Global pricing could be the upside to pharmaceutical tax inversion

By Chris Hanson-Ehlinger
Fri, Jun, 06, 2014 @ 11:06 AM

Shawn PattersonThe pharmaceutical industry is among the most profitable industries in the United States. With margins of almost 20 percent, it beats out even the financial sector for sheer profitability, according to the Washington Post. Nonetheless, citing a highly competitive marketplace, several long-standing U.S. pharmaceutical companies are securing tax advantages through inversion.

Tax inversion is when a U.S. company becomes a subsidiary of a foreign company, typically in a country with lower tax rates. The original company becomes subject to the foreign country’s tax laws and realizes significant savings as compared to U.S. taxes. U.S.-based Pfizer’s recent run at Britain’s AstraZeneca is a recent example of an attempt to gain tax advantages. Before that, pharmaceutical companies Perrigo and Actavis each acquired Irish drug makers. Walgreens is currently considering a restructure to gain tax inversion by aligning with Swiss-based Alliance Boots.

In April, the World Bank released an International Comparison Program summary, which evaluates the real size of world economies. The report indicates that two-thirds of the world’s economy is generated by 12 countries. Six middle income economies—China, India, Russia, Brazil, Indonesia and Mexico—account for 32.3 percent of world gross domestic product (GDP), roughly the same as the six highest income economies—United States, Japan, Germany, France, United Kingdom and Italy—which account for 32.9 percent.

If the U.S. had per-person health care costs similar to those of our global peers, the Washington Post reports, America’s deficits would vanish. Americans spend $7,960 per person on health care annually. Of that, approximately 20 percent is related to pharmaceuticals. Meanwhile, Germans spend $4,218 per person, and the French, $3,978. This disparity is not because health care utilization is higher in the U.S., but because the cost of services for Americans is disproportionately greater.

Brand-name prescription drug prices are 5 to 198 percent higher in the U.S. than in any other country. For example, a patient in China may pay $2,000 for a course of pharmaceutical treatment that in the U.S. costs $80,000. Such dramatic discrepancies in prescription drug pricing challenges America’s ability to remain competitive in a world market.

There may be an upside to pharmaceutical tax inversion for Americans. As the pharmaceutical industry reduces its tax obligations and positions itself to meet the competitive demands of a worldwide market, might we foresee a day when global prescription drug pricing across all major world economies becomes a reality?

Shawn Patterson is national sales and client management leader at Burchfield. For more information, please call The Burchfield Group at 800-778-1359 or send us a note (http://www.burchfieldgroup.com/contact/).

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