QuickTake Q&A

Why Drugs Cost Less in the U.K. Than in the U.S.

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Keeping tabs on the tablets.

Photographer: Simon Dawson/Bloomberg

Drug prices in the U.K., already among the lowest in the developed world, may drop lower still. The British public-health system has adopted new limits on how much it spends on certain medicines, prompting pharmaceutical companies to sue in a bid to stop the initiative. At a time when U.S. President Donald Trump has pledged to bring down the cost of medicine and health care in the U.S., the U.K.’s experience can offer lessons as well as cautionary tales.

1. Why are drug prices low in the U.K.?

The taxpayer-funded National Health Service, which provides free health care to more than 64 million people, is the main buyer of pharmaceutical products in the U.K. That means it can use its purchasing power to negotiate with drug companies to get lower prices. 

2. How does the health service decide which drugs to offer?

A government agency called the National Institute for Health and Care Excellence (NICE) assesses new drugs, or drugs that could have a significant effect on patients, to determine whether they are cost-effective. It then makes a recommendation to the NHS system in England. (Local public health systems in Wales, Scotland and Northern Ireland make their own decisions.) To secure NICE’s backing, pharmaceutical companies sometimes offer undisclosed discounts on the list prices for their more expensive branded drugs, reducing the cost to taxpayers. If NICE approves a drug, NHS in England must make it available to patients with valid prescriptions within 90 days.

3. What makes a drug cost-effective?

NICE uses a metric known as “quality adjusted life-years” to assess the value of medicines in extending and improving patients’ lives. The agency usually only approves drugs that cost less than 30,000 pounds ($39,000) per quality adjusted life-year, which is equal to a year of life in perfect health.

4. What happens if a drug isn’t approved?

If NICE determines a drug is too expensive, its maker can try to reach a separate deal with the U.K.’s Department of Health through special arrangements known as patient access schemes. Failing that, patients will get access to the drug only if their doctor makes an individual funding request and shows exceptional circumstances.

5. How are costs controlled once a drug is approved?

The U.K. Department of Health negotiates with drugmakers a five-year voluntary agreement called the Pharmaceutical Price Regulation Scheme, or PPRS, to regulate the cost of brand-name medicines. Under the accord that took effect January 2014, the bill for branded medicines was to remain flat for two years and then to rise by about 1.8 percent annually in 2016 and 2017 and 1.9 percent in 2018. Government spending on medicines in excess of these levels is to be reimbursed by the drug companies.

6. Why are drugmakers unhappy with the system?

They question whether the U.K. really supports innovation. Pharmaceutical companies say the low prices leave them with less money for research and development, stifling their ability to invest in expensive, high-risk research projects for new medicines. NICE’s cost-effectiveness test relies on a cost-per-patient approach that puts therapies for very rare diseases or complex personalized medicines at a disadvantage, drugmakers say. Some also say NICE takes too long to decide and can slow down the entry of new drugs into the market, meaning patients don’t get access to life-saving medicines as quickly as in other countries. And when companies fail to win NICE’s backing despite discounts, patients’ access to life-saving drugs is curtailed.

7. Why are drug companies taking NICE to court?

The U.K. government, to reduce NHS spending, in March announced it would limit payments for any drug that could cost the health system more than 20 million pounds annually in its first three years of use. The pharmaceutical industry’s trade group is asking for judicial review of that decision, considering that some of the affected drugs had been approved as cost effective. The spending limit was introduced after a 2015 decision by NHS England to curtail access to the hepatitis C treatment Sovaldi, made by Gilead Sciences Inc., despite NICE’s recommendation in support of the drug. Any drugs over the 20-million-pound limit will have to go through an additional negotiation process between the NHS and the company. Manufacturers say this could delay treatments for cancer, heart disease and diabetes.

8. How does the U.S. set drug prices? 

The pricing of drugs is opaque in the U.S. Pharmaceutical companies determine their own list prices. They then give big rebates to health insurers and to intermediaries such as pharmacy benefit managers, which negotiate discounts for private insurers and employers on behalf of patients. This entails favoring some drugs over others in return for the rebates. Medicaid, the joint federal-state program that provides health coverage to the poor, gets rebates and discounts that are mandated under U.S. law. Medicare, the federal program that provides health coverage to the elderly and disabled, has to pay prices negotiated by insurers and drugmakers, which generally reflect a much smaller discount.

The Reference Shelf

  • A QuickTake explainer on drug prices in the U.S. 
  • A guide to the Pharmaceutical Price Regulation Scheme from the U.K. drug industry.
  • England says no to drugs that cost more than your car (or home).
  • Drug prices might be yet another issue for Brexit negotiators.
  • A January 2017 Bloomberg View column said Britain’s stretched-thin health service needs urgent care.
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