In the midst of high-profile efforts to change the recently instituted
Medicare drug benefit, the policies of other industrialized nations may
provide previews of the impact that changes could produce.
Approaches to publicly subsidized prescription drugs in other countries
differ in important ways from those in the United States—most allow
access to fewer drugs but cover more people than the approach used by the
United States, according to health policy experts from Europe, Canada, and
Australia who provided a briefing to congressional staff on the issue in
Among the major differences between the U.S. approach, which subsidizes
drug coverage for about 43 million elderly and disabled, and those of other
industrialized countries is that most other nations consider the comparative
effectiveness of medicines sold in those markets when deciding what to include
in their formularies.
"Without rigorous evaluation [by a third party] the drug industry
inevitably will be dominated by marketing," said Steven Morgan, an
assistant professor in the Department of Health Care and Epidemiology at the
University of British Columbia.
He pointed out that 13 percent annual growth in per-capita drug
expenditures by Americans since 1995 coincided with huge increases in
direct-to-consumer advertising. Such advertising increased from less than $500
million in 1995 to more than $4 billion in 2005.
Drug spending per capita in Canada, which bans such marketing, has
increased much more slowly than it has in the U.S. market since the
The leading U.S. drug-assessment initiative, the Drug Effectiveness Review
Project (DERP), conducts regular systematic reviews of evidence of the
comparative performance of drugs within leading therapeutic classes. DERP is
sponsored by a group of 15 state governments and two private health care
groups; it evaluates competing drugs but does not make recommendations for
drug coverage. Such reviews could be more effective, Morgan said, if their
results were incorporated into the drug-appraisal process and the coverage
policies of major private and public prescription plans.
At the heart of such reviews in other countries is an attempt to create
transparency in the price-setting process. Critics of the U.S. drug market in
general, and Part D in particular, say there is little publicly available
information to explain why particular drugs are sold at particular prices by
In a response to the international experts, Mark Hayes, Republican health
policy director for the Senate Finance Committee, pointed out that several
transparency provisions were in the Senate-passed version of the legislation
that created the drug benefit but were stripped out after opposition from the
"There is tremendous amount of opposition to this from the drug
industry," said Cybele Bjorklund, Democratic staff director of the House
Ways and Means Committee.
Although Australia and New Zealand use national formularies, the approach
varies in other industrialized nations. England uses a negative formulary of
drugs that the government drug program will not cover, while Canada has many
local drug formularies.
National prescription-drug plans in much of Europe have added so-called
demand-side efforts in recent years to encourage physicians and pharmacists to
help control prices through measures such as increased use of generic drugs.
Such efforts have had limited success because Europeans have been reluctant to
adopt them, said Panos Kanavos, Ph.D., a research fellow at the London School
of Economics and Political Science.
Proponents of a national drug formulary created by the federal government
cite data that U.S. drug costs are among the world's highest, but those claims
were questioned by several researchers. Such price comparisons, Kanavos said,
usually omit a range of discounts that manufacturers offer to U.S. insurers
that purchase in large volume.
"The United States has done a better job of keeping a discount in the
system," Kanavos said.
Critics of the Part D program have urged that the national formulary used
by the Department of Veterans Affairs (VA) be applied to Medicare. A Families
USA review compared Part D drug prices with prices negotiated by the VA and
found that every drug compared was less expensive in the VA system, with a
median price difference of 46 percent.
The Families USA report, said Hayes, does not account for the fact that the
VA system achieves lower prices by mandating a mail-order system, while Part D
participants can use local pharmacies. In addition, drugs not covered under
the VA plan are simply unavailable, whereas Part D recipients can switch to a
plan that will cover a drug they need.
A recent proposal by congressional Democrats would change the Medicare Part
D program so that one drug-plan option would be administered by the federal
government. That change would allow the government to negotiate drug prices on
behalf of Medicare recipients. Democrats argue that such an approach would
allow the government to get better prices because it could buy on a massive
Such a change would mimic, in part, the drug systems of Australia and New
Zealand, where the government plans fund virtually all medicines and give the
governments "significant buying power... to negotiate acceptable pricing
with suppliers," Morgan said.
The U.S. drug benefit depends on market forces to drive down prices through
the competition of a large number of insurers to gather the most Medicare
beneficiaries into their plans.
More information on international efforts to provide drug benefits
is posted at<www.allhealth.org/event_062306.asp>.▪