To Cut Health Spending, Look Beyond Prescription Drugs
By Guy Anthony
Democrats are working day and night to get their budget bill over the finish line. It includes a host of long-overdue investments to expand access to child care and education and address the climate crisis.
The draft legislation also includes provisions to reduce drug costs in Medicare. But one key element of the proposal, letting the government set prices for brand-name medications, would cause investment into life science research to plummet and patients to lose access to breakthrough medicines.
It's no secret that Americans spend too much on health care. It's to their credit that Democratic lawmakers are trying to lower these costs.
Let's start with the good news for seniors. The legislation caps out-of-pocket spending for prescription medications at a manageable $2,000 per year -- and it smooths out out-of-pocket costs over the course of the year, so that seniors on a fixed income don't see midyear spikes.
This reform makes sense and will set many seniors' minds at ease.
Unfortunately, the drug pricing proposal in the legislation pushes in exactly the opposite direction of greater access to treatments.
The idea is that the government will use its market power through Medicare as the biggest provider of prescription drugs to get the pharmaceutical industry to lower prices. These price controls will eventually extend to all brand-name medicines.
The knock-on effect of such price controls would be disastrous. Immediately, funds will dry up for research into new breakthroughs, as pharmaceutical companies begin computing how much they have to cut from their R&D budgets because of the revenue reductions price controls will bring.
It costs an estimated $2.6 billion to develop a single new drug. Just 12 percent of medicines that enter clinical trials ever reach patients.
Outside investors will no longer be willing to dedicate billions of dollars to high-risk research projects if the federal government has the power to dictate cut-rate prices, and the drug pipeline will dry up.
Indeed, an analysis from a University of Chicago economist concluded that a similar drug-pricing plan could result in 342 fewer new drugs over the next 20 years.
The effect of price controls should also give pause to those concerned about health equity. Many medical problems have a disproportionate impact on Blacks, minorities and the LGBTQ community. New and better treatments proven "safe and effective" for all patients, such as those who have to manage HIV/AIDS, can diminish these inequities -- but only if the financing is available to get them out of the lab to those who need them.
Better approaches to cost-cutting are available. Legislation introduced in the House would bring greater transparency to the shadowy workings of Pharmacy Benefit Manager corporations. PBMs serve as middlemen between drug makers and insurers. They negotiate discounts and rebates from pharmaceutical manufacturers to get their products favorable insurance coverage. Patients often know nothing about such discounts and end up paying their share of the cost based on the manufacturer's list price rather than the true price.
Those discounts and rebates should be passed on to patients. Like the out-of-pocket cap, such a requirement would reduce patient costs without harming innovation.
The budget bill is filled with important, must-pass initiatives -- including the out-of-pocket cap. But its current price-control component is dangerous to our future health. Congress should replace it with a provision that ensures drug maker discounts go to patients rather than padding the bottom line of insurance companies and PBMs.
Guy Anthony is the president and CEO of Black, Gifted & Whole. This piece originally ran in the Orlando Sentinel.
