How would an international price index (IPI) work to lower drug prices in the US?

House speaker Nancy Pelosi has unveiled a plan to lower sky-high prescription drug prices in the United States (US).

The proposal will involve Health and Human Services (HHS) selecting up to 250 drugs annually and negotiating with manufacturers to establish a maximum price. The negotiations would consider prices of the drugs in other countries such as Australia, Canada, France, Germany, Japan and the United Kingdom (UK), as drug prices are much lower in these places. Pelosi has also planned to introduce severe penalties to ensure manufacturers comply with the new legislation.

The Trump administration expects the IPI to save patients $3.4billion. Canada already uses a similar system to negotiate drug prices. However, some analysts argue that every country will now look to this index, basing prices on their neighbour rather than on the medicine’s clinical value or the cost of developing and producing it. Some Republican lawmakers and conservative groups are against the idea of an IPI. They argue that it contradicts free market principles and is a “step towards socialism”.

Unsurprisingly, the pharmaceutical industry has strong objections to the proposed scheme:

“Speaker Pelosi’s radical plan would end the current market-based system that has made the United States the global leader in developing innovative, lifesaving treatments and cures”. “It is deeply unfortunate House leaders have chosen an extreme approach that will make it harder to deliver meaningful reform for patients”.

As there is limited competition in the market, some manufacturers have been able to set unreasonable prices. The US Food and Drug Administration’s (FDA) top priority has been to improve the efficiency of generic drug development, review and approval processes. This would help to remove barriers to generic drug market entry so that consumers can have access to more cost-effective treatments. The eventual increased competition on the market would potentially lead to price reductions, as is the case in other countries.

According to a recent poll, the pharmaceutical industry is the most unpopular industry in the US. For years, Americans have endured a drug-pricing system that provides increasing opportunities for innovation, while failing to supply important medications at affordable prices. The US have access to some of the most effective medicines in the world, but access is futile without affordability.

Further information on the IPI can be found here.