establish a mechanism for American patients to buy drugs directly from manufacturers, bypassing middlemen. While this could cut prices, it would also require a new distribution system. Additionally, importing drugs from developed nations with low-cost prescriptions was suggested, but the quantities are unlikely to significantly impact the market.

Prof Wee emphasized that to lower drug prices, the US needs to define the countries for international reference pricing and decide whether to base it on list prices or negotiated prices. She also noted the need for health technology assessments to determine justifiable drug pricing at a national level, which could face legal challenges.

Despite the challenges,the former President’s stance against high drug costs is expected to lead to some price reductions,particularly for drugs nearing the end of their patent.Prof Wee anticipates that significant cuts in US drug prices could create a new global pricing equilibrium, including in Singapore.

The future impact on drug prices remains uncertain. Drug companies may take legal action against severe price cuts, given the substantial financial stakes. A former US President has criticized Europe for “brutal” drug pricing practices and may penalize countries that suppress drug prices to the detriment of the US.

Any changes in US drug prices are likely to affect Singapore. Ms Poh Hwee Tee, president of Sapi, stated that Sapi and its members are closely monitoring developments and are committed to working with the Ministry of Health and other stakeholders to ensure sustainable access to innovative medicine and vaccines for patients in Singapore.

Singapore spends about $1 billion annually on medicine. A 20% price increase would add $200 million per year, which could significantly impact private patients. However, any price increases will likely only affect drugs still under patent, while commonly used generic drugs for conditions like diabetes, high cholesterol, and blood pressure are unlikely to be affected.