Lowering Drug Prices – Without Causing Harm

 

The primary axiom of the Hippocratic Oath taken by doctors is “First, do no harm.” This is important to remember when taking steps to lower drug prices.

Scott W. Atlas, writing in The Wall Street Journal, reminds us of this axiom and points out the benefits to Americans of those high drug prices we pay. Among these benefits are the following:

  • Early access to lifesaving drugs – Between 1995 and 2005, 12 new cancer drugs were first introduced in the U.S. versus 13 introduced in Canada, France, Germany, Japan, Switzerland and the United Kingdom combined!
  • More new drugs available – Of the 45 novel drugs the Food and Drug Administration approved in 2015, 29 were available in the U.S. first. A 2017 study found that all 45 approved new caner drugs were covered by Medicare in the U.S. compared with pubic insurance coverage of only 26 in the U.K., 19 in France, 13 in Canada and 11 in Australia.
  • Superior treatment results –America has superior treatment results for virtually all serious diseases reliant on drug treatment, including cancer, heart disease, stroke, high blood pressure and diabetes.

 

Bad Ideas for Lowering Drug Prices

None of this is to suggest that drug prices could not be lower than they are without giving up these benefits. But some of the suggested ways of lowering drug prices can cause greater harm than good. Here are some bad ideas that have been suggested:

  • Price Controls – Price controls have never been effective in controlling costs and prices in the past and usually lead to shortages. A 2014 study of 642 drug launches in 76 countries found that price regulation “strongly delays” them. A 2005 study estimated that drug price controls would have led to 198 fewer new drugs in the U.S. market from 1981 to 2000, at a societal cost of about $20 Trillion, or more than 28 times the estimated savings from those price controls.
  • Drug Prices Tied to Foreign Countries – This idea is supported by President Trump and Senator Bernie Sanders, unlikely allies, but both are misguided. Atlas says this would ultimately lead to the same consequences Europeans endure – reduced access to critical drugs and worse outcomes, including more deaths from disease. Why give up our advantages over the Europeans?
  • Price Negotiation by Medicare –It may seem logical that negotiation by a single dominant buyer would lower prices. But economists have concluded that would lead to supply shortages and fewer new products. Even worse, only the patient, not the negotiator, would suffer the severe penalties of sickness and death when drug availability and pharmaceutical innovation dries up. The U.K.’s National Health Service launched its 2017 Budget Impact Test which delayed any new drugs up to three years if projected spending exceeded benchmarks, regardless of effectiveness.

 

Good Ideas for Lowering Drug Prices

The Trump administration has proposed eliminating rebates paid by drug manufacturers to pharmacy benefit managers (PBMs), replacing them with discounts to beneficiaries at the point of sale. PBMs are middlemen who control formularies, the list of drugs covered by insurance plans. These rebates are payments for influence – either to position a drug on the formulary as “exclusive” or to give it preferred status over competitors.

Atlas explains: “PBMs act counter to patient interests while aggravating the lack of price transparency. These complex behind-the-scenes payments – $179 billion in 2016 – reward inflated list prices, on which patient premiums are often based. This prevents patients from taking account of price. Some PBMs even use contractual gag clauses to prohibit pharmacists from volunteering that a medication may be less expensive if purchased for cash – as it was in more than 20% of cases, according to a 2018 study.”

Atlas calls this proposal necessary but insufficient. He believes there is insufficient transparency in drug pricing to allow consumers maximum benefit. Rather, he would eliminate PBMs entirely. He says it would be better to require patients to pay directly for more of their drugs and reward them for saving money. Cheaper, higher-deductible drug insurance, coupled with larger, liberalized-use health savings accounts, would accomplish both goals – especially for seniors. HSAs are currently prohibited for seniors.

 

Other measures needed include:

  • Reducing barriers to the supply of new and competing drugs
  • Shortened clinical trials to reduce costs and speed drugs to the market

 

The importance of drugs to combat diseases cannot be overstated. The most significant progress in extending life expectancy has come from new drugs. We must avoid policies that undermine this progress while providing lower cost drugs the public can afford.

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