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Prescription Drugs

Updated: Aug 30, 2022

Background and Joe’s view of our prescription drug cost problems:

  • Prescription drugs are a significant part of health care costs and U.S. health care spending, per capita and as a percent of GDP, dwarfs that of any other high-income country. Trends suggest that the gap in spending between the United States and the rest of the world will continue to grow.

  • When asked, 70% of Americans state that lowering prescription drug costs is their number one health care priority.

  • Prescription drug utilization in the U.S. is similar to other countries, yet the price at which drugs are sold in the U.S. is substantially higher according to a 2016 Commonwealth Fund International Health Policy Survey. In the survey, U.S. spending levels and trends on prescription drugs were compared to Australia, Canada, France, Germany, the Netherlands, Norway, Sweden, Switzerland, and the United Kingdom.

  • Generic drugs are generally lower in price than brand drugs, and generics make up 84% of the utilization of prescription drugs in the U.S. With the exception of the U.K., the U.S. has the highest utilization of generics in comparison countries, yet Americans still pay more.

  • A 2013 article in Health Affairs described an investigation into whether, and how, drug prices contribute to high U.S. spending on health care. The results of this study concluded that U.S. retail prices for commonly prescribed drugs ranged from 5% to 117% higher than prices in the other six countries included in the study. The authors suggested that the lower prices in those countries reflected their more centralized processes for procuring pharmaceuticals and determining coverage.

  • Studies consistently find that other countries do more than the U.S. does to limit patients’ exposure to high out-of-pocket drug costs. While insured U.S. patients often pay little or nothing for generic prescriptions, they can be billed tens of thousands of dollars for certain high-priced medications. Although this could soon change, even Medicare’s Part D prescription drug benefit has no out-of-pocket cap for beneficiaries.

  • Evidence suggests that Americans may be skipping or not filling medications due to the high costs. In a 2016 international survey of adults outlined in a Health Affairs article that same year, 14% of insured Americans reported that, in the past year, they did not fill a prescription, or skipped doses of medicine, because of the cost. This can be compared with 2% in the U.K. and 10% in Canada, which had the highest rate after the U.S. Among Americans without continuous insurance coverage over the past year, the rate was twice as high: one-third reported they did not fill a prescription for medicine, or elected to occasionally avoid taking doses of medicine, because of the cost.

  • Ninety-two percent of U.S. adults favor letting the federal government negotiate lower drug prices for Medicare beneficiaries. Currently, the Veterans Health Administration and the Department of Defense are the only federal entities allowed to effectively negotiate directly with drug manufacturers, and they pay prices that are roughly half of those paid at retail pharmacies.

  • As this is being written, it is being reported that the “Inflation Reduction Act of 2022”, a bill that many economists believe will actually increase inflation, has the necessary votes to pass the Senate and potentially become law. One portion of this bill would allow Medicare to negotiate prescription drug prices and mark a significant shift in U.S. policy on drug pricing. A good question that appears not to have been explored with regard to this bill is what this may mean for the millions of Americans not covered by Medicare.

  • In addition to many country’s efforts to negotiate pricing, a 2017 working paper by The Bureau of Economic Research found that more moderate pharmaceutical spending trends in these countries could also be a product of government policies that result in new drugs and medical technologies being adopted more gradually than in the U.S. Other countries generally assess not just whether a new drug is effective, but whether it is more effective than existing therapies — and in some cases whether it is cost-effective. So, while U.S. per-person drug utilization may be similar to that in other high-income countries, new research indicates that the mix of drugs Americans consume includes a higher proportion of newer, more expensive medications — yet with no evidence of better health outcomes.

  • High U.S. drug prices effectively translates into drug companies generating an estimated three quarters of their world-wide drug profits in the United States, according to the USC-Brookings Schaeffer Initiative for Health Policy. As a result, many fear that any successful efforts to reduce drug prices in the U.S. would mean lower revenue for drug manufacturers and ultimately lead to less research and development of new and innovative drugs.

  • There have been efforts in Washington for many years to allow U.S. consumers to “reimport” prescription drugs from other countries. In effect, the goal of such efforts is to allow Americans to purchase drugs from other countries at the same lower prices that the citizens of those countries pay. However, the pharmaceutical industry has led a largely successful fight against this effort by stating that foreign drugs may not be safe.

  • In a report titled Not Made In the USA, - an organization founded by a medical doctor to help consumers find reliable information on prescription drugs - points out that the majority of brand name prescription drugs that most Americans take are not made in the U.S.A. This obviously calls into question the “unsafe” contention, as well as the motivation, of the pharmaceutical industry regarding the possible reimportation of prescription drugs.

  • The pharmaceutical industry spends millions of dollars each year to lobby against policies that they do not like. For example, in the third quarter of 2019, which ran from July through the end of September, the industry spent $6.2 million on lobbying. It does not take a rocket scientist to understand that if this were their average every quarter, they would spend almost $25 million per year in lobbying. The question is: Who are they looking out for, themselves or consumers?

