To Cut Drug Prices, Start with the Facts
Peter J. Pitts
Americans are paying too much for prescription medicines. State lawmakers are fed up with Washington's apathy towards high pharmacy bills. So they're taking matters into their own hands and pushing forward with several bills.
Their proposals are well-intentioned -- but they're doomed to backfire and hurt patients. Why? The bills are based on false assumptions.
Many lawmakers believe that prescription drug prices are skyrocketing. They're not. In fact, after accounting for all the rebates and discounts manufacturers offer, drug prices have barely budged in recent years. Drug spending grew just 1.3 percent in 2016, according to the latest federal data from the Centers for Medicare & Medicaid Services. Overall health spending increased by 4.3 percent.
In other words, drug spending is growing slower than hospital and nursing home expenditures. In fact, it's growing even slower than the general inflation rate, which has averaged just under 2 percent.
Legislators also blame drug prices for rising costs in Medicaid, the entitlement program for low-income Americans that is managed and partly funded by the states. Once again, they're mistaken.
Drug companies provide generous discounts and rebates back to Medicaid to curb its overall prescription drug spending. Medicaid's statistics rarely reflect these discounts. In 2014, the program reported that its gross spending on drugs reached $21 billion. But after factoring in discounts, the program actually spent only $8 billion on medicines.
Federal law guarantees Medicaid the lowest drug prices on the market.
Nevertheless, state lawmakers insist that drug companies are charging too much. So they're calling for a variety of price controls.
One measure floated in Utah would allow patients to import medicines from Canada. That's a bad idea.
The policy wouldn't lower healthcare costs. Ninety percent of all drugs sold in the United States are generic, and generics generally cost less in the United States than in Canada. a patient's co-pay -- what he actually pays at the pharmacy -- is often lower than the price paid at a Canadian pharmacy, even if the list price of the medicine is higher in the United States.
Another proposal in Louisiana, would allow the state to infringe on manufacturers' patents. State legislators want to give generic drug companies the right to make cheap knockoff copies of hepatitis C medicines, which are heavily utilized by the state's Medicaid and prison populations.
This move simply isn't necessary. In 2017, Medicaid spending on hepatitis C drugs fell by 28 percent -- the biggest drop for any class of medicines.
If states start weakening patent protections, it will have a chilling effect on scientific research. Drug companies won't plow billions in to developing new medicines if the government can break their patents on a whim. Patients would miss out on future treatments and cures as a result of this drop in research.
This isn't to say that patients aren't paying high prices for drugs. They are. But drug makers aren't at fault.
Middlemen, like pharmacy benefit managers and insurers, are the ones raising prices on consumers.
PBMs negotiate drug prices on behalf of health plans. They secure big discounts and rebates from manufacturers. But PBMs and insurers routinely fail to pass these savings along to consumers. Instead, they hike consumers' out-of-pocket expenses by forcing them to pay ever-higher co-pays and co-insurance.
If lawmakers want to reduce peoples' pharmacy bills, they should demand more transparency from insurers and PBMs.
Peter J. Pitts, a former FDA Associate Commissioner, is President of the Center for Medicine in the Public Interest.
