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♪ ♪ JOHN KATKO: Welcome, America, to "Balancing Act", the show that aims to tame the political circus of two-party politics.

I'm John Katko.

This week: Why do Americans pay such high drug prices, and is a remedy in sight?

We'll ask senior health economist Andrew Mulcahy in the center ring.

Then, Senator Peter Welch and Executive Vice President of PhRMA, Elizabeth Carpenter, take to the trapeze to debate the issue.

Then I'll give you my take, and Bloomberg's Nick Wadhams fills us in on what's happening next week in Washington.

But first, let's walk the tightrope.

♪ U.S.

prescription drug prices are enough to give anyone a migraine, and even treating that migraine can come at a very hectic cost.

The RAND Corporation reports say U.S.

drug prices average 2.8 times higher than those in 33 other developed nations.

For brand-name drugs, the gap can be even greater.

In the late 1800s, chemical companies and apothecary-based manufacturers merged, and a modern pharmaceutical industry was born.

In 1906, President Theodore Roosevelt oversaw the implementation of the Pure Food and Drug Act, the first federal legislation to set standards and regulate drug sales.

Since then, research labs, clinical trials, and biotechnology advancements have changed the way that drugs are developed and produced, and the pharmaceutical industry has exploded.

So, if the U.S.

leads the world in drug development, why do our drugs cost so much?

It comes down to four powerful forces: Drug exclusivities, high demand, development costs, and limited government price controls.

First, drug exclusivities, which is a defined period when a brand-name drug is protected from generic competition.

It can last 20 years or longer before less expensive generics can even enter the market.

Second, Americans take more prescription drugs than people in most other countries.

Third, drug makers invest billions in research pipelines.

Fourth, the limited price controls are at least in part a result of robust lobbying efforts by the pharmaceutical and health products industries.

According to the nonpartisan group Open Secrets, those industries spent a whopping $391 million lobbying last year alone, more than any other industry.

However, America's system does offer major advantages.

For example, nearly 70% of new medicines launch here in America first, often a year or more before they're available in other countries.

In those countries where governments cap prices, access to certain drugs can take longer or never materialize at all.

Complicating the issue is what's known as a pharmacy rebate maze.

Pharmacy Benefit Managers, or PBMs, are middlemen who negotiate drug prices for insurers and employers.

They were designed to save consumers money, but really, many PBMs are paid through rebates from drug manufacturers or fees from insurers tied to a percentage of a drug's list price.

This means incentives for PBMs don't always line up with lowering costs.

For decades, politicians have promised to fix the prescription price problem.

Only recently has real movement begun.

The Inflation Reduction Act of 2022 gave Medicare power to negotiate prices on a few costly drugs.

And the current administration's "Most Favored Nation" plan seeks to link some U.S.

prices to those paid overseas.

So, will America finally flip the script on drug prices?

For the answer, let's have a consultation with our first guest in the center ring.

♪ KATKO: Joining me now is Andrew Mulcahy, senior health economist at the nonpartisan think tank RAND Corporation.

Welcome, Andrew, and let's get right into it.

What are the components that go into prescription drug pricing today?

MULCAHY: Thanks for having me, John.

It's a complicated market and a complicated question.

The real driver of drug prices in the U.S.

is what drug companies charge for these drugs as they're sold into the market.

It's really hard for consumers, for any of us, including researchers, to understand what prices are actually paid for drugs at the end of the day after drug companies make deals with health insurers and their pharmacy benefit managers.

You know, the drivers of high drug prices that we talk about in discussions like this, John, are really expensive brand-name drugs.

For some other kinds of drugs that represent the bulk of the fills that patients pick up at pharmacies or get mailed to their house, those are much less expensive generic drugs.

So there really is this important distinction between drug prices for some kinds of expensive brand-name drugs versus much less expensive generics.

I think that distinction is important to emphasize.

KATKO: Now briefly, is it fair to say that one of the primary components of higher drug prices is research costs in the development of drugs?

MULCAHY: Yeah, I think economists have different takes on this.

My take is that, no, the research and development is clearly a very expensive endeavor-risky, very long over many years-and not to discount any of the importance of that investment to bring a drug to market.

But once a drug is approved by the FDA and ready to be sold, you know, the link between the price the companies charge and those upfront investments in R&D isn't direct.

I don't think we should generally think about high drug prices being driven by expensive investments in R&D.

KATKO: So Andrew, it's a well-known fact that in most of the industrialized nations, at least, prescription drug prices are much lower than they are in the United States.

Why is that?

MULCAHY: Yeah, it's another great question.

We've done a lot of research on this and found that, on average, for brand-name drugs, U.S.

prices are two to three times those in other countries.

Many reasons for this - the most straightforward one is that other countries have policies in place to keep prices for brand-name drugs lower.

