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Pharmaceutical Pricing

The pricing of pharmaceuticals is a complicated situation. The pharmaceutical company in pricing a particular pharmaceutical is not just recovering the costs of making that pharmaceutical, which generally is insignificant, but must also recover the cost of the research, development and approval process expenses incurred in regard to that particular pharmaceutical. Pharmaceutical companies also need to recover the research, development and approval costs for those pharmaceuticals which failed and never obtained FDA approval, generate a sufficient return to fund the research, development and approval process for new drugs, and make a profit.  There is no simple formula or methodology that can be used, either by politicians or by bureaucrats, in determining what a reasonable price for a given pharmaceutical product would be in light of the components that it contains.

It appears, however, that the drug pricing proposals, whether they are from President Trump, or from Republicans, Democrats or other commentators, have not zeroed in and effectively addressed how a government bureaucrat or a government elected official could determine the reasonableness of a particular price for a particular pharmaceutical.

There is an alternative, however. That alternative would be the concept of “Most Favored Nations”.  Under that concept, the United States would mandate by statute, that no one could sell a pharmaceutical in the United States for a price higher than the lowest price that it was sold anywhere else in the world.  The United States would, therefore, get the benefit of the various worldwide negotiations of numerous purchases of that pharmaceutical, since a pharmaceutical company would no longer have the ability to make up the shortfall of revenue it needs to cover the various cost components of the pharmaceutical by imposing a much larger price on American consumers/payors to make up the shortfalls.  President Trump’s recent proposal to address pharmaceutical cost disparities, so that the United States consumers and payors are not subsidizing the pharmaceutical industry for the benefit of other countries, can be accomplished with use of a Most Favored Nations concept.

It would be up to the pharmaceutical company, not up to a government bureaucrat or a government elected official, to determine what price they need to charge throughout the world, realizing that the lowest price that they can charge will be the price that they can charge in the United States. That may have, and more likely will have, an adverse effect upon the pricing that is now offered in other parts of the world.  While many, if not most purchases of pharmaceuticals, other than the United States, do not have an oligopolistic or monopolistic impact on the pricing, the United States clearly has, because of its direct or indirect purchase of pharmaceuticals, an oligopolistic impact on the pricing.  This concept would eliminate many, if not all of the problems, resulting from a market in which there is an oligopolistic affecting what the pricing would be.

We would still need governmental oversight in such an arrangement. The government must ensure that the prices are consistent with the Most Favored Nations concept and to take enforcement steps in cases of noncompliance.  More essentially, the government will need to aggressively ensure that the intellectual property of the pharmaceutical companies is not infringed or otherwise compromised by other purchasers, who no longer will be able to obtain pharmaceuticals at prices significantly less than those paid by the American consumer.

Obviously, under the Most Favored Nation concepts, there would be no need to import pharmaceuticals from Canada since pharmaceuticals could no longer be sold in Canada at a price lower than those being sold in the United States.

© 2018 Giordano, Halleran & Ciesla, P.C. All Rights Reserved

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About this Author

Frank R. Ciesla, Giordano Law Firm, Health Care Attorney
Shareholder

Mr. Ciesla is chair of the firm's Health Care Law Practice Area. His practice is primarily devoted to Health Care and Government Contracts Law. He counsels clients on legal developments facing healthcare providers in the modern health care environment. Firm clients include hospitals, nursing homes, physicians and physician groups, individual practice associations, home health agencies, ambulance carriers and industry-wide associations.

732-741-3900
Beth Christian, Giordano Law firm, Health Care Attorney
Shareholder

Ms. Christian's practice is devoted to Health Care Law and legal issues facing Health Care facilities licensed professionals and non-profit organizations. She has over twenty years of experience counseling clients on legal issues facing the modern health care and non-profit communities.

732-219-5485
Anjali Baxi, Giordano Halleran Law Firm, Healthcare Attorney, New Jersey health Law
Attorney

Anjali has over 12 years of experience in healthcare transactional matters.  She prepares corporate documents, purchase agreements and other transaction documents for health care providers necessary for the corporate transfer and necessary for the transfer of NJDOH and NJDHS licenses and provider numbers. She has counseled skilled nursing, assisted living, adult medical day care, and outpatient facility clients regarding New Jersey Department of Health (NJDOH) regulatory requirements and licensure process.

Anjali has prepared and managed...

732-741-3900
Ari G. Burd, Giordano Law Firm, Labor Employment Attorney
Associate

Mr. Burd practices in both the Labor and Employment Law Practice Area and the Health Care Practice Area. In the Labor and Employment Practice Area, Mr. Burd devotes his time to litigation and counseling employers with regard to traditional employment and labor related issues. Mr. Burd has extensive experience in both the state and federal courts in areas including retaliation, wrongful termination, wage and hour, sexual harassment and race, age, gender and disability discrimination. Mr. Burd also has considerable experience in assisting negotiating and drafting employment related...

732-741-3900