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There are few things most Americans agree on these days, but high drug prices clearly are one of them. From $1,000-a-dose miracle drugs to enormous mark-ups on existing drugs, including generics, the pharmaceutical industry has been on a price-gouging campaign. We are angry about this and getting more so. And this was before drug executive Martin Shkreli took a page out of Bizarro last week with his performance at a Congressional hearing. No wonder the industry is trying to revamp its image, rushing out a new ad campaign aimed at Beltway policymakers.
Democratic presidential candidates Hillary Clinton and Bernie Sanders have issued extensive statements on how to combat rising drug prices. Leading Republican contenders are less eager to add regulations, although Donald Trump reportedly has said he supports giving government more authority to seek lower prices.
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Sen. Ted Cruz’s campaign responded to a request for his policy on drug prices by referring to a piece he wrote about how the Food and Drug Administration was blocking medical innovation. Drug companies, he said, would produce more life-saving treatments if they faced fewer FDA impediments. The campaigns of Trump and Sen. Marco Rubio did not respond to multiple requests for their views on high drug prices.
So where do things stand? And what are the odds of getting meaningful price relief on pharmacy bills?
Beyond the campaign trail, multiple Congressional hearings have tried with limited success to grill executives from pharmaceutical companies about rising drug prices and the grounds on which they can be justified. Likewise, the Obama administration has issued some price-control proposals. Beyond rhetoric, no one is taking such things seriously during an election year in which Republicans control both houses of Congress.
More importantly, while it’s clear that voters would like to see lower drug prices, experts note that achieving that goal will be nearly impossible without an unrealistic set of new laws. And if such new laws could be enacted, consumers might not like some of their side effects.
Citizens in many other nations pay much less for prescription drugs than Americans do. Often, their national governments negotiate on prices directly with pharmaceutical companies. It may be tougher for a pharmaceutical company to sit across the table from a national government than a private health insurer or pharmacy company, as is the case in the U.S. But experts note that a powerful reason for lower prices in other countries is that their health systems are willing to limit their citizens’ access to drugs in exchange for getting lower drug prices. Without limiting access, these governments would have only modest leverage to seek lower prices.
In the U.S., by contrast, Medicare rules make it very hard to limit consumer access to even the most expensive new medications. Drug plans do push consumers into lower-priced generics. But there are few curbs on access to drugs for which there are no generic equivalents. It’s a safe bet that U.S. consumers would not be happy if their access to these drugs was limited or cut off, even if it meant they would pay less for the drugs they could buy.
Clinton and Sanders support giving Medicare more power to negotiate drug prices, but their plans also seek to attack the problem in other ways.
Clinton’s plan also would:
- Stop tax deductions for direct-to-consumer drug company advertising expenses and reinvest funds in research. A related goal is to stop government from subsidizing ads that may generate consumer demand based on misleading and confusing messages.
- Require drug companies that benefit from federal research programs to invest in research, not boost their spending on marketing or add to their profits.
- Cap out-of-pocket costs to consumers for prescription drugs at $250 a month.
- Broaden FDA rules to stimulate approval of generic drugs to drive down prices and give consumers more choices.
- Prohibit “pay for delay” arrangements that now permit branded drug companies to pay generic manufacturers to keep generic equivalents off the market.
- Allow Americans to import drugs from abroad, providing Americans access to lower-priced medicines and thus boosting price competition at home.
- Ensure American consumers are getting value for their drugs, by tying government approval of new drugs to requirements that the drugs improve health and outcomes.
Sanders’ plan also would:
- Import prescription drugs from Canada.
- Close the Medicare coverage gap, known as the “donut hole,” by 2017; the current law will close it by 2020. This would reduce drug costs for millions of beneficiaries three years earlier than scheduled.
- Boost Medicare and Medicaid drug discounts and rebates.
- Prohibit “pay-for-delay” agreements between branded and generic drug companies.
- Boost penalties for drug companies convicted of fraudulent behavior.
- Require drug companies to publicly report their drug development costs, government subsidies and pricing information in not only the U.S. but in all countries where their drugs are sold too.
The absence of drug-pricing proposals from the GOP contenders illustrates how hard it would be for Sanders or Clinton to get Congressional approval should they win office. Beyond political realities, dealing with drug pricing also entails big practical constraints.
A recent assessment by several health experts said giving the U.S. government the power to negotiate drug prices would mean little without also giving it some control over the drugs that health insurers included in their plans and even, some say, in whether a plan could even have access to certain drugs. Further, with thousands of drugs, any price negotiations would likely need to be done by types of drugs, not individual medications. It would be a daunting task.
This task, others say, is exactly the way unregulated drug markets already work. Creating any additional government controls over drug prices would damage if not ruin these markets. Overhauling the patent system to deal with only one sector of the economy also seems like a non-starter. And, like it or not, any measures that reduced financial payoffs to drug companies likely would lessen their incentives to develop drugs in the first place.
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While critics can argue that drug prices and company profits are too high, it’s difficult for this argument to hold up in the real world. In that world, companies are rewarded for making products that can be sold at hefty mark-ups compared with their costs of production. Whether it’s iPhones or automobiles, big profit margins often drive higher stock prices and other benefits of commercial success.
If pharmaceutical companies are supposed to be held to a different standard of performance, no one has yet suggested how this might work in practice. Even hospitals and doctors, who some would expect to pursue less pecuniary standards of commercial conduct, clearly are motivated by money and do not willingly agree to give it back to their patients.
Critics of U.S. drug rules note that we pay the highest drug prices in the world. American consumers therefore shoulder much of the global costs of creating new drugs. Who’s to judge whether these costs are fully justified to encourage companies to seek and develop new drugs? Perhaps every dollar is needed; perhaps not. But regardless of how many dollars it takes to incentivize the development of new drugs, fewer of them should come from the U.S. and more from consumers in other countries. Any change in U.S. drug pricing rules should be part of an international accord on drug pricing to achieve the best outcomes for American consumers. Don’t hold your breath waiting for this to happen.
In the meantime, as health economist Austin Frakt has noted, perhaps we can at least take some solace from evidence that widespread complaints about high drug prices may themselves be creating pressure on drug companies to ease their feet off the pricing pedal.