And the U.S.

doesn't have that kind of federal-level or national policy perspective.

We do have some constraints on what drug companies can price drugs at in the U.S.

A lot of it stems from negotiations between drug companies and pharmacy benefit managers.

So that does help a little bit, but we don't have the kind of entities that exist in the United Kingdom or Germany or Canada that put some kinds of bounds on how high drug prices can be relative to the benefits that they offer patients.

KATKO: So they have some programs.

Can you describe a little bit more about what those programs are in other countries?

MULCAHY: There is a range of different approaches to this, some more direct and some a little less so.

In the UK, there's NICE, which is an entity that looks at all of the evidence around the effectiveness of a drug and goes back and forth with patient advocates, drug companies, and researchers to try to land at a sweet spot between what a drug offers to patients and how much it should cost.

Germany has a similar body called IQWiG that does the same kind of analysis.

We do some of that in the U.S.

There are organizations that try to provide this kind of information and analysis of the value that drugs offer us, but that's done mostly in the nonprofit and private sectors, not at the government level.

KATKO: The common question in the United States today seems to be to force those other countries to pay their fair share, so we're not paying the overwhelming freight for the research and development costs of drugs.

Is that a fair argument?

MULCAHY: Yeah, I think, John, I struggle with that too, from the point of view as an economist thinking about this.

I think there's no doubt that companies make a lot of revenue from the U.S., but the link between that kind of revenue and investments in R&D is a tricky one to nail down, and the evidence there I think is mixed.

So I think it is fair to say that if drug prices were higher in other countries on balance, we might expect some more investment in R&D.

But that's not quite the same thing as saying that those countries are free-riding on R&D investments from the U.S.

KATKO: So what should we do in the United States with respect to our system?

MULCAHY: Another great question.

I think this is partially a researcher kind of perspective to answer that question, but I think it's a solid one.

And that's, I think we should do some of the analysis in-house domestically in the U.S.

to figure out what the value proposition is from drugs.

It's very important to note that when the FDA reviews all of the clinical trial evidence from a new drug, they are just focused on safety and effectiveness.

They don't look at costs at all, and the job of looking at what a drug offers to patients relative to the cost comes down to individual patients, their prescribers, insurers, and their PBMs.

In our U.S.

healthcare system, which is fragmented in the way it's set up and who's responsible for those kinds of decisions, where you land in terms of a decision on whether or not a drug at a certain price is good or bad value can be all over the place.

And that creates a lot of difficulty for patients who might be switching between different kinds of coverage or dealing with a PBM or an insurer who may be changing their formulary on a routine basis.

So I'd argue for an approach that's anchored on objective data and analysis.

It's really hard to argue with some of those analyses that show that, you know, at any reasonable price, a new drug - while it may be new to the market-just doesn't really offer much or anything to patients.

KATKO: So what about the Trump administration's efforts to impact lower prices for prescription drugs?

MULCAHY: You know, all I can say is that they have a lot of irons in the fire.

There are efforts to make deals with drug companies.

There are efforts to have new models in Medicare to help tackle drug prices.

A recent announcement to have a drug price model in Medicaid, and many other efforts.

I think part of the challenge with assessing the likelihood that any of them, individually or collectively, will have much of an impact is this question about what price we're actually talking about.

You know, I hinted at earlier, there are these behind-the-scenes negotiations between drug companies and pharmacy benefit managers.

It's really hard, even for the government, to understand where a price lands.

What kind of money the drug companies are making is actually very tricky to figure out still today, even with all of this new information and data the government may be collecting.

So I think that's an important limitation.

It's easy to say that we're making a deal with the drug company.

It's hard to say how that will actually end up affecting patients' out-of-pocket costs or how much we're paying for our drug coverage.

KATKO: Senior health economist Andrew Mulcahy, thank you so much for a great conversation.

Let's continue the discussion as we take to the trapeze.

♪ Joining me on the trapeze with Vermont Senator Peter Welch and Executive Vice President of Pharma, Elizabeth Carpenter.

Welcome to both of you, and let's dive right into it.

Elizabeth, you know, when you go to the drugstore now, prescription drug prices are high.

Maybe you can just take an opportunity to describe for the folks what one of the factors that go into drug pricing?

CARPENTER: Yeah, thanks for that question, and I think it's important when we talk about price to be specific about what prices really matter to folks who are listening at home.

So it's not really the list price or the sticker price, and it's probably not even the price that your insurer is paying for the medicine.

It's what you, as an American, are paying out of pocket when you go to the pharmacy counter.

The reality is that PBMs and insurers decide what medicines are covered and how much you pay.

In many cases, Americans are actually paying more than their insurer for their medicine.

And that's in part because 50% of what we spend on medicines in this country goes to another entity that doesn't make the medicines -a PBM, an insurer, a hospital, even the government - and so that has an impact on what all of us pay for medicines here.

