Why The Wall Street Journal's U.S. Drug Price Comparison Misses The Mark
By Rob Wright, Chief Editor, Life Science Leader
Follow Me On Twitter @RfwrightLSL
In the December 1, 2015 edition of the Wall Street Journal there is an article titled, “U.S. Drug Prices Dwarf Other Nations.” The author, health and science deputy bureau chief Jeanne Whalen, begins by pointing out that Norway, an oil producer with one of the richest economies in the world, is an expensive place to live. To support her claim she highlights Norway’s cost of a Big Mac ($5.65) and a gallon of gasoline ($6). But she also notes that prescription drugs are far cheaper in Norway than in the U.S. According to Whalen, The Wall Street Journal did a comparison of the drug pricing for Medicare Part B versus the health systems of Norway, England, and Ontario. Her conclusion, “Throughout the developed world, branded prescription drugs are generally cheaper than in the U.S.” While she may be right in her assessment, I still find it wrong what she and the Journal are doing, and here’s why.
The Sport Of Sensationalism That Skewers
Targeting the U.S. biopharmaceutical industry as being evil has become a very popular sport among U.S. journalists and politicians, and Whalen’s article is one of the most recent examples. What bothers me about this and similar articles — which have accurate facts, by the way — is that the articles are deliberately designed to stir controversy, sensationalize and skewer a lifesaving and sustaining industry that has also been a golden goose for the U.S. economy. On page one she uses a tantalizing headline and subhead followed by phrases describing U.S. drug prices as being “shrouded in mystery” and “obscured by confidential rebates.” The last sentence before the article continues on page A-16 reads, “What it found, in the case of Norway, was that U.S. prices were higher for 93% of 40 top branded drugs available in both countries in …” But is comparing what Medicare Part B pays for drugs to the likes of Norway, England, and Ontario a fair comparison? Further, is comparing three heavily government-subsidized, tax-payer supported health systems to that of Medicare Part B accurate enough to make the leap that the U.S. population, as a whole, pays more for its drugs? Because that is what the article implies.
Consider this: New York City has three million more people than the entire population of Norway. If you add 16 million people to Ontario it would equal the state of Texas. England’s population of 53 million is one sixth of that of the United States. But the most important metric is that the Medicare Part B enrollment of approximately seven million people represents only 2.2 percent of the entire U.S. population. It would be very accurate to say that Norway’s government health system pays less for its drugs than the U.S.’s government health system. When you think about the fairness of this fact, you should be sure to consider that on the major indices, U.S. citizens, across the board, pay less than Norwegians, while also having a higher purchasing power.
Beyond these country comparisons, let’s look at some of the other key drug-pricing points made in the article. For example, Whalen ignores the fact U.S. biopharmaceutical companies provide free drugs to people with inadequate or no insurance under company-sponsored patient-assistance programs. There are virtually no such patient-assistance programs in existence in the EU. Although she disparages the mystery of how drugs are priced as being obscured by confidential rebates, she fails to subtract the very public 6 percent taken from Part B drugs that go to physicians, and she doesn’t acknowledge the commercial payor rebates and discounts that can reach up to 50 percent less than list price.
The U.S. healthcare system accounts for almost 20 percent of the GDP and nearly one out of every six jobs. Drugs comprise about 10 to 14 percent (depending on who is counting) of total healthcare costs. According to the National Bureau of Economic Research (NEBR), branded pharmaceuticals, while more costly than the drugs they replace, actually reduce costs elsewhere in the healthcare system by obviating or decreasing the need for costly hospitalization, institutionalization, or surgery. It is estimated that a new treatment that delays the onset of Alzheimer’s by just five years could save $100 billion annually in Medicare and Medicaid spending on Alzheimer’s patients by 2030. Further, it is import to consider that after a limited exclusivity period for these new branded pharmaceuticals, prices drop dramatically for future generations in the form of the less-expensive generics — currently 85 percent of all prescriptions filled. Factoring some of the above comparisons would significantly lower the gap between U.S. and EU drug pricing.
Life Isn’t Fair, But Punitive Public Policy Isn’t The Answer
If you bothered to read Whalen’s comprehensive accounting of the “unfairness” of U.S. drug pricing, you would also learn that there is an upshot to Americans paying more for drugs — the U.S. is responsible for subsidizing the world’s R&D efforts to find new medicines. Does this seem fair? Probably not much fairer than the fact that the United States, by virtue of being the world’s largest super power, is often responsible for deploying its military to police the globe. Neither is it fair that the U.S. FDA, a country regulatory body, is basically functioning as a global regulatory agency, heavily supported financially by the user fees paid by U.S. biopharmaceutical companies. But unfortunately life isn’t fair, and neither is Whalen’s drug-pricing comparison diatribe.
The more we continue to fan the flames of a controversy that singles out one industry (e.g., biopharma) as the villain, the more likely we will soon be asking ourselves some very tough questions. For while it is hard for a bureaucrat to comprehend why a U.S. based drug company like Pfizer would want to change its home address to Ireland just to save $2 billion in taxes annually, it will probably be even harder for them to fathom why a goose cooked by disincentives no longer provides golden eggs.