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Where does the issue of higher drug prices in U.S. vs. lower prices outside of U.S. issue fit into this? Any links to info on that?

by hsitz 6y ago

bhupy 6y ago
I recommend checking this out: https://www.forbes.com/sites/avikroy/2020/07/24/trumps-most-favored-nation-prescription-drug-executive-order-will-reduce-costs-for-seniors--taxpayers/ https://www.forbes.com/sites/avikroy/2020/07/24/trumps-most-... As I mentioned earlier, Medicare actually largely relies on private insurance leverage to determine drug prices, BUT there is an incentive baked into Medicare Part B that has a really underrated impact on some of the high prices, known as "ASP plus 6". When an Original Medicare beneficiary visits a physician and that physician prescribes drugs, the drugs are paid for differently from the actual services (which follow the standard fee-schedule model). Rather than operating on a fee-schedule structure, Medicare decides that the cost of a drug that it will pay to a physician is the "average selling price plus 6%". Medicare basically takes the average selling price for a drug that a doctor prescribes, and pays that amount + 6% margin (it's actually 4.3% after some budget sequestration, but that's not important). 6% margin to the doctor is fair, right? The issue is that it introduces an incentive for physicians to try and prescribe the most expensive drug to the patient, because they know that Medicare will cover 80% of the cost (plus 6%), and the doctor stands to make the most money. Pharma companies know this, and for drugs that are predominately used by seniors, they market the price as high as possible since Medicare will just pay for (most of) it. Fortunately with the Medicare Advantage plans, the private payers have their own rules for how much they will pay for a drug, and they are incentivized to pay as little as possible because the private Medicare Advantage payers get to pocket the cost savings as profit. More info on ASP plus 6, and how it favors higher-price products: https://www.healthaffairs.org/do/10.1377/hpb20171008.000171/full/#:~:text=ASP%20%2B%206%20Percent&text=It%20ties%20payment%20to%20the,discounts%2C%20and%20other%20price%20concessions https://www.healthaffairs.org/do/10.1377/hpb20171008.000171/.... https://www.healthaffairs.org/do/10.1377/hblog20190611.58590/full/ https://www.healthaffairs.org/do/10.1377/hblog20190611.58590...

Where does the issue of higher drug prices in U.S. vs. lower prices outside of U.S. issue fit into this? Any links to info on that?

by hsitz 6y ago

Where does the issue of higher drug prices in U.S. vs. lower prices outside of U.S. issue fit into this? Any links to info on that?

bhupy 6y ago

I recommend checking this out: https://www.forbes.com/sites/avikroy/2020/07/24/trumps-most-favored-nation-prescription-drug-executive-order-will-reduce-costs-for-seniors--taxpayers/ https://www.forbes.com/sites/avikroy/2020/07/24/trumps-most-... As I mentioned earlier, Medicare actually largely relies on private insurance leverage to determine drug prices, BUT there is an incentive baked into Medicare Part B that has a really underrated impact on some of the high prices, known as "ASP plus 6". When an Original Medicare beneficiary visits a physician and that physician prescribes drugs, the drugs are paid for differently from the actual services (which follow the standard fee-schedule model). Rather than operating on a fee-schedule structure, Medicare decides that the cost of a drug that it will pay to a physician is the "average selling price plus 6%". Medicare basically takes the average selling price for a drug that a doctor prescribes, and pays that amount + 6% margin (it's actually 4.3% after some budget sequestration, but that's not important). 6% margin to the doctor is fair, right? The issue is that it introduces an incentive for physicians to try and prescribe the most expensive drug to the patient, because they know that Medicare will cover 80% of the cost (plus 6%), and the doctor stands to make the most money. Pharma companies know this, and for drugs that are predominately used by seniors, they market the price as high as possible since Medicare will just pay for (most of) it. Fortunately with the Medicare Advantage plans, the private payers have their own rules for how much they will pay for a drug, and they are incentivized to pay as little as possible because the private Medicare Advantage payers get to pocket the cost savings as profit. More info on ASP plus 6, and how it favors higher-price products: https://www.healthaffairs.org/do/10.1377/hpb20171008.000171/full/#:~:text=ASP%20%2B%206%20Percent&text=It%20ties%20payment%20to%20the,discounts%2C%20and%20other%20price%20concessions https://www.healthaffairs.org/do/10.1377/hpb20171008.000171/.... https://www.healthaffairs.org/do/10.1377/hblog20190611.58590/full/ https://www.healthaffairs.org/do/10.1377/hblog20190611.58590...