Jane has a fever. She dropped by to see a doctor who gave her some medicines and a hospital bill. The cost was 30-40 per cent higher than last time she was similarly treated a few years back.

Jane was perplexed but didn’t enquire further. She took the medicines and the fever receded – much earlier than when she had it the last time.

Welcome to the advancement of medicines – serving the need of patients looking to cure than illness as soon as possible. But it comes at a huge cost.

Medicine prices have skyrocketed alongside doctor, health check and treatment fees that are cutting savings of retirees, and build unaffordable huge national health bills. 

The economic paradox for all countries is in the aging society. People may live longer but in older ages they can’t contribute much to wealth creation, and in many cases become a burden. Many nations are grappling with what to do?

This is one of the key missions that Robert F. Kennedy Jr will go after as US President-elect Donald Trump picked him to be his next secretary of the Department of Health and Human Services. 

Kennedy is there to disrupt and bring health costs of the US, among if not the highest in the world, down. Good luck to him.

He will need more than luck given that the American health system is so complex. The system even encourages higher drug prices in a complete opposition to the intention. 

A team of health economists and doctors from Stanford and Harvard universities have been prodding into the webs of medicine pricing negotiations of the US and six other countries.

“Most of the time, the (American) government programmes and the way we pay for drugs creates a huge incentive to increase prices,” according to Kevin Schulman, a health economist at Stanford Graduate School of Business and Stanford School of Medicine

In the US, most prices are negotiated by pharmaceutical benefit managers (PBMs) on behalf of the government and private insurance companies. There are different pricing strategies for hospitals, outpatient clinics, and retail pharmacies, as well as a system of discounts, rebates, and secret payments between the manufacturers and PBMs that remains completely opaque to the average consumer.

American pharmaceutical companies have always been reluctant to negotiate, claiming lower prices would cut off the funding for product development and future innovation. 

Schulman suggests a “reference pricing strategy if the government wants to get serious about reducing drug expenditures.

Under this system, which is used in Germany and France, the government sets the maximum cost for a particular drug. That amount is based in part on how much the pharmaceutical company charges in other countries. European markets have teeth to their negotiations. If a pharmaceutical company refuses to negotiate or is unable to come to an agreement with the government, they can’t bring their product to market.

The question for the new US health secretary is whether he will deploy the state power in intervening to negotiate for lower drug prices. Republicans – not least Trump himself, deplore anything that increases state involvement in their society. 

There is also an issue with generic drugs which comprise over 90 per cent of all prescriptions in the US. These low-cost drugs are manufactured by many different companies across the globe and then purchased by three purchasing groups for the American market. 

Schulman has found that this procurement is based on price, not quality. “At this end, the market drives to the lowest-price manufacturers, who then have no incentive to invest in drug quality,” he says.

Schulman thinks that price control and quality control are linked. “Good drugs are available for the same price as bad drugs, so we don’t need to spend more to be assured of high-quality products,” he says. “But we do need to be sure that the market functions on both price and quality, not just on price.”

Here are some examples of countries able to reduce drug prices through mechanisms including strong regulatory frameworks, robust generic drug markets, centralized procurement systems, and innovative pricing policies

India: Leading exporter of generic drugs and producer of low-cost versions of patented drugs. It regulates prices of essential medicines.

Brazil: The government negotiates directly with pharmaceutical companies to lower prices. It produces generic drugs through public-private partnerships.

Norway:  Centralized healthcare systems negotiate drug prices directly with pharmaceutical companies. It uses a tender system to keep prices low for commonly used medicines.

Thailand: Utilizes compulsory licensing to allow the production or import of cheaper generic versions of patented drugs. A universal health coverage scheme ensures access to affordable medicines.

UK: National health Service negotiates directly with manufacturers and can refuse coverage if a drug is deemed too expensive. NHS assesses cost-effectiveness of new drugs

Canada: Encourage competition by promoting generic and biosimilar drugs

Australia: Bulk purchase by government to drive costs down

New Zealand: Maintains a competitive tendering system.

China: Expanding use of centralized bulk procurement systems to negotiate lower prices. Local productions of generics are encouraged.

Source: https://news.stanford.edu/stories/2024/11/what-other-countries-could-teach-us-about-bringing-down-drug-prices