Recently, the U.S. government has announced relevant measures to reduce drug prices through legislation and has entered the stage of substantive price negotiations, which is also known by the media as the American version of medical insurance negotiation (the price formation method is medical insurance and enterprise negotiation) or the American version of medical insurance centralized procurement (for mature drugs rather than innovative drugs). In the United States, which has always prided itself on free pricing, this time the government directly intervened in prices, which has attracted the attention of the whole world.
What is the current state of medical costs and drug prices in the United States, and how are they going to be reduced?
Before introducing the drug price reduction in the United States, it is necessary to make a brief introduction to the medical costs and drug prices in the United States.
Let's start with the cost of medical care. According to the National Health Expenditure (NHE) data, the total medical expenditure in the United States in 2022 will be 4.46 trillion US dollars, accounting for 17.3% of GDP. The main sources of funding are government spending at 48% (33% federal and 15% state), the largest single funder, personal spending at 28% and corporate spending at 18%. The main expenses are distributed in the following areas: medical institutions 30%, doctor services 15%, prescription drugs 13% (retail pharmacies account for 9%, medical institutions account for 4%), third-party inspection and testing 5%, medical equipment 5%, and other aspects such as dentistry, public health, nursing, investment, etc. The main forms of payment are commercial insurance (29%), government Medicare (21%), government insurance for the poor and children's insurance Medicaid &CHIP (19%), personal out-of-pocket (10%), corporate out-of-pocket (8%), and veterans and civil servants (3%) (see Figure 1).
Let's look at drug spending. In 2021, the total drug expenditure of Medicare Part D was $215.7 billion, accounting for 35.8% of the national drug expenditure, and the drug expenditure of Medicare Part B was $40.4 billion, accounting for 6.7% of the national drug expenditure. Medicaid spent $86 billion on drugs that year, accounting for 14.3% of the nation's drug spending (see Figure 1). In other words, Medicare and Medicaid, the two main federal benefits, account for about 57 percent of the nation's drug spending, while commercial insurance and personal out-of-pocket expenses account for 43 percent. It can be seen that the government is the largest payer in terms of drug spending.
Finally, let's look at the price of medicines. The U.S. implements free market pricing, and the law prohibits the government from directly negotiating prices with pharmaceutical companies, and even the government's Medicare must negotiate prices with pharmaceutical companies through a third-party pharmacy benefit management (PBM). Because PBM organizations have been acquired by large commercial health insurance companies, they have enough incentive to cooperate with pharmaceutical companies to raise drug prices, so the price of branded drugs in the United States far exceeds that of other countries. According to the price data of the world's top 25 best-selling drugs released by research institutions, the price of drugs in the United States is significantly higher than that of other countries in the world, about 3 to 5 times that of countries with the same level of economic development in Europe and Japan. According to the RAND Corporation, the average price of branded prescription drugs in the United States is 2.56 times that of other major developed Western countries in the Organization for Economic Co-operation and Development (OECD). The price of typical drugs in the United States is much higher than the price in China, such as the PD-1 anticancer drug nivolumab, the annual treatment cost in the United States is 1.16 million yuan, which is 10 times that of the mainland, and the price of nusinersen sodium for the treatment of rare diseases is 875,000 yuan per piece in the United States, which is 26 times that of the mainland. Moreover, unlike the inverse proportion between the price of domestic innovative drugs and the time to market, the price of innovative drugs in the United States has been rising since its launch and will not fall until the expiration of the patent. According to the "Prescription Drug Pricing Trends from 2008 to 2021" research report written by Professor Aaron of Harvard University and others, in the past 14 years, the listing prices of 548 new drugs in the United States have increased by an average of 20% per year, and the median has risen from $2,115 in 2008 to $180,000 in 2021. For example, the annual patient cost of ibrutinib increased from $20,000 in 2013 to $40,000 in 2014 and $120,000 in 2021, and adalimumab, whose sales price increased 18 times in the United States from 2009 to 2019, and in 2021, the 20th year of the drug's approval in the United States, the price increased by 7.4%.
