High drug prices are Americans’ number one health care concern. The average price of a cancer drug rose from less than $10,000 a year before 2000 to more than $170,000 a year in 2017. Between 1995 and 2013, the launch price of cancer drugs increased by 10 to 12 percent every year, and the average wholesale prices increased at unprecedented rates. Despite presumed competition, the price of medications already on the market has increased by an average of 25 percent. Spending on cancer drugs has doubled since 2013. Thus, unlike in other industries, traditional free-market forces are not working here, and other measures are desperately needed.
Because of the current health care environment, Americans are now burdened with higher insurance premiums, high out-of-pocket costs, high deductibles and high prescription co-pay expenses. Instead of “choosing wisely,” patients with cancer are abandoning or delaying treatment, which increases mortality. Today, cancer patients may pay 20 to 30 percent of the cost of drugs, which can consume an average family budget.
Market forces are not effective in lowering drug prices largely because of a “non-interference clause” included in the 2003 Medicare Prescription Drug, Improvement and Modernization Act (MMA), which overhauled the program. This clause, demanded by the pharmaceutical lobby as a condition of its support, prohibits Medicare from negotiating drug prices. The MMA also included, under Medicare Part D, prescription benefits for Medicare recipients. Thus, Medicare must pay the prices imposed by drug companies without any ability to negotiate. This led to claims by some elected officials that the government does not negotiate effectively, and that free-market forces would result in reasonable drug prices and profits. History has shown otherwise: Almost 16 years after passage of the MMA, we are witnessing massive increases in drug prices and drug industry profits.
If market forces have failed to lower drug prices, what are the alternatives? Proposed solutions to reduce prices have been outlined in many commentaries and editorials. Many are already part of the health-care policies in other countries. And reforms are supported by the majority (65 to 88 percent) of Americans. These include:
- Allow Medicare to negotiate drug prices (supported by 86 percent of Americans). The U.S. Department of Veterans Affairs does it effectively, as do governments of most other countries.
- Mandate that annual drug price increases of more than 5 to 10 percent (adjusted for inflation) be justified by additional research discoveries or benefits documented after the drug launch, as is done in other countries.
- Allow importation of prescription drugs for personal use (supported by 80 percent of Americans). Some equivalent drugs are sold outside the United States at 10 to 30 percent of the price in the United States. This would help save the lives of many Americans who cannot afford their medications.
- Create a post-Food-and-Drug-Administration (FDA) approval process to recommend a fair price based on a drug’s objective benefits (value-based pricing). Many countries (Canada, European Union, Australia and Japan) have established such mechanisms, which is one reason why they have lower prices. Recent legislation was proposed that would tie what Medicare pays to international prices (for instance, the median price of a drug in five advanced nations – Germany, France, United Kingdom, Australia, Canada). This would lower prices of medications already available in the United States. However, new cancer drugs, typically first launched in the United States at a price imposed arbitrarily by drug companies (usually 10 to 20 percent above the average cancer drug prices of that year), would not be included. This initial price, paid by Medicare if it covers the drug, also would set the initial bargaining prices for other American entities (Department of Veterans Affairs, insurers) and other countries. Therefore, a post-FDA approval process to determine a fair launch price is still needed.
- Develop treatment guidelines that include price as part of the drug “value.” This was proposed by the American Society of Clinical Oncology (ASCO) but not implemented to become an effective benefit. Other cancer societies ignored the issue.
- Facilitate the approval of generic drugs into the U.S. market (supported by 88 percent of Americans). This should include monitoring large company buyouts of generics manufacturers that create de facto monopolies, and monitoring and penalizing pay-for-delay and anti-competitive strategies used by drug companies to delay the availability of generics. It also would require the FDA to develop faster and less expensive approval mechanisms. The tenure of Dr. Scott Gottlieb, the FDA commissioner who will leave the post in April 2019 after 22 months, was marked by the approval of 1,400 generic drugs in record time. Surprisingly, this did not contribute to lower prices. The Federal Trade Commission (FTC) may need to investigate possible collusive behaviors among generics drug companies that may be hindering the reduction of generics prices. An update on the FDA’s current backlog of generic drug applications, and the timelines and costs of FDA approvals, is needed.
