For quite some time, consumers have felt that prescription-drug prices are out of reach for the average consumer, and just overall excessive. But it was the move in September by privately held Turing Pharmaceuticals to jack up the price of its recently acquired parasite-treating disease drug Daraprim by nearly 5,500% overnight that pushed consumers over the edge.
Since late September, the only thing that will satiate consumers and prescription-drug buyers are regulations that would keep drug developers from excessively raising prices on brand-name drugs. Unfortunately, as we've examined before, there are a lot of reasons U.S. drugmakers command such strong pricing power. The need to recoup losses from other studies that have failed, the subsidization of emerging markets through higher prices in developed countries with better standards of living, and the fear of backlash on the part of insurers by removing a drug from its formulary list are just some of the reasons drug developers "wear the pants" on drug pricing, so to speak.
However, there are ways for regulators to clamp down on drug developers to obtain more affordable prices for consumers. The catch is that for each action, there's a reaction that comes with some degree of unpleasant consequences.
Here are three ways regulators could consider combating high prescription-drug prices.
1. Cap some or all drug prices
First, the U.S. government could simply follow in the footsteps of other governments around the world, such as India or Switzerland, and simply institute price caps on all drugs, or at least non-ultra-orphan drugs.
High drug prices for extremely rare diseases, such as the type BioMarin Pharmaceuticals or Alexion Pharmaceuticals tackle, which treat in the neighborhood of a few dozen to a few thousand people around the globe on an annual basis, make some sense. What has consumers irked is a $259,000 annual price tag for new cystic fibrosis drug Orkambi from Vertex Pharmaceuticals that could help 20,000 people worldwide by 2018, or a $94,500 treatment cost for hepatitis C drug Harvoni from Gilead Sciences which could, in theory, treat as many as 2 million genotype 1 HCV patients in the United States.
The downside, other than potentially walloping the stocks of drug developers, is that putting a ceiling on drug prices could reduce the drive to innovate (since drug developers will look to cut their costs), and it could push jobs and innovation into overseas markets. Drug developers would have a hard time finding a higher-margin market than the U.S., but moving some of their operations to China, as an example, could save a pretty penny on research, development, and overall labor costs.
2. Reduce the length of time drugs are protected by patent
Once the Food and Drug Administration approves an investigational new drug application, and a drug developer is cleared to begin human clinical trials, is when the 20-year patent protection period for a compound begins. Patents are extremely important because they protect an innovator from having a copycat generic therapy enter the market at a potentially lower price point. Even though patents typically are good for 20 years, around half of this time is spent in clinical and regulatory development of a drug. By approval, drug developers only have around a decade (give or take a few years in each direction) to essentially milk a brand-name drug for every ounce of profitability.
One proposal is to reduce the length of time drugs are allowed to remain on patent. Shortening the patent period length would allow generics to enter the picture more quickly, but it could actually produce a pushback whereby innovator drug prices climb at an even quicker pace post-launch. In other words, anticipating a shorter gravy train would entice pharmaceutical developers to simply price their innovator drugs even higher to reap more benefits in a shorter period of time.
The other alternative here is it could reduce innovation. If a drug developer doesn't believe it will make enough profit in a shorter patent protection period, it may simply bypass developing what could be a promising therapy.
3. Allow the government to negotiate drug prices
Another idea is to allow the federal government to use its might to negotiate better prices for consumers, especially when it comes to Medicare.
According to a recent study by advocacy group Carleton University and Public Citizen, Medicaid and the Veterans Health Administration paid just 48% and 46%, respectively, of brand-name wholesale costs in 2013, whereas Medicare paid closer to 83% of brand-name wholesale costs. The authors of the study estimated that a unified approach with government involvement could have saved the mammoth entitlement program as much as $16 billion.
Keep in mind that having governments establish drug prices really isn't that uncommon outside the United States. Governments regularly deny marketing approval for select drugs solely on the basis of cost.
The downside of such a move? Similar to what we've already discussed, hardline negotiation with drug developers could push jobs and innovation into overseas markets, where the cost for labor is much lower.
Furthermore, assuming that Medicare could negotiate prices on par with the Veterans Health Administration may be a big mistake. The VHA is a single formulary and its own health plan, allowing it substantial bargaining power when it comes to negotiating prices with the pharmaceutical industry. Medicare Part D (the prescription-drug component of Medicare) has multiple formularies and is nothing more than a single payer contracting with dozens upon dozens of different plans. Without this consistent approach, there's no telling whether negotiating would realistically lead to lower drug prices.
Ways you can manage your prescription-drug costs
With change desired but the options not looking all that enticing for consumers, the onus of saving money on prescription drugs really reflects back on the decisions you'll make. Here are a few examples of ways you could save money when it comes to filling a prescription at the pharmacy.
The first idea is something you should consider each and every time your primary-care physician suggests a medication to you: See if there's a generic substitute. The FDA puts generic drugs through rigorous safety tests, and they're ensured to work in a very similar fashion to the brand-name products they're competing against. The best news of all is that generic-drug costs are often 10% to 20% the cost of brand-name therapies, making them a very affordable option for the consumer, while also keeping insurance companies happy.
Another idea is to seek out financial assistance from pharmaceutical companies directly. A lot of pharmaceutical companies offer solutions that could entail a few months of free medicine, or you may be able to work out an assistance program at a substantially reduced rate. Big Pharma often gets a bad rap for its pricing, but once in a while drug developers can really surprise with their generosity to patients.
Seeking out additional coverage specifically targeting prescription drugs could be another option for consumers to consider. It's an especially helpful option for seniors who may not want to be burdened with high out-of-pocket costs for prescription medicines. The trade-off is likely to be a higher premium for better prescription coverage, but it could be well worth it in terms of dollars saved.
Finally, consider shopping around before filling your prescription. Just as you'd probably shop around for a house or car before diving into a big purchase, consider pricing out different pharmacies near your area. Big retailers typically have the most leverage with their pharmacies and may be able to offer the best price, but a lot of the time -- at least according to a 2012 Consumer Reports article on reducing your drug costs -- smaller mom-and-pop pharmacies will match the prices of their bigger competitors to keep customers loyal. Shopping around could save you a pretty penny.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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