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The Money And Politics Of Prescription Drugs: What You Need To Know

The Money And Politics Of Prescription Drugs: What You Need To Know

If there’s one area of health care where Republicans and Democrats might strike a deal, it’s prescription drugs.

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President Donald Trump has floated a plan to cut drug prices. Democratic and Republican ideas abound in Congress, where lawmakers have put more than 40 bills on the table. In 2018, 39 states passed 94 laws targeting pricing and costs. Florida’s House recently approved a move backed by the state’s Republican governor to allow imports from Canada. So far, Vermont is the only state to take that step.

Why do prescription drugs draw so much attention? Because millions of Americans rely on them, and eight out of 10 say the cost is “unreasonable.”

America spends about $460 billion a year on these drugs, roughly as much as the combined revenues of the top three car makers.

That spending flows mainly in two ways: Retail drugs sold at pharmacies, and drugs provided by doctors and other clinicians at hospitals, outpatient clinics and long-term care centers. Retail drugs account for about 10 percent of all health care spending. The doctor-administered drugs add about another 6 to 7 percent.

Tracking the money challenges the savviest of analysts. Between the drug makers and the patients lie an array of middlemen, who end up masking the true prices through discounts to each other and rebates to patients.

Here are a few benchmarks to help you navigate the realm of prescription drugs.

Out-of-pocket costs

With all the focus on affordability, it’s worth noting that about a third of all retail prescriptions come at no cost to the patient. Another half have an out-of-pocket cost of under $10. In recent years, the average out-of-pocket cost has fallen from about $10 to a bit over $8.

There are several reasons, including company rebates, better drug cost protections through the Affordable Care Act, and greater use of generic drugs, which are cheaper than brand name drugs protected by patent.

But just because the pressure has eased on average doesn’t mean the financial burden isn’t intense for the relative few. A small number of people and prescriptions accounted for a huge share of the estimated total out-of-pocket costs of $57.8 billion in 2017.

The federal bill grows

Even if most individuals are cushioned from rising drug prices, taxpayers, through the federal government, are not. Spending skyrocketed after the Medicare Part D prescription drug benefit took effect in 2006 and has continued to rise rapidly since.

U.S. drug prices are higher

One reason states such as Florida are interested in importing drugs from Canada is many drugs are cheaper there. The Commonwealth Fund, a New York-based health policy group, compared a basket of common drugs (of the retail sort) in the United States and several other countries. Using the American cost as a benchmark of 100, it calculated the cost in Canada, the United Kingdom, France, Germany, Switzerland and Australia.

Germany was the closest match to the American price tag, but Canada, the UK and Australia were all about half the cost.

Other studies reached the same general result. The U.S. Health and Human Services Department looked at the top 27 Part B drugs (physician-administered drugs) and found that for 20, prices were higher in the United States. A Canadian-American research team looked at spending on primary care drugs in America and 10 other nations, including all of the ones in the Commonwealth study. It found U.S. spending was about twice as high as the average elsewhere.

Broadly, the United States spends more on drugs because prices for many drugs are higher, and patients, usually on the advice of a doctor, take newer, high-cost drugs.

Follow the money

One of the reasons the prescription drug market poses a challenge to lawmakers is because it has many moving parts. On the payer side, there are patients, the government and employers. On the receiving end are drug makers, wholesalers, health care plans, pharmacies and Pharmacy Benefit Managers, which are firms that negotiate prices on behalf of payers.

The money moves around a lot, but policy analyst Allan Coukell at the Pew Charitable Trusts modeled the flow among all the players to estimate how much money ended up with each one. For 2016, the drug makers were the top gainers with $204 billion (on the retail side), but the pharmacies also did well with about a quarter of the total.


Ever since the passage of the Medicare Part D prescription drug benefit, pharmaceutical companies have invested heavily in lobbying. There was a spike in 2009 as Congress debated the Affordable Care Act, but after a short dip, spending rose again and now stands at $281 million, about where it was nearly a decade ago.

