June 19, 2018

Combating High Drug Prices


KEY TAKEAWAYS

  • High out-of-pocket costs are limiting Americans’ access to prescription drugs – the U.S. spent $329 billion on medication in 2016.
  • Consumers who are asked to pay $50 or more at the pharmacy counter are four times more likely to drop their prescription than a consumer charged $10.
  • The Trump administration’s plan to bring down drug prices includes increasing competition, improving government negotiation, and providing more price transparency.  

High out-of-pocket costs for prescription drugs are limiting Americans’ access to the medicine they need. The Trump administration has drafted a blueprint to address the rising price of prescription drugs and the lack of transparency in the drug supply chain. Congress is also considering legislative solutions.

Lack of competition and transparency in the pharmaceutical market have caused prescription drug prices to rise rapidly since the 1990s. Total national spending on drugs reached $329 billion in 2016 – $1,109 per person in America.

Total U.S. Prescription Drug Expenditures

Drug Pricing

Source: CMS Office of the Actuary

Prescription drug spending is expected to reach $605 billion by 2026 – $1,717 per person. Total health care costs are projected to increase at an average annual rate of 5.6 percent over the next 10 years, reaching $5.7 trillion.

The Problem

The drug pricing problem poses both financial and health challenges for families. The administration cites research showing that consumers who are asked to pay $50 or more at the pharmacy counter are four times more likely to abandon the prescription than a consumer charged $10.

Limited transparency in the pharmaceutical market makes it hard for patients to know what price they will pay and how that price relates to the list price for a prescription drug. The same prescription drug may be sold to different buyers at completely different prices. This is partly because of a complex system of rebates offered by drug manufacturers to third-parties. The blueprint notes that health plans, pharmacy benefit managers, and wholesalers receive higher rebates and fees when list prices increase, giving them little incentive to control list prices. Consumers, however, pay higher copayments, coinsurance, or other out-of-pocket costs when list prices rise.

Government-administered programs also lack transparency and competition. The 340B program, which requires prescription drug manufacturers to provide certain drugs at a discount to hospitals and clinics as a requirement to participate in Medicaid, is one example. The administration identifies the program’s limited negotiating tools as a reason pharmaceutical companies control the cost the government pays, especially for drugs given to patients in the hospital.   

The Trump Administration’s Plan

The Trump administration’s blueprint builds on the president’s 2019 budget request and aims to realign the drug delivery system in four ways:

  • Increase competition. The blueprint identifies the need to end gaming in the FDA regulatory process to promote the creation of and competition for affordable alternatives to brand name drugs.
  • Improve government negotiation tools. The administration has taken action to provide Medicare Part D sponsors more negotiating power with drug manufacturers and to allow greater flexibility in benefit design. The president’s budget recommends allowing HHS to leverage Medicare Part D negotiating power for some Part B drugs. The administration is also requesting feedback for ways to apply negotiating tools currently used in the private sector, such as value-based arrangements and price reporting, to reduce Medicare drug prices.
  • Create incentives for lower list prices. The administration proposes reforms to increase transparency and competition to reduce list prices. One proposal identifies the need for the 340B program to ensure benefits appropriately target beneficiaries. The proposal suggests the FDA consider requiring drug companies to include the cost of the drug in their advertisements.
  • Bring down out-of-pocket costs for American consumers. One immediate action the administration proposes is eliminating Part D contracts’ ability to ban pharmacists from advising patients when they could pay less out of pocket by not using insurance.

Congressional Action and Proposed Legislation

Addressing rising prescription drug costs has been a bipartisan concern in Congress. The Senate Judiciary Committee recently advanced the CREATES Act of 2017, which addresses the need for increased generic drug competition in the pharmaceutical marketplace. The bill has 28 co-sponsors, including 14 Republicans.

Last week, the HELP Committee held a hearing on the subject, where HHS Secretary Alex Azar discussed the administration’s blueprint. The committee also plans to hold its third hearing on the 340B program.

Issue Tag: Health Care