Unscrupulous Scripts

While the Washington Post and the New York Times wring their hands over the costs of prescription medications, these same proponents of government-subsidized health care fail to realize the significant inflationary impact it has on prices.

Big Pharma would have you believe that drug prices in the United States reflect a confluence of the complex and lengthy drug development and approval process, and an equally complicated health care system. It simply isn’t true.

Elderly Stuck with the Bill
Starting in 2003, the Medicare Modernization and Prescription Drug Act gave pharmaceutical companies largely the freedom to charge the federal government full retail price on certain prescription drugs.

It should be no surprise that this drug act was stewarded into law by pharmaceutical lobbyists. The act explicitly prohibited the federal government from negotiating drug prices or establishing a list of preferred drugs. The rