| Today's Managing Health Care Costs Number is 250% |
One area of bipartisan agreement is the desire to lower pharmaceutical prices. As always, there are good ideas with downsides, bad ideas with upsides, and many ideas that are likely to have unanticipated consequences. Annual prescription drug costs are expected to increase to $597 billion by 2025- a 250% increase from 2007, so there is a real imperative to address pharmaceutical costs.
Among the ideas that are being discussed:
Among the ideas that are being discussed:
- Ease regulatory burden to allow faster generics to market.
The real problem here has generally been litigation from incumbent brand name products and lack of competition for non-blockbuster generics, most of which have only 1 or 2 manufacturers - leaving them vulnerable to steep price increases. Let's make it harder to take legal steps to block new generics, easier to get approval for biosimilars, and allow importation of generics from other countries with good regulatory schemes when there is a shortage.
- Allow 'value based pricing.'
No one is preventing value based pricing now- but we should think hard about whether this is really what we want. Airlines use value based pricing (so that business travelers not staying over a Saturday night pay higher prices). Some pharmaceutical companies want to be able to charge different prices based on the indication for a drug - but this is likely to lead to higher overall costs (and huge administrative headaches). Her's a pretty positive assessment of indication specific pricing from ICER (2015), and here's a perspective from New England Journal of Medicine (2017) pointing to likely higher overall costs. Reports from countries that implemented warrantees are disappointing; these were hard to reconcile and probably led to higher prices. A report from Propublica begins:
More than a decade ago, Italy tried a novel approach to help bring down drug costs: asking pharmaceutical companies to return money to the national health system if some of their medicines failed to work as expected. The effort largely flopped
- "March in" and demand that patent-holders offer drugs for less, or seize the patent
Some countries like Brazil and India have effectively done this- but they are much smaller markets than the US and they tend to be home to generic and not brand manufacturers. This might be a more effective threat than actual policy. Some Democrats have suggested that the NIH should exercise its 'march in' rights. Many think this would lead to decreased investment in pharma and less innovation - and such a move seems unlikely in an Administration seeking to diminish the role of government.
- Allow Medicare to negotiate drug prices
Right now Medicare Part D is administered through thousands (!) of different plans each of which negotiates with the pharmaceutical industry. That kind of fragmentation leads to higher prices for Medicare, the largest purchaser of drugs in the country. Medicare pays more than the Veterans Administration or Medicaid for drugs. It's hard to imagine disassembling the current Medicare Part D system in the next few years - although it would be easy to imagine some central negotiation for high cost medications that could be excluded from the Medicare Part D plans.
- Stop drug company direct to consumer advertising
This would make TV viewing much more pleasurable - but the Supreme Court has decided that commercial speech is protected by the First Amendment, so this would require a constitutional amendment.
- Direct the FDA to consider cost effectiveness when it approves new medications
This would require a new statute and new enabling regulations. Countries like the UK which have this in place have found that it does lower access to some new innovative drugs, and this is unpopular. Perhaps this isn't unpopular at the level of fictional "death panels," but it would be hard to see such legislation gaining broad traction in the next few years.
- Mandate generic substitution
Fourteen states mandate that a generic be dispensed where available unless the physician explicitly orders a brand name, and this dramatically increases generic substitution rate. 49 states allow pharmacist generic substitution based on pharmacist discretion - and only Oklahoma prohibits even this. This battle must be fought state by state, and a small amount of lobbying goes a long way in most state legislatures.
- Provider risk sharing
Physicians write prescriptions - and they would pay much more attention to the cost of drugs if their organizations bore financial responsibility for drug costs. Providers do take risk for drug spending in some accountable care or bundled payment arrangements. Provider risk sharing could also lead to physicians failing to prescribe valuable but expensive drugs, or "dumping" of patients with known chronic diseases that have expensive drug treatment.
I'm not confident we'll lower pharmaceutical prices a lot over the next few years- especially given the new genomic drugs in the offing. And I'm worried that the cost savings from generics might diminish through consolidation in that industry. But I'm heartened by the discussion and the bipartisan concern. Elements of the approach to lowering drug cost inflation that are being discussed now could serve as the foundation to lower costs in the years to come.
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