- Require pharmaceutical companies to publish the cost of research that justifies the launch price (supported by 88 percent of Americans).
- Use available tools to lower drug prices for older people. The best strategy to do this is to allow Medicare to negotiate.
- Eliminate foreign governments’ “free-riding,” and pressure other countries to pay more for drugs. The “foreign free-riders” myth was invented by the drug industry in the late 1990s, and debunked repeatedly. The reality is: Americans pay twice – once to fund research the drug industry profits from, and a second time for unjustified high prices, three to 10 times higher than other countries. Other countries will not pay more for drugs and make them unaffordable to their citizens.
- Require drug advertisements to include the price. The American drug industry’s domestic advertising expenditures in 2017 totaled $23.3 billion, including $6.1 billion (subscription needed) in direct-to-consumer campaigns. This creates new false markets that increase costs and can be harmful. Such false advertisements contributed to the current opioid epidemic in the U.S., which caused the death of more than 350,000 Americans between 1999 and 2016, and more than 70,000 in 2017 alone. The massive “Go Boldly” campaign, paid for by PhRMA (the drug industry lobbying group), delivers the subliminal message that if drug prices are controlled, discoveries that cure Alzheimer’s disease and dementia may not happen. This is, of course, false. Requiring advertisements to include price is a useful reminder of the hardships associated with high drug prices.
- Prohibit “contract clauses” that prevent pharmacists from telling patients that paying cash for a drug might be cheaper than buying it through insurance.
- Prevent “pay-for-delay” and other strategies that companies employ to keep generics off the market.
- Examine whether the existing prescription drug rebate system constitutes an illegal form of kickback. As background: The price a patient pays for a drug is determined by a complex process that includes four key entities: drug companies; pharmacy benefit managers (PBMs) and third-party administrators of prescription drug programs; insurance companies; and hospital pharmacy outlets and retail pharmacies. The drug companies impose the prices and are the worst culprits. They created a process that gives them total control to decide the launch price of newly approved drugs and to increase the price of existing drugs at will. The PBMs have developed complex rebate schemes that may allow them to profit from both insurers and manufacturers. Drug companies have tried to shift the blame to PBMs, accusing them of fueling higher prices. Unable to follow the intricate issues, Americans have given up on understanding who is to blame, thus permitting the “finger-pointing blame-game campaign” to reach its objective – an indefinite delay of legislation that can realistically lower prices.
Though a majority of Americans support these proposed actions, and numerous bills have been introduced in Congress, none has made it into law because of opposition by the powerful pharmaceutical lobby. The Obama administration did not address high cancer drug prices effectively. In May 2018, the Department of Health and Human Services (HHS) released “American Patients First – The Trump Administration Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs.” HHS Secretary Alex Azar said the drug industry’s repeated mantra that it must make large profits to pay for research and innovation was a tired point, and that the biggest problem was simple: Drug prices are too high. In other words, the drug industry is too greedy.
Health-care experts who reviewed “American Patients First” concluded that the plan is necessary but not sufficient to bend the curve of rising prices in the near or long term. The 50 broad points of the blueprint can be distilled into the following:
To be effective, the “American Patients First” plan should include provision to: 1) allow Medicare to negotiate; 2) reduce the launch price of new drugs; 3) prohibit unjustified annual price increases; and 4) protect patients from high deductibles and excessive out-of-pocket expenses (which lead to abandoning treatment, worse outcomes and higher mortality), and limit the total annual out-of-pocket costs for patients (supported by 76 percent of Americans). A reasonable annual maximum out-of-pocket medical expense for senior citizens would be $6,000 a year, equivalent to about 25 percent of the average family income of senior Americans.
The “American Patients First” proposal raises 150 questions on drug pricing within the proposal perhaps asking for guidance from health-care experts. This editorial may stimulate further thoughts concerning effective solutions to reduce the price of unaffordable drugs.
Dr. Hagop Kantarjian is professor and chair of the Department of Leukemia at the University of Texas MD Anderson Center, where he is also the Samsung Distinguished Leukemia Chair in Cancer Medicine. His research and collaborations were the basis for the FDA approval of more than 20 drugs to treat leukemia. He is an author on over 1,800 peer-reviewed publications.