Prescription drug prices are again in the news. Prices are rising quickly, even for drugs that have been on the market for years. This column quantifies the problem and presents ideas to improve the situation.
A good benchmark for “fairness” is to compare US prices to other nations. The best objective research that I can find was done by the Organization for Economic Cooperation and Development (OECD) in 2011. They looked at prices for the thirty most commonly prescribed drugs and found that for every dollar spent by Americans, residents of other nations paid $0.51. In other words, we were paying twice as much, on average, as residents of other western democracies (Europe, Canada, and Australia). Americans spent 13% more in 2014 than in 2013, so the situation appears to be getting worse.
There are many reasons why drug prices are higher in the US but underlying most of them is the influence of big campaign contributions and related corporate influence in our nation’s capital. For example, when the George W Bush administration wanted to create the Medicare Drug benefit (Medicare Part D) there was concern in Congress about whether to expand the Medicare entitlement program. Drug companies could have killed the idea if they had lobbied against it. The price for their support was a provision in the law which prohibits Medicare from negotiating drug prices, setting prices or establishing a uniform list of covered drugs, known as a formulary. That provision made Medicare Part D a goldmine for them. Efforts to allow Medicare to negotiate prices have failed under both Republican and Democratic leadership due to inability to muster 60 votes to break Senate filibusters.
The negotiating power which Medicare was denied is the tool used by other nations to drive prices down. When several effective drugs are available for a particular problem, those nations pay only for the ones that are priced at an acceptable level. Companies reduce prices in order to have their products covered. Drug companies say that they need high American prices to pay for research and development. The undeniable need for R&D does not justify charging Americans more than Europeans for the same drugs. Medicare should be allowed to negotiate prices and to exclude over-priced drugs from the Medicare benefit.
A second action to drive down drug prices would be to increase government spending on research and development. It would be good government policy to fund research in targeted areas (prevention of strokes and heart attacks and treatment of Alzheimer’s disease for example) under a policy where all resulting intellectual property such as patents belongs to the taxpayers who funded the research. We could then allow production of resulting drugs by any drug company which would do the manufacturing here in the US but charge a royalty to companies doing the manufacturing outside the US. The net effect would be more R&D funding at American universities and corporations, lower drug costs and new US manufacturing jobs. Strong opposition to such ideas can be expected from the US and foreign drug companies who are currently profiting from an American market where taxpayers and patients subsidize the world’s highest prices and have no ability to negotiate them down.
Another idea is to tighten intellectual property laws so that patents don’t seem to run forever and more companies can manufacture drugs at lower costs. There are loopholes in current laws that allow companies to extend patents by making very minor changes in a drug and preventing expiration of the patent on the original.
A fourth strategy for driving down costs might be to reduce utilization of pharmaceuticals by banning or restricting direct-to-consumer advertising of prescription drugs. Should corporations have free speech rights to promote prescription drugs directly to patients? Do the ads encourage patients to imagine symptoms and ask doctors for unnecessary prescriptions? Current research isn’t adequate to answer that question but most other nations don’t allow such advertising and many have lower utilization of heavily advertised drugs including antidepressants and sleep aids. This is obviously another public policy question in the hands of legislative bodies that have a hard time saying “no” to corporate influence.
In each case, the barrier to action appears to be the influence of big corporations on American government. Perhaps we need a prescription for raising the interests of consumers and taxpayers to be as important as the interests of drug companies.