Biden looks to Germany for answers on how to tackle high U.S. drug prices: analyst

With the U.S. election just two weeks away, Democratic presidential nominee Joe Biden is offering clues about how his administration would approach drug pricing—and he's looking to Germany.

Under Biden’s plan, the government would set up a group to assess “fair” values of drugs, like the Institute for Clinical and Economic Review already does in the U.S. Other governments have their own drug value assessment agencies, but ICER is not a U.S. government group. Biden made the proposal Sunday night, Bernstein analyst Ronny Gal wrote in a note to clients.

The German system uses both a data-driven agency—the Institute for Quality and Efficiency in Health Care (IQWiG)—and national drug pricing negotiations to determine drug prices, Gal noted. Biden’s plan would enable the government to negotiate for “ceiling prices” applicable for all payers. It’d apply to new and existing drugs, but there are uncertainties.

The first unknown is whether the ceiling price would be the final price, or whether negotiated discounts would apply to bring prices lower, Gal wrote. The other yet unreleased details are the timing of implementation and whether there’d be Congressional involvement in price-setting or a way for companies to appeal through the courts. 

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The most important unknown, though, would be the government's final decision for a quality-adjusted life year (QALY) standard. Currently, ICER’s models incorporate QALY figures of up to $150,000 per year, but countries in Europe and elsewhere use much lower numbers, such as £30,000 ($38,873) in England. 

“To the extent the U.S. retains the price differential in QALY vs. Europe as roughly the current rates, the gap between U.S. prices and European prices will largely be retained—some drugs will do better, others worse,” Gal wrote. “However, there will not be a wholesale rating of U.S. prices lower.” 

The system would be “moving away from free-market price setting for drugs” but “much better” than President Donald Trump’s international pricing index model, he added. That proposal, unveiled in September, calls for the U.S. to tie Medicare's drug prices to much lower costs in other developed countries. The biopharma industry hit back hard, with key leaders calling it “reckless” or saying it was “simply dumbfounding” to make the proposal amid the pandemic.

Aside from his international pricing index, Trump has proposed importation, new discounts for certain medicines and eliminating rebates. 

RELATED: Trump unveils favored-nation drug pricing executive order, and pharma hits back 

In all, Gal notes Biden’s plan is only a “starting position” and, from an industry perspective, it “certainly could have been worse.” Democrats in the House have already signed off on Speaker Nancy Pelosi's plan that calls for Medicare drug pricing negotiations and more, but the bill didn't get a vote in the Senate. Earlier in the Democratic primary campaign, candidates called for a range of proposals, such as breaking some of pharma's lucrative patents.