Drug costs account for 13% of the total medical costs in the United States, with a scale of about $580 billion. Despite the fact that 57% of government spending is billing, the U.S. Constitution stipulates that even the largest buyer cannot negotiate directly with pharmaceutical companies. On the other hand, drug prices in the United States are much higher than those in other developed countries and have been rising year after year, which has become a great burden on the government and patients. With the slowdown in economic growth and severe inflation, the call for lower drug prices in the United States has become stronger.
Lowering drug prices is a rare task on which the Democratic Party and the Republican Party in the United States have reached a consensus. The Inflation Reduction Act of 2022 (IRA), signed into law by U.S. President Joe Biden in August 2022, has several provisions aimed at reducing the cost of prescription drugs for Medicare patients and reducing drug spending by the federal government. A key policy of the bill is to instruct the United States Department of Health and Human Services (HHS) to negotiate with pharmaceutical companies the prices of certain drugs covered by Medicare Part D (Medicare Prescription Drug Program) (in place in 2026) and Medicare Part B (in place in 2028).
After the drug list is published, the manufacturer has a month to decide whether to participate. The specific price negotiation process is a tug-of-war that may last for nearly a year. According to the guidance published by HHS, the Center for Medicare & Medicaid Service (CMS) may accept the offer or make a second quote after the Center for Medicare & Medicaid Service (CMS) submits a written quote to the manufacturer of the selected drug. If the CMS rejects the pharmaceutical company's offer, it can hold up to three price discussion meetings, at which the company can choose to accept or reject the final offer. There are eight milestones in this process: February 1, 2024 is the Maximum Fair for CMS submissions March 2, 2024 is the deadline for the drug manufacturer to respond to the MFP proposal, the negotiation will be concluded if the proposal is accepted, and the counter-proposal can be submitted if the proposal is rejected, April 1, 2024 is the deadline for CMS to respond to the MFP counter-proposal of the drug manufacturer, and the negotiation will be concluded if the CMS accepts the counter-proposal, and up to three meetings can be held to discuss the proposal and the counter-proposal if the proposal is rejected, and June 28, 2024 is the deadline for the completion of up to three negotiation meetings between the CMS and the drug manufacturerJuly 15, 2024 is the deadline for CMS to submit a final written MFP proposal to the drug makers of the selected drug, July 31, 2024 is the deadline for the drug makers to accept or reject the CMS final MFP proposal, August 1, 2024 is the deadline for CMS and the drug makers to complete the price negotiation process, and September 1, 2024, CMS publishes the MFPs for the negotiated drug makers (see Figure 2).
What are the main practices and typical characteristics of drug price reduction in the United States, and what is the reaction of all parties?
Four ways to reduce the price of drugs
The first is to identify the types of drugs that will be involved in the negotiations. The IRA Act would require the U.S. federal government to negotiate a limited number of high-priced single-source drugs that are the most expensive Medicare drugs used to cover medical care costs for Americans age 65 and older.
In August 2023, CMS announced the 10 Medicare Part D drug varieties that were negotiated for the first time. CMS selects these drugs based on the principle of preferring the highest U.S. health care spending, which has not encountered a strong competitor in the market for many years. Together, these drugs cost $50 billion in annual health insurance expenditures, more than 20 percent of the total Medicare drug costs that year. According to U.S. media reports, if the negotiations are reached, it is expected to save the U.S. government $9.8 billion over 10 years and reduce insurance premiums and out-of-pocket expenses for many older Americans.
In addition to these 10 drugs, the United States will negotiate another 15 Medicare Part D varieties in 2027, 15 Part B and Part D varieties by 2028, and 20 Part B and Part D varieties in 2029 and beyond. The minimum negotiated price reduction for drugs is 25%-60%.
The second is to select experienced negotiators. Daniel Heider, Medicare's man in charge of drug price negotiations, is the poster child for the "revolving door mechanism" in the United States. The "revolving door mechanism" refers to the two-way switching roles of individuals between the public and private sectors, shuttling and crossing to benefit interest groups. This behavior is very common in the United States. Daniel, who previously worked at Bristol-Myers Squibb and Merck & Co., is now entrusted with the task of negotiating prices on behalf of the U.S. government with former employers.
Thirdly, it is supported by a number of economic punitive measures. Some of these measures are quite tough, such as the federal government's high tax on pharmaceutical companies that do not accept negotiations, at 65% of Medicare sales in the first year and 95% every year thereafter, and fines based on 10 times the difference between the selling price and the negotiated price if they are not implemented at a later stage. In addition, there are provisions related to Medicare prescription drug inflation rebates. Starting in 2023, if the price of Medicare Part B and Part D prescription drugs increases faster than inflation, the difference will be returned to the federal government by the pharmaceutical company.
Finally, there is the adjustment of Medicare Part D benefits and premiums. The IRA provides for a waiver of the original out-of-pocket requirement (5%) for the high-cost Part D segment (above $7,050 in 2022) starting in 2024, a cap of $2,000 per year for Medicare Part D beneficiaries starting in 2025, and a limit to no more than 6% of annual premium increases for Medicare Part D from 2024 to 2030. Other benefits include capping Medicare diabetics at $35 per month for insulin use starting in 2023, eliminating the out-of-pocket portion of adult vaccines under Part D and allowing enrollees to receive free adult vaccines covered by the Drug Benefits Program, and expanding Part D's low-income benefits.
It embodies three main characteristics
The first is direct government intervention. Different from the previous capitalist market government "no direct intervention" means, many of the drug price reform measures in the United States are directly intervened by the government in price control, such as the IRA bill requires the federal government to authorize Medicare to directly negotiate prices with pharmaceutical companies, and then CMS makes MFP recommendations with reference to the international prices of drugs with the same indication or the same drug, so as to grasp the pricing initiative.
Second, the reform measures are very tough. The measures in the IRA bill to reduce prescription drug prices are mandatory, and it can even be said that they are promoted by taking strong measures. As mentioned above, the IRA bill clearly states that the minimum price reduction of drugs negotiated is 25%-60%, and if the pharmaceutical companies do not accept the negotiations, they will be subject to high taxes, if the negotiations are successful, they will be fined if they do not sell according to the negotiated price, and the price increase of pharmaceutical companies will be prevented from higher than the inflation rate.
Third, the amount of negotiated drugs is huge. According to CMS, the 10 drugs negotiated in the first year were used by about 8.247 million Medicare Part D underwriters from June 2022 to May 2023, and these 10 selected drugs accounted for $50.5 billion of the total cost of Medicare Part D-covered prescription drugs, accounting for about 20% of the total part-D covered prescription drug costs during that period. Not only that, but each drug selected is also crucial for the company. For example, AstraZeneca's Daglil has net sales of US$4.381 billion in 2022, contributing nearly 10% of the company's annual revenue, and ustekinumab's global revenue in 2023 is close to US$10 billion, making it Johnson & Johnson's highest-selling single product.
Responses have been very different
As you can imagine, the pharmaceutical industry has set off a strong wave of opposition to this negotiation, and several large pharmaceutical companies have filed lawsuits with the federal government. Some business leaders have called the reform "negotiations with guns on their heads" and have publicly stated that they are committed to repealing some of the provisions of the IRA related to drug pricing. Some companies said their negotiations with CMS were coerced, with the government pressuring them to agree to government pricing or risk GST and other penalties. Despite this, CMS announced in October 2023 that "participation is voluntary for all businesses. ”
The reaction of the American public stands in stark contrast to that of the pharmaceutical industry. Many nonprofit organizations issued press releases praising the reform, such as the American Association of Retired Persons, praising CMS for taking key steps to reduce runaway prescription drug prices.
Due to the separation of medicine in the United States and the almost non-existence of individual kickbacks, medical institutions and medical personnel are basically not affected by interests, so the overall attitude is neutral.