I would also just say that despite that, we have a system that really drives lower prices for medicines over time.

After a period of time, lower-cost generics enter the market, prices go down, and as a result, what we see is that the U.S.

government is actually spending 18% less per prescription than other countries.

And we know that medicines are the best value in healthcare.

When we spend money on medicines, we also get savings elsewhere in the healthcare system.

So these are all really important things to consider.

KATKO: But Elizabeth, I've just got to push back quickly.

Isn't it a fact that prescription drug prices in the U.S.

are higher than they are in most of the other countries in the world?

CARPENTER: I'm glad you raised that because there are really pretty specific reasons that there are differences in prices here than there are in other countries.

First, and the president has been really clear about this, other countries are not paying their fair share for medicines, and research shows that, in fact, that levies a 26% tax on American patients.

Again, when you think about our system, we have some unique aspects.

Other countries don't have other entities that are taking 50% of medicine spending.

Recent research also shows that, in some cases, PBM fees can be 900% more than the cost of a medicine in another country.

So when we talk about these differences, it's hard to ignore those facts.

KATKO: Peter, your take?

WELCH: Well, the cost of healthcare, and especially pharmaceutical drugs, is the highest in the world.

And the bottom line is, we can't afford it.

Prescription drugs in this country cost, in many cases, five or ten times what they cost in other countries.

And there's a difference between what the out-of-pocket is.

If you're lucky and you have really good insurance, your out-of-pocket might be lower.

But the bottom line here, just to give a couple of concrete examples: Ozempic - you have to spend $936 a month to get that.

In the United Kingdom, it's $93.

It's like 10%.

In France, it's $83.

Keytruda, which is a very important drug, is $12,000 per dose in the United States.

But in the United Kingdom, it's $2,000.

And the list goes on and on and on.

The total cost is what you pay out of pocket, what you pay in premiums for your insurance, what the taxpayer pays for Medicare and Medicaid, and then also what employers are paying who are providing employer-sponsored healthcare.

So, you know, I really admire the research and the innovation that our pharmaceutical companies have done, but they're killing us on the price.

It's unique to the United States because of our laws that essentially favor incredible profits for the pharmaceutical companies and incredibly high prices for our consumers and patients.

So, you're a family, and you've got a loved one who's really sick, and you find out that the medication that can save your daughter's life, your partner's life, costs $125,000.

You're going to take a second mortgage if you're lucky enough to have a home, you're going to wipe out your savings, your retirement account.

And these prices are just too high.

And by the way, pharmaceutical profits are enormous.

The executives, in many cases, make over $100 million a year, and then the trillions of dollars in profits go not back into the healthcare system - they go into stock buybacks and dividends.

KATKO: So Elizabeth, what about that?

Do pharmaceutical companies have very high profits?

CARPENTER: Yeah, I would say that if we're going to look at profits, we should look at the money that insurers and PBMs have made over the last decade, really profiting off of medicine prices.

And when we talk about reinvesting in the healthcare system, I don't think there's a better example than the biopharmaceutical industry.

We know that it takes roughly $2.6 billion and 10 years to bring a medicine to market.

Only 12% of medicines that enter clinical trials are ever approved by the FDA.

That doesn't account for the investment in basic research, in preclinical research.

Biopharmaceutical companies take big bets every day, and we want them to take those bets, right?

We want them to try to find a treatment or a cure for Alzheimer's.

And at the same time, we want them to know that if they find something that works, there is a reasonable time and opportunity to recoup that investment, to fuel the next generation of innovation and the medicines all And some of the policies that we're discussing interrupts that opportunity and that's why whether it is Republican or democrat, price setting really is the wrong choice for the American people.

And, you know, the wrong choice for future innovation and the medicines all of us really want to experience into the future.

>> KATKO: Peter, do you have a possible solution we obviously know the problem and it is pretty significant.

We only have a few minutes left; could you summarize it for us?

WELCH: Yeah, it actually aligns with what President Trump has been talking about.

Senator Josh Hawley from Missouri and I have a bill, which would say that American consumers will pay the average price that consumers in other countries pay, like France, like the United Kingdom, like Canada.

So you would level it out.

I mean, really, why is it that if you're a consumer here in the United States, you have to pay $12,000 versus the same product you can buy in the United Kingdom for $2,000?

So what Josh and I are saying, and actually the president's been saying this, is let's have reference pricing.

Let's even it out across the board.

And by the way, that means that everybody can help pay for the research that is expensive, that goes into creating new drugs.

KATKO: When you say everybody can pay for the research, are you talking about other countries paying their fair share?

WELCH: Yeah, absolutely.

If you have reference pricing, then part of what goes into that is the cost of research.

So, you know, we've got a situation here in this country where the pricing power of entities is really being used in a way that makes it impossible and out of reach for families to get the things they need.

