Americans spend excessive amounts on prescription medications. State legislators have grown frustrated with the federal government’s inaction on pharmacy costs. Consequently, they are moving forward with a slate of legislative proposals.
While these proposals come from good intentions, they risk producing unintended harm to patients. The problem is that these bills rest on flawed premises.
Many state representatives operate under the belief that prescription drug prices are climbing rapidly. This assumption is incorrect. When all manufacturer rebates and discounts are factored in, drug prices have remained relatively stable. According to the most recent data from the Centers for Medicare & Medicaid Services, drug spending increased by only 1.3 percent in 2016. By contrast, overall health spending rose 4.3 percent.
Put another way, prescription drug spending is rising at a slower pace than hospital and nursing facility costs. It is also rising more slowly than general inflation, which has hovered just below 2 percent.
State legislators also point to drug prices as a driver of Medicaid cost increases, the federal program serving low-income populations that states help administer and fund. This conclusion is also mistaken.
Drug manufacturers offer substantial discounts and rebates to Medicaid in order to manage overall prescription spending. These discounts often go unrecorded in Medicaid’s official figures. In 2014, Medicaid reported $21 billion in gross drug spending. However, when discounts are applied, the actual expenditure was only $8 billion.
Medicaid is legally entitled to receive the lowest available market prices for drugs.
Despite this reality, state legislators maintain that manufacturers are overcharging. They are therefore pursuing various price-control mechanisms.
A proposal in Utah would permit residents to purchase medicines from Canada. This approach is problematic.
Such a policy would not reduce overall healthcare costs. Ninety percent of medications sold in the United States are generics, which typically cost less domestically than in Canada. A patient’s co-pay—the amount paid at the pharmacy counter—is frequently lower than what a Canadian pharmacy charges, regardless of whether the United States list price appears higher.
Louisiana has introduced a separate proposal that would allow the state to violate drug manufacturers’ patents. The state wants to enable generic manufacturers to produce inexpensive copies of hepatitis C treatments, which serve large numbers of the state’s Medicaid enrollees and incarcerated individuals.
Such action is unnecessary. Medicaid’s hepatitis C drug spending declined by 28 percent in 2017—the steepest decrease among all drug categories.
Weakening patent protections would discourage pharmaceutical research and development. If governments can revoke patents at will, drug companies will reduce their investment in new medicines. Patients would consequently lose access to future treatments and cures.
This is not to suggest patients face reasonable medication costs. Many do not. However, manufacturers bear limited responsibility.
The actual culprits are intermediaries such as pharmacy benefit managers and health insurers.
PBMs negotiate medication prices for health plans and obtain substantial discounts and rebates. Yet these organizations and insurers frequently retain these savings rather than passing them to patients. Instead, they increase patient expenses through higher co-pays and co-insurance requirements.
Policymakers seeking to lower pharmacy expenses should demand greater accountability and openness from PBMs and insurers.
Peter J. Pitts, a former FDA Associate Commissioner, is President of the Center for Medicine in the Public Interest.