Virtually every available statistic suggests that the problems surrounding drug pricing will only get worse in the next few years. U.S. spending on prescription medicines reached $450 billion in 2016, an increase of 5.8% compared to 2015. A recent report suggests the figure will reach $610 billion by 2021.
Sadly, American consumers pick up the slack, as they continue to pay more than anyone else in the world does. Stories about pharmaceutical companies rapidly increasing the cost of a drug are daily news at this stage. For example, Daraprim went from $13.50 a pill to $750 a pill overnight. In August 2016, the cost of a two-pack of EpiPen increased to $600 compared to $90 in 2006.
The list goes on and on, so the Democrats have created a three-step approach to lowering the cost of drugs and keeping the price at an affordable level. Let’s take a closer look at the proposal, entitled “A Better Deal.”
What Are the Three Steps?
Here is a simple explanation of what the Democrats want to achieve:
- Prevent the “outrageous” increases in the cost of prescription drugs.
- Allow Medicare to negotiate lower drug prices.
- Require drug manufacturers to release hard evidence justifying any significant price increases.
Preventing Drug Price Increases
According to CBS News, the average expenditure on prescription drugs was $858 for every American person, compared to an average of $400 among 19 other industrialized nations. Market exclusivity enables drug manufacturers to recoup R&D costs associated with the development of drugs. However, cynics suggest the price increases also cover the bloated marketing budgets of these firms. Research from Segal Consulting suggests that prescription drug costs will rise almost 12% in 2017.
In “A Better Deal,” the Democrats promise to hire a “price gouging” enforcer who will investigate firms guilty of large price hikes. The Senate will confirm the enforcer who will lead a new agency designed to prevent these huge increases. Manufacturers found guilty of excessive price hikes will receive a large fine proportional to the size of the price increase. Money from the fines will fund research at the National Institutes of Health.
Allow Medicare to Negotiate Lower Drug Prices
It is remarkable that although Medicare is one of the largest purchasers of prescription drugs in the United States, the organization is not able to negotiate prices. There are approximately 41 million people enrolled in Part D, and “A Better Deal” is dedicated to ensuring these people receive more competitive pricing.
The aforementioned “market exclusivity” means drug manufacturers have their products approved by the FDA. The FDA then sets the period of market exclusivity lasting from five to 12 years. During that timeframe, no one else can sell a low-cost generic form of the drug. While governments in other countries can negotiate drug prices to keep the costs down, this option is not available to Medicare.
According to “A Better Deal,” the government will have the ability to negotiate drug prices and prevent manufacturers from having everything their way. The Democrats believe this process will save billions of dollars for health plan enrollees.
Drug Manufacturers Must Justify Severe Price Hikes
The final prong of “A Better Deal” is to hold manufacturers accountable by asking them to provide evidence justifying enormous increases in drug prices. Unfortunately, large price increases are the norm; worst of all, manufacturers don’t have to justify their actions. As well as the highly publicized increases, there are a few eye-opening cases based on data from 2013-2014 that garnered little in the way of attention:
- Lantus SoloSTAR: This insulin medication comes in the form of a pen, and Sanofi increased its price by 28% on a pre-prescription basis.
- Lantus: This is another form of insulin; Sanofi increased its price by 41%.
- Lyrica: This is a pain medication from Pfizer; the company increased the price by 45%.
Double-digit increases in a single year are normal, but “A Better Deal” aims to tackle the issue by forcing manufacturers to justify the increases. If a drug is subject to a substantial price increase, its manufacturer must submit to the U.S. Department of Health & Human Services (HHS) at least 30 days before the price increase takes effect. For the record, a substantial price increase is as follows:
- A drug that costs at least $10 that had a 100% increase in a year or a 300% increase over the last five years
- A drug within the top 50th percentile of Medicare/Medicaid expenditure that had an increase of 15% in a year or 50% over five years
Manufacturers have to detail the individual factors that led to the increase and other factors such as the cost of R&D and marketing. The information will become a part of the public record so everyone can see the actions of those firms intent on raising their prices. To avoid submitting the information, manufacturers must lower the rate of price increase.
There is a suggestion that the Democrats’ message is falling flat. Although “A Better Deal” contains plenty of useful ideas, the party has yet to sell it to the population. Certainly, the issue of prescription drug cost needs addressing as tens of millions of Americans are feeling the financial strain.
The Democrats assert that on average, Americans are paying up to $50 more per prescription than they did just a year ago. Furthermore, few people received any notification of these price increases. If the cost of drugs increases at the current rate, it is only a matter of time before Americans must choose between their basic household necessities and their medication. For some, that time has already arrived.