Nearly all of the current presidential hopefuls say they want to do something about the rising cost of prescription drugs. But most of their proposals likely won’t work because they don’t address the dynamics behind these price increases.
Drugs costs are the fastest growing part of the nation’s health care budget and account for nearly one of every five dollars spent on employer health insurance benefits.
Public opinion polls routinely show this to be a top issue the public wants addressed.
But it turns out that some of the most visible examples of what some people view as drug industry greed are not what is actually driving those increases.
For example, “pharma bro” Martin Shkreli, the indicted former head of Turing Pharmaceuticals, bought an important but little-used drug (with no generic competition) and hiked its price by 5,000% (from $13.50 to $750 per pill) overnight. He made even more enemies by pleading the Fifth at a recent Congressional hearing.
“He is such a perfect villain,” said John Rother of the National Coalition on Health Care, a nonpartisan research group. But there are other companies buying up drugs with expired patent protections and jacking up costs, including Valeant, which was also called before Congress to justify its actions, Rother said.
Still, for all the headlines these price hikers have garnered, “they’re not the ones driving the overall upward costs,” he said. The drugs in question tend to be used by small patient populations, so their total cost is not that much to the health system.
Similarly, said Rother, much attention has been paid to extremely expensive “specialty” drugs to treat complex conditions like cancer or multiple sclerosis, which frequently cost from tens to hundreds of thousands of dollars for a course of treatment or even a single dose.
But again, with some exceptions, the number of patients who rely on these drugs for treatment is small relative to the entire population. In addition, most specialty drugs are taken for a short period of time rather than indefinitely. Although, pointed out Rother, “with more and more people in high-deductible health plans,” even asking patients to pay a small percentage of the cost can put the drugs out of reach.
So what IS driving up drug spending? Some specialty drugs — particularly Sovaldi and others that can treat and even cure hepatitis C — can be used by millions of patients, so their $80,000-to-$100,000 price tags quickly make an impact. Those drugs alone were estimated to have added a half a percentage point to the 2014 health spending inflation rate. The drugs’ expense has had such a large impact on state Medicaid programs, which provide health coverage for low-income people, that many have started rationing it.
But by far the biggest impact, said Rother, has come from traditional pharmaceutical companies raising prices across the board. In January, for example, Pfizer raised prices on nearly its entire portfolio. Most of the hikes are between 5% and 20%.
Democrats Hillary Clinton and Vermont Senator Bernie Sanders each have drug price proposals. Among Republicans, Donald Trump, Sen. Marco Rubio of Florida, Sen. Ted Cruz of Texas and Ohio Gov. John Kasich offered ideas about the drug pricing issue.
One popular idea (advocated by Clinton, Sanders and Trump) is to let the federal Medicare program negotiate prices for all, or at least the most expensive drugs. That approach was specifically banned when the GOP Congress added the Part D drug benefit to Medicare in 2003.
While that sounds like a logical way to save money, most experts who have looked at the issue say it might not. The Congressional Budget Office has said that lifting the ban on negotiation “would have a negligible effect” on cost because the federal government would be unlikely to obtain significantly lower prices than private drug benefit providers. Even the Obama administration, which proposed allowing Medicare to negotiate for very high-cost drugs as part of its fiscal 2017 budget, estimates no savings from the provision.
The only way Medicare negotiation would save money is if the program decided to cover some drugs and not others (which is what the Department of Veterans Affairs does). But that would be sure to trigger an enormous political backlash against Medicare.
Another popular proposal, also among the ideas offered by Clinton, is to cap how much patients have to pay out of pocket for their drugs. A half a dozen states have taken steps in this direction.
But that doesn’t actually lower drug prices, “it’s just a cost shift,” said Alissa Fox of the Blue Cross and Blue Shield Association. “You’re really just requiring everyone else (in the insurance pool) to pay those costs,” which would boost premiums.
Sanders, meanwhile, has been pushing to allow Americans to buy cheaper drugs from other industrialized countries, particularly Canada, for almost as long as he’s been in Congress. His website points out that drug spending in Canada (which has price controls) is 40% lower than in the U.S.
But while the idea of letting U.S. consumers piggyback other countries’ controlled prices is popular with the public, it’s not just drug makers who oppose it. Health officials in every administration from President Bill Clinton to President Barack Obama have warned that the safety of drugs from other countries — even those originally made in the U.S. — cannot be guaranteed.
So what might help?
“Most of this issue involves trade-offs,” said Rother.
Dana Goldman, a health economist at the University of Southern California, agreed. “It’s patient rights versus patent rights,” he said at a recent forum on the issue. While patients want cheap and easy access, he said, “you need incentives to get companies to take the risk in innovation.”
Some ideas candidates and policymakers have suggested include limiting what drug makers spend on marketing to patients, something that is not even allowed in many other countries. Others include making it harder for drug companies to delay generic drug competition and requiring drug makers devote a certain percentage of revenue to research and development.
All, by the way, have been proposed in Congress before. None have come close to passage.