Three weeks ago, Consumer Action held its annual conference in Chicago, where over a hundred consumer advocates heard about various consumer issues. Rising prescription drug prices are a huge problem, and a great many of the advocates said reducing them was a top priority. Consumer organizer Michael DeLong gave a presentation on drug prices and then answered questions. In their latest issue, Consumer Action looks at skyrocketing drug costs and reviews possible solutions, ranging from Medicare negotiations to stronger regulation of pharmacy benefit managers (PBMs) to ending patent abuse.
Prescription drug prices have greatly increased over the last ten years-the average annual cost of brand-name drugs has more than tripled. Drug companies argue that these price increases are necessary to fund research and development, but much of that research is done by the taxpayer funded National Institutes of Health (NIH). And these price increases have been affecting not just new drugs but drugs that have been on the market for years, and in some cases decades. For example, the list price for the life-saving drug insulin has risen 600% since 2002. And insulin was developed a century ago! These price hikes on a nearly century-old drug are forcing some diabetics to dangerously ration their insulin, and some people have even died.
Drug price hikes are also disproportionately affecting seniors, who tend to be lower-income and take more prescription drugs. Consumer Action notes that according to AARP, "it's not unusual to find seniors facing costs of $30,000 a year for brand-name drugs."
What are the reasons for this crisis? Drug pricing is complicated and the result of many factors, but here are some of the main causes:
1) There are no laws prohibiting excessive price hikes, and the federal government is forbidden from bargaining for lower prices with the drug companies. Consumer Action writes that "federal law currently prohibits the Secretary of Health and Human Services from negotiating prescription drug prices for the tens of millions of consumers who participate in Medicare’s drug programs, despite the fact that Medicare Part B and Part D plans account for 30% of drug spending in the U.S." This is not good for consumers or taxpayers, both of whom end up paying a lot more.
2) PBMs contribute to higher drug costs because they have incentives to do so. These middlemen companies are supposed to bring down drug costs by negotiating lower prices, and rely on rebates from drug companies so the companies can get access to formularies. However the rebate process is opaque and it is unclear how much money PBMs actually pass on to consumers. In fact, since rebates are usually based on a percentage of a drug's list price, PBMs have a powerful incentive to keep drug prices high and choose more expensive drugs.
PBMs are also not well regulated at either the state or federal level. And recently they have started merging with health insurers into huge vertical companies that will wield even more power.
3) Mergers and concentration also result in higher drug costs. The pharmaceutical industry has grown more concentrated over the last twenty years and the number of drug manufacturers has shrunk, hurting competition. The PBM market is dominated by only three companies-CVS Caremark, Optum Rx, and Express Scripts. And the health insurance market is highly concentrated too. These mergers and corporate consolidation lead to less competition among companies, higher drug prices, and reduced research and development.
4) Patent abuse. Many drug companies have become masters of exploiting loopholes and red tape in our patent system to stifle competition from generic drugs and biosimilars. They focus on retaining monopolies on branded drugs and keeping prices. The company AbbVie has over one hundred patents on its bestselling drug Restasis, just to prevent generic drugs from coming to market.
What are some solutions? Give Medicare the power to negotiate lower drug prices, regulate PBMs and require that their rebates be passed on to consumers, reform the patent system to end abuse and ensure that patents are only given for true innovations, prohibit pay for delay deals that stifle competition, and promote access to generic drugs and biosimilars.
There are many good ideas and members of Congress have introduced dozens of bills. It is time for consumer advocates to roll up their sleeves and get to work.