Pharma: A broken market begging for repairs

By | August 21, 2019

I am a cancer patient, and I’m losing patience.

Despite lots of promises, pronouncements, and plans from both political parties, more than half way into 2019 we have not lowered the prices of prescription drugs. As a result, nearly 1 in 3 adults reports not taking a medicine as prescribed because of the cost.

Drug prices jumped 10.5% in the first half of the year: four times faster than the rate of inflation, though by a slimmer margin than the same time period last year.

And let’s be real: The main reason price increases have moderated somewhat is the same reason we all slow down for speed cameras. As soon as the drug companies feel reduced scrutiny, price increases will speed up again.

To lower drug prices, Congress is going to have to come to grips with one key fact: There is no free market for prescription drugs. Government policy keeps U.S. drug prices high, and only government reforms can change that.

Conservative policy expert Avik Roy sums it up well: One of the enduring myths of the pharmaceutical industry is that … the sector is a ‘free-market.’ It is not. Indeed, federal policy is entirely responsible for the fact that branded prescription drugs cost so much more in the United States than they do in other advanced economies.

Right now, Big Pharma names its price, and U.S. taxpayers fork over $ 129 billion to pay drug company’s yearly tab to Medicare.

Taxpayers are banned by law from engaging in direct Medicare price negotiation. Why? Because when Medicare Part D was enacted in 2003, then-Chairman of the House Energy and Commerce Committee, Rep Billy Tauzin, R-Louisiana, and others made sure that Medicare could not bargain directly with the drug companies.

Within a year, Tauzin took a job running PhRMA — the drug company trade association — for an annual salary of $ 2 million. Result: American citizens pay two to three times what people pay in other wealthy nations that do negotiate.

And what of Medicare Part B, the program that covers many of the most expensive drugs administered in physician offices and hospitals? The government already sets a price that it will pay for these drugs: the highest price in the world. We are paying almost twice what other developed countries pay for these drugs by pegging our price to the average sales price in the U.S., plus a 6% mark-up.

So, what to do? There are three possible ways to lower drug prices:

  • Direct Medicare negotiations backed up with incentives, to ensure drug companies come to the table.
  • International reference pricing, to bring US prices more in line with what other countries pay.
  • Some form of value pricing that looks at the value of drugs to patients and their impact on our total healthcare spending.

There are varying levels of bipartisan support for all these proposals.

Of course, drug corporations will tell us any steps to lower prices will kill innovation. HHS Secretary Alex Azar has the best response to that: “The idea that if one penny disappears from pharma profit margins, innovation will grind to a halt. I’m not interested in hearing those tired talking points anymore and neither is the president.” Several studies have shown there is no correlation between the cost of innovation and the price of a drug. Why do drug companies charge so much? Because they can.

I have already relapsed twice. In fact, I am failing now on my current drug regimen. So, the importance of innovation is not theoretical for me: It is literally life and death.

If Congress can come to grips with the fact that we don’t have a free market for prescription drugs and that the current regulations are designed to support high prices and profits, not innovation, we can make progress. We can lower drug prices and folks on both sides of the aisle can take credit for delivering on their campaign promises.

David Mitchell is a cancer patient and the founder of Patients For Affordable Drugs. Mitchell lives with multiple myeloma, an incurable blood cancer, and relies on $ 650,000 in prescription drugs to stay alive each year.

Healthcare