Background Prescription Drug Solution:

  • Joe believes that the policies of our government should aim to lower prescription drug prices for all Americans—not just for certain groups.

  • Because of the high prices they pay, Americans fund most of the profit made by pharmaceutical companies and thus fund most of the research and development costs of new drugs. This has to stop! Since people around the world (not just the U.S.) benefit from the discovery of new drugs, the costs must be shared more equally around the world.

  • If passed, the inappropriately named “Inflation Reduction Act” will allow Medicare to negotiate prescription drug pricing. While those on Medicare are certainly in need of lower cost prescription drugs, so are millions of other Americans. Unfortunately, given the current situation in drug pricing, there is a real fear that this new ability to negotiate could result in higher prices for other U.S. citizens because the drug companies will be looking to them to make up the profits lost from Medicare.

  • One of the big problems with healthcare, including prescription drugs, is the secrecy and lack of transparency in pricing. Generally speaking, most Americans have some form of health coverage and they only know what they pay out-of-pocket for their prescription medications. They don’t know the true cost. Only those forced to pay the entire bill out-of-pocket know the true cost and, unfortunately, they only find out the price after they ask because prices are not posted for everyone to see. What other product or service would we buy without knowing the cost?

  • Joe believes one step toward lowering the cost of prescription drugs is to require transparency in pricing. This means that every drug should have a retail price that consumers can easily look up. Just like grocery stores, competing pharmacies will have different prices for various drugs. Additionally, pharmacies should be required to disclose not just the amount we pay when we have insurance, but also the total cost paid for the drug, including the insurance portion. Although this alone will not solve the problem, shining the light of day on the pricing of prescription drugs is a step in the right direction because it will arm American consumers with information that they often don’t have access to in the current environment.

  • For those who can afford it, the U.S. offers world-class health care options; however, lack of access to some due to cost is a major problem. Many people advocate for government-run healthcare as a solution to these problems. Joe believes such thinking is misguided. Although government-run healthcare could potentially increase access, it is very unlikely to improve healthcare quality or overall outcomes. If we were to draw an analogy of healthcare to football, we would view health providers as the players and the government as the rule maker and referee. In these current roles, government can promote policies to do such things as increase access and encourage innovative treatments and drugs, while at the same time implementing measures that protect consumers in a number of ways. However, when the government gets into the healthcare business, it ceases to be a referee and becomes a player in the game. Government can be a great referee, but history has shown that it is not a very good player. This is why it has been said, “If you like the efficiency of the postal service and the compassion of the IRS, you will love government run healthcare.”

  • We should be open to implementing any policy that has the ability to lower prescription drug prices for American consumers, including reimportation of prescription drugs. Despite the claims of the prescription drug industry, many experts believe this can be done safely with proper government oversight. Joe believes government has an obligation to be pro-active in this area to provide the appropriate safeguards and allow American consumers the opportunity to take advantage of lower prices.

  • Although many question the profits and motives of prescription drug companies, the fact remains that they spend a lot of money to develop life-saving drugs that many people depend on. The challenge with any policy is to lower the prices of prescription drugs for American consumers without cutting off the funds needed by companies to continue developing innovative new drugs.

  • Although the Department of Defense and Veterans Administration are able to negotiate lower drug prices (Medicare will likely soon have this ability as well), this still leaves out all American consumers who are not part of these groups. This is a problem. When other countries and parts of the U.S. government are negotiating lower prices, this will likely result in price increases for those American consumers who are not covered by negotiated prices. Rather than our government negotiating for only a portion of the population, we should negotiate in a way that solves the problem for everyone.

  • Since it has been proven through studies that drug pricing data for other countries is available, the U.S. should take the position with drug companies that they can’t charge American consumers more for any particular drug than the average price paid by selected countries, such as those featured in many of these studies. This would also allow the U.S. to look at whether it makes sense to continue negotiations through the DOD, VA, and Medicare since all consumers would benefit from the negotiations of other countries and no longer shoulder the burden of paying three-quarters of the profits of drug companies.

  • It could also solve the problem for drug companies who rely on one country, the U.S., for most of their drug profits. Based on the way pricing currently occurs, it is not unreasonable to assume that drug companies begin negotiations with foreign countries knowing that they can sell to these countries cheaply because they will make up the difference in the U.S. The problem with this, as evidenced by the move to allow Medicare to negotiate pricing, is that American consumers are getting tired of bearing this burden and they are calling for the government to do more to lower prices. If something does not change, it is only a matter of time before the U.S. government takes more action, which could leave drug companies in a bind.

  • If the U.S. government were to employ the average price strategy, the drug companies would understand that they could no longer rely on American consumers to fund their profits. They would now have to enter negotiations with other countries with the understanding that they need to have a better revenue spread from all sources. Although they would likely try to resist this strategy at first, in the long run they would be better off relying on multiple countries for their profits instead of just one.

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