Both Democrat and Republican lawmakers want to find ways to lower the cost of prescription drugs for Americans with good reason. On a per capita basis we pay more than twice as much as the average cost for prescription drugs when compared with the other 36 member nations of the UN’s Organization for Economic Cooperation and Development. OECD) Studies of our drug pricing and prescribing patterns have found that Americans use about the same amount of the same medications as citizens of other OECD nations. We just pay more for them. It is a reasonable assumption that Big Pharma sells drugs in other countries at lower prices and still makes a profit in these markets. If that is not the case it would mean that American consumers would be underwriting the cost of drugs for other democratic countries. I do not think this is what is happening.
The average prescription price is projected to go up 3% this year. In past years, the average annual price increase has been as high as 12%. For the past several years drug costs have been the fastest growing cost area in healthcare. What can we do to address this pharmaceutical pricing problem that grows worse every year?
The other nations in the OECD negotiate drug prices on a national basis. We do not. Drug companies set their prices independently in the US. Reducing the cost of drugs by passing new federal laws to control excessive pharmaceutical pricing will be an incredibly challenging process. There are approximately 880 lobbyists who work for the pharmaceutical industry.
That means there are at least 335 more pharmaceutical lobbyists than there are members of both the Senate and the House of Representatives combined. Approximately 60% of the major pharmaceutical companies are based in the United States. As bills to control the cost of drugs for Americans are proposed you can be sure that an army of well-prepared lobbyists will descend on members of the House and Senate with charts, facts, figures and consumer surveys to support their position on maintaining the status quo. They would also likely advocate for keeping the prices as they are to support future research and development of new medications. However, it is important to note that today, many drug companies spend more on advertising and marketing then they do on research and development.
Despite the lobbying efforts that will be made for the status quo of the pharmaceutical industry, it is more important for our country to find a way to lower the cost of drugs for all Americans. The cost of brand name drugs has grown much faster than the Consumer Price Index for more than ten years. The most effective approach to addressing this problem would be to do what all other democratic nations have done. We should set up a system to negotiate drug prices on a national basis. Legislatively, this is the most direct solution and the most difficult to achieve. However, there are other ways to reduce the price of drugs that should be considered. Here are three approaches that could work:
1. Control Hospital drug pricing – It is a common practice for hospitals to mark up the drugs that they administer to their inpatients. In 2017 the Moran Company published a study that found hospitals marked up the drugs that they administered to their patients by as much as 487%. Steven Brill also studied this issue in his book America’s Bitter Pill. He found many abusive pricing practices for drugs administered in hospitals. By reviewing patient bills and comparing their drug charges with list prices, he found that they were routinely charged unreasonably high prices. For example, he found that a patient was changed $24.00 for each niacin pill that was administered during a hospital stay. Niacin pills normally cost about 5 cents. He found that the patient charge for a Tylenol was usually greater than the wholesale price of a bottle of Tylenols. In his study, he also found that many medications were marked up by more than 100%. Hospitals should be limited to a 10% markup on any medication that they provide to their inpatients to cover their inventory costs. While hospitals would lobby against this proposal, it is likely that it would gain the support of the pharmaceutical industry.
2. Orphan Drug Markups – The Orphan Drug Law was passed in 1983. It is an important way to encourage the research and development of lifesaving drugs for serious illnesses that affect less than 200,000 people. Without this law that stimulates this research many people would needlessly suffer or die. It is also a valuable incentive for drug companies to expand their businesses and to improve their profitability. The problem for patients and insurance companies is that the cost of these lifesaving medications has gone up by a factor of 64 times since 1983. The average cost of orphan drugs has grown from $1,537 in 1983 to over $100,555 in 2018. If research has determined that a generic drug can treat a rare illness it can gain orphan drug status and increase its price for all its applications.
For example, the generic steroid medication, ACTH that has been used since the 1950s for the treatment of multiple sclerosis, arthritis, and conditions of the eye. It was determined that it could be used to treat infantile spasms, a rare and serious condition. The drug’s price increased from $1,650 per vial to over $20,000 per vial for every application that it could be used to treat. The cost for this medication in other nations is approximately $30.00 per vial. The 8 most expensive drugs in our country are orphan drugs that treat Hepatitis C. The monthly cost for these treatments varies from $50,000 to $80,000 per month. This law should be amended to control the growth in orphan drug pricing that has occurred over the last 38 years.
3. Drug Importation – It is well known pharmaceuticals are sold at lower prices in other countries. It makes sense to allow and promote international ordering of drugs to lower costs for American consumers. Some states are beginning to negotiate with Canada to have the right to import drugs for their citizens. Pharmaceutical companies object to this practice by suggesting that the imported drugs may not be safe. Is that reasonable? If a pharmaceutical company exports from the US to another nation or manufactures a prescription drug overseas and it meets its quality standards why would it be unsafe for Americans? Allowing importation of prescription drugs would create price competition that would lower the cost by as much as 100% to 200% for some prescription drugs.
While the best solution to reduce drug prices would be to negotiation on a national basis as many other countries do, lowering the prices of hospital administered drugs, controlling orphan drug pricing, and allowing drug importation would go a long way towards lowering drug costs for Americans.