No industry group spends more on lobbying — by a long shot. The insurance industry came in a distant second at $158 million on lobbying last year.

The drug industry can’t ignore the big proposals in Washington that could change the landscape, said Georgetown University researcher Jack Hoadley.

Both Democrats and Republicans, including the White House, have bills to peg American prices to prices in Japan and Europe.

There are bills to let the government negotiate directly with drug companies to reduce prices in the Medicare program. Among the public, that approach enjoys broad bipartisan support with 80 percent of Republicans and 90 percent of Democrats in favor.

“The fact that the administration, congressional Republicans, and Democrats are all talking about drug prices is putting all stakeholders on edge,” Hoadley said.


Here’s A Simple Way To Reduce The Price Of Prescription Drugs: Pay For What Works | Opinion

The U.S. wastes one-third of its health-care spending every year, amounting to nearly $1 trillion. A big part of that is the higher prices that Americans pay compared to the developed world for medical care, including the price of prescription drugs.

A proposal by the Trump administration to tie the price of drugs sold in the U.S. to the prices other countries pay for the same drugs makes little sense. After all, we don’t peg the price for any other commodity to the price in other nations. But the high price of drugs in this country is a real problem, and just about everyone in the U.S. wants to address it — except drug manufacturers, who wield enormous political influence.

Given that reality, if we want to fix the problem, we should consider solutions that will lower prices without prompting an all-out fight from the pharmaceutical industry. One solution: paying drug manufacturers more for drugs that are the most effective, and less for drugs that are least effective.

What, exactly, does that mean? “Cost effectiveness” is an important way to measure the value of any given drug. When we talk about encouraging the use of “cost-effective” drugs, we aren’t talking about moving toward cheap drugs. We’re talking about a measurement that compares the price of a drug to how well it works.

When a new drug comes along that’s more expensive than the current treatment, and doesn’t work much better, all of us — patients, policymakers, and medical professionals — should be skeptical. For example, patients had been taking new drugs for high-blood pressure that cost $250 and $500 per year when a study came along several years ago that found a medication that costs $25 per year worked just as well. It was more cost-effective.

We have data on exactly how this pricing process works, since the UK has been doing it with some success for almost 20 years through its National Institute for Health and Clinical Excellence. In the U.S., the Institute for Clinical and Economic Review (ICER), a nonpartisan research organization, has been conducting these analyses since 2006. Insurance companies use that data to help make decisions for coverage.

Importantly, CVS Caremark, a major pharmacy benefits manager, has announced that it will permit its customers to refuse coverage of any medicine where ICER data shows it is not cost-effective.

We could take this a step further. The government, specifically the Food and Drug Administration, could refuse to approve new drugs that are less cost-effective than the status quo.

Why hasn’t that happened? For starters, the drug manufacturers have fought it because it would do exactly what is necessary: reduce the price of prescription drugs.

But drug manufacturers should consider ending their opposition to the use of cost-effectiveness. At a time when much of the country recognizes the importance of reducing out-of-control drug costs, the industry might find this to be the most acceptable way to achieve that end. After all, we’ve heard the industry’s argument about drug pricing forever: If you cut drug costs, they say, you’ll stifle innovation. But using cost-effectiveness should be a non-issue. Drug companies could earn more when they produce drugs that really do work better than the status quo.

We should support legislation permitting cost-effectiveness studies, and we should allow FDA to learn from the private sector and use cost-effectiveness as part of its drug-approval process.

Most Americans take prescription drugs. As you consider which politicians get your vote, you might want to think about whether prescription drug costs are important to you. If they are, then consider the candidates. Do they have a statement about the topic on their website? Do they know, or care, about cost-effectiveness?

This would be one more way to attack the costs of prescription drugs — and help ensure that expensive drugs are really worth the cost.

Arthur “Tim” Garson Jr. is a pediatric cardiologist, former medical school dean, and director of the Health Policy Institute at the Texas Medical Center in Houston.

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