The pharma profits are very high.

We can protect their capacity to do research, but we've really got to be thinking about those patients and the sustainability of having a healthcare system where, in this country, we pay per person like $13,000, and European allies pay about $6,800.

And it's not as though our health outcomes are better.

Our life expectancy is lower than many other countries.

So price is an issue, affordability is an issue, access is an issue.

KATKO: Elizabeth, we have a Democratic agreeing with President Trump.

We're making progress here.

So you have the last word, and we have about 30 seconds left.

Is raising or lowering the prices, or trying to get other countries to pay their fair share the way to go?

CARPENTER: Yeah, respectfully to the Senator, I would just say that in instances where insurers are not covering medicines, or are creating hoops that are impossible for patients to access their medicines, it really doesn't matter what the price is.

And if we're going to talk about providing Americans access to affordable medicines, we have to also tackle the fact that insurers decide what medicines are covered, how much they cost, and that people are frustrated because they are struggling to access medicines because of the barriers that are really being erected by our system.

KATKO: Executive Vice President of PhRMA, Elizabeth Carpenter, Senator Peter Welch of Vermont, thank you both so much for a great conversation.

Now it's time for my take.

♪ KATKO: Prescription drug prices seem to never stop climbing, straining seniors and low-income families.

Americans paying more than most other countries is completely out of balance.

But we can't ignore the upside-groundbreaking medical research done here has produced life-saving treatments.

Some are stuck in a Hobson's choice: Force prices too low, and we risk strangling the very research pipeline that produces new cures.

After 9/11, a bipartisan commission was dedicated to one goal preventing another attack.

It worked because the mission was carried out collectively.

We should use that blueprint by bringing together leaders from all sides- industry, government patient advocates, and insurers - who are genuinely committed to lowering prices without adversely affecting serious research.

Then, commit to implementing those solutions.

After today's discussion, it's clear we may not be that far apart from reaching a consensus.

When America decides to tackle a problem together, the prognosis is good.

So let's give it a shot, and that's my take.

♪ ♪ KATKO: You may be wondering what's happening next week in Washington.

Let's find out with Bloomberg's National Security Editor, Nick Wadhams.

Welcome, Nick, so what's going on?

NICK WADHAMS: Well, you know, now that the president has the Epstein situation largely behind him with the Senate approving the decision to release those files, we do expect that President Trump is going to be looking outward again.

He has often tried to sort of maintain that sort of dichotomy.

So the big thing we're seeing right now is Ukraine and the possibility that the U.S.

is going to push forward what looks to be a 28-point peace plan with Russia.

We've had some rumblings.

In the last day or two that the administration is quietly in conversations directly with Russia about a potential deal.

Obviously, we'd need to see buy-in from Ukraine there, but it would fit a broader pattern we've seen with this administration, where they sort of put forward an idea or a plan, even with some specifics, even though they don't necessarily have buy-in from all parties.

The template there was really the Gaza ceasefire, and then they say, "Okay, here's the thing, here's the deal.

Now live up to it."

So we expect that we may get some more indication of where the administration is headed with that.

I mean, President Trump is still talking about the idea of a Nobel Peace Prize.

And then the other thing we'll be looking at is Gaza and the possibility of setting up what the administration calls this international stabilization force.

They're looking for other countries to send troops to help monitor that ceasefire in Gaza.

KATKO: So what is the likelihood, based on what you're hearing, the upcoming peace plan for Ukraine could gain traction?

WADHAMS: It's a great question because the big unknown there is what Ukraine is going to do.

President Zelensky's strategy over the last several months has basically been to defer to everything that Trump wants.

You recall that earlier this year when he sought to contradict President Trump, they had that blow-up in the Oval Office that turned out to be disastrous, and he really had to spend months repairing the relationship.

So President Zelensky has said repeatedly, "Yes, we want negotiations, we are ready to negotiate.

The ball is in Russia's court."

But once you see an actual potential plan that may include things such as concessions of land, potential limits on Ukraine's ability to join NATO in the long term - once you sort of see those hard targets in a peace plan like that, the onus is really going to be on President Zelensky to decide whether that's something he wants to sign up to or whether he feels that this process is getting away from him.

So again, it's really going to be a question of where the devil is in the details.

It would be a very long and drawn-out process, but we should have a sign in the middle of next week, whether Ukraine is willing to play ball here.

KATKO: Nick Wadhams, National Security Editor at Bloomberg, thanks so much.

That's all for this week, folks.

To send in your comments for the show, or to see"Balancing Act" Extras and exclusives, follow us on social media, or go to BalancingActwithJohnKatko.com.

Thank you for joining us, and remember, in the circus that is politics, there's always a "Balancing Act".

I'm John Katko.

We'll see you next time, America.

♪ ♪