What difference does bargaining make to drug prices? In Norway, up to 58% off

Kristin Svanqvist, head of reimbursement for the Norwegian Medicines Agency

For some perspective on how much more the U.S. pays for drugs than other developed countries, take a look at Norway. U.S. Medicare drug prices were higher for 93% of the top 40 branded meds available in both the U.S. and Norway during the third quarter of 2015, according to a new report from The Wall Street Journal, which looked at why prices are higher in the U.S. than in other developed countries.

The newspaper stacked up Medicare Part B prices for Q3 2015 against prices in three foreign health systems, including Norway, and found some glaring differences. For example, Genentech's macular degeneration med, Lucentis, cost Medicare $1,936 per dose during Q3, while the Norwegian Medicines Agency (NMA) only shelled out $894. Medicare Part B paid $3,678 for a vial of Genentech's rheumatoid arthritis drug Rituxan/MabThera, but the drug only cost Norway's healthcare system $1,527.

Part of the explanation for the price differences is bargaining, according to the WSJ story. State-run health systems in Norway and other developed countries have the power to drive hard bargains with drugmakers, and they use it. Agencies may set price caps on expensive meds, or ask companies to prove a new drug's value compared to existing treatments for the same condition--or both.

If companies don't come back with new evidence or lower prices, the state-run system can reject the med altogether. And the threat of denied coverage is usually "enough to get them to offer a discount," Kristin Svanqvist, head of reimbursement for the NMA, told the newspaper.

This tactic worked for Norway when it was negotiating coverage for Amgen's ($AMGN) and GlaxoSmithKline's ($GSK) osteoporosis injection Prolia. The NMA said the med wasn't cost-effective compared to an existing infusion, prompting Amgen and GSK to lower Prolia's price. In turn, Norway's healthcare system said it would offer the drug to women 75 or older because the drug worked better in that population, the WSJ reports.

England has a similar system in place, with notoriously tough price watchdog the National Institute for Health and Care Excellence (NICE) requiring extensive reviews and cost-effectiveness data before recommending drugs for funding. When the WSJ looked at 40 branded drugs covered by Medicare Part B and also available in England during Q3, 98% were more expensive in the U.S.

A comparison between drug pricing in the U.S. and Canada, another country included in the WSJ report, turned up similar numbers. Of 30 drugs that a Canadian government agency and Medicare Part B covered in Q3, 93% were more expensive in the U.S. Canada has a federal agency that sets a maximum price for new drugs, and a separate body that recommends whether provincial or other government health programs should cover new drugs for older or low-income patients.

Needless to say, things work a bit differently in the U.S. Medicare doesn't have the power to negotiate directly with drugmakers, which forces it to forfeit its buying power and leaves doctors with little negotiating heft to do the bargaining, Sean Sullivan, dean of the School of Pharmacy at the University of Washington, told the WSJ. Plus, the U.S. market is more fragmented, and multiple payers often translate into higher costs for patients.

But an upside to increased spending on drugs in the U.S. is more R&D, the newspaper points out. "The U.S. is responsible for the majority of profits for most large pharmaceutical companies," SSR healthcare analyst Richard Evans told the WSJ, with drug prices spurring spending on innovative treatments or potential cures.

- read the WSJ story (sub. req.)

Special Report: The top 10 most expensive drugs of 2013

Suggested Articles

Johnson & Johnson faces a litany of problems, but executives are clearly not concerned—at least not about the company's short-term fortunes.

This week, Goldman Sachs resurrected a burning question: How can pharma companies profit from curing patients with one-time gene and cell therapies?

CMS has determined how it'll pay for Gilead's CAR-T cancer therapy, Yescarta, for outpatient use, but hasn't yet decided on Gilead's…