In the future, the U.S. government is likely to introduce more stringent price control policies. House Democrats have introduced the Drug Cost Reduction Act for American Families, which would expand the number of drugs at negotiable prices each year, and even the more straightforward Stop Drug Companies from Ripping Off and Save Drug Costs for All Act, which will take aim at drug patents. U.S. President Joe Biden also said in his State of the Union address that he would propose to expand the number of drugs for price negotiations, increasing the list of the most widely used and costly drugs covered by Medicare from the current 10 to 50.
Of course, the game between political parties in the United States is very fierce, and it is still unknown whether the results of the first round of price negotiations will be implemented in 2026.
What has China's medical insurance done to reduce drug prices?
In fact, the mainland has carried out a series of drug price control work many years ago, since the establishment of the National Health Insurance Administration in 2018, more than five years, China's medical insurance department has mainly promoted three key tasks.
First, the procurement of mature drugs with volume. For mature drugs that have passed the patent period, the state has organized centralized procurement, and has landed 9 batches of 374 varieties and selected more than 1,600 products, and each province has collected an average of 300 kinds of drugs on its own. Compared with the original price, the price of drugs after centralized procurement has been reduced by about 50%, which significantly reduces the burden of drug costs on patients.
The second is the negotiation of medical insurance for innovative drugs. After the establishment of the National Health Insurance Administration, a total of 6 rounds of dynamic adjustment of the medical insurance catalogue were organized, and most of the 446 new drugs added through negotiations were newly launched and high-value drugs in recent years, with an average price reduction of more than 50%, improving the accessibility of innovative drugs.
The third is to promote the governance of online prices. In order to promote the fairness, integrity, transparency and balance of prices between provinces with the same generic name and brand, the price of the four same drugs (i.e., drugs with the same generic name, manufacturer, dosage form and specifications) is currently being regulated, and the unfair and discriminatory high prices between the four provinces are basically eliminated.
According to authoritative estimates, the overall level of drug prices in China in 2023 will be about 20% lower than that in 2018, and the burden of drug costs on patients will be significantly reduced.
Taking the 10 drugs included in the first price reduction negotiation by Medicare in the United States as an example, 6 of these 10 drugs have been reduced through medical insurance negotiations, 4 have been reduced through the centralized procurement of drugs organized by the state, 1 drug has been included in the centralized procurement as non-exclusive drugs during the agreement period after negotiation, and 1 has met the threshold of the number of centralized procurement enterprises and will be included in the scope of centralized procurement when the core patent expires (see Table 1).
As for the cost of drugs saved through price control, almost all of them are freed up by China's medical insurance to various stakeholders.
First, it is used to improve the protection of patients' drug treatment. The medical insurance catalogue has been expanded to include more new drugs, good drugs and drugs for rare diseases, the scope of drugs for hypertension and diabetes has been expanded, the treatment and protection level of slow medication in Gate Gate has been improved, and some designated retail pharmacies have been included in the outpatient planning of employee medical insurance to facilitate medical treatment and drug purchase.
The second is to effectively motivate medical institutions and medical personnel. For medical institutions that have passed the centralized procurement implementation assessment, China's medical insurance department has launched incentives for the retention of medical insurance funds, added pharmaceutical service medical service fee items, and increased the fee items that reflect the value of technical labor services such as surgery, traditional Chinese medicine, and rehabilitation.
The third is to promote the use of drug structures. In recent years, the total cost of drugs in public medical institutions has shown a slight upward trend, but the drug structure has undergone significant changes. According to statistics, about 60% of the cost savings from centralized procurement are freed up for negotiating innovative drugs (see Figure 3).
What's the right thing about China's health insurance practice?
As for reducing drug prices, while achieving a balance between the interests of doctors, patients, and insurance, China is also on the way to supply-side reform and high-quality development of the pharmaceutical industry. China's medical insurance practice has benefited a wide range of enterprises that actively participate in centralized drug procurement and medical insurance negotiations, and the society is generally positive. Compared with the practice of other countries, what is the right work of China's medical insurance practice?
First, give full play to the leading role of the market. Whether it is centralized volume procurement or national drug negotiation, enterprises are willing to participate and quote independently, so that effective market competition can play a decisive and leading role in discovering the reasonable price of drugs.
The second is to give better play to the role of a promising government. The selected drugs in the centralized procurement guarantee the admission to the hospital, the dosage and the payment collection, which greatly reduces the cost of hospital admission and sales expenses of the enterprise. The "dual channel" policy is actively implemented for medical insurance negotiation drugs, so that patients can buy, use and afford innovative patented drugs.
The third is to adhere to the patient-centered. China's drug price governance and medical insurance practice has always adhered to the patient-centered, continuously reducing the economic burden of patients, improving drug accessibility, and improving the quality of drugs. As of May 2023, the medical insurance negotiation has reduced the burden on patients by more than 500 billion yuan after superimposed reimbursement, and the centralized procurement organized by the state and local alliances have also reduced the burden of the insured people by about 500 billion yuan.
The market-oriented mechanism not only brings high-quality and affordable benefits to people's livelihood, but also prompts enterprises to devote more energy to innovation and research and development and quality improvement. Driven by the centralized procurement system, since 2018, the cumulative number of drugs that have passed the consistency evaluation of generic drug quality and efficacy (including deemed pass) in mainland China has risen rapidly from less than 200 at that time to more than 8,900 at present, and high-quality drugs are gradually occupying the mainstream of clinical use. In terms of the use of innovative patented drugs, the expenditure of medical insurance on new drugs has increased from 5.949 billion yuan in 2019 to 48.189 billion yuan in 2022, an increase of 7.1 times, the waiting time for new drugs to be included in the medical insurance catalogue has been shortened from an average of nearly 5 years in the past to less than 2 years, more than 80% of innovative drugs can enter the medical insurance within 2 years after listing, and some new drugs are included in the medical insurance catalogue after only half a year of listing, and the proportion of newly listed drugs in the new varieties of the current year within 5 years has increased from 32% in 2019 This has increased to 97.6% in 2023, and 57 varieties have been approved and included in the catalogue in 2023.
Not only that, compared to the United States, which included drugs accounting for 20% of Medicare spending in the first year of price negotiations, China's health insurance has given companies a longer transition period to reduce drug prices. In terms of centralized procurement, it took five years for the centralized procurement of chemical drugs to reach 30%, and at present, the centralized procurement does not include large-scale varieties such as monoclonal antibodies, which has a certain degree of inclined protection for biological drugs, and the centralized procurement of traditional Chinese medicine is also gentle, with an average decrease of only about 40%. In terms of negotiations, the price reduction of renewal is moderate, among the 100 renewed drugs in 2023, 69 varieties can be renewed at the original price, and 31 varieties need to be reduced due to sales exceeding expectations, with an average reduction of only 6.7%;
Medical institutions are also actively reducing costs and increasing efficiency. With the reduction of drug costs, the retention of centralized procurement balances, and the increase of surpluses under the DRG/DIP reform, medical institutions have not only greatly reduced their own operating costs, but also significantly reduced the integrity risk of medical staff, and significantly improved the public welfare attributes of public medical institutions.
In short, China and the United States have taken measures to reduce drug prices based on their own national conditions, and although the specific paths are different, the overall goals and directions are similar. China's medical insurance has reduced drug prices through negotiation, centralized procurement, price management and other practical means, balancing the interests of multiple parties, and has obvious positive spillover effects, which is being learned and emulated by more countries. Of course, reform is always on the way, and there is still room for continuous improvement in the practice rules of medical insurance price reduction, and I believe that the policy will continue to be optimized in the future in order to balance the interests of all parties. （ZGYB-2023.04）
Author | Changsong Jiang, National Institute of Health Insurance, Capital Medical University
Source | China Medical Insurance
Edit | Fu Meiru Liu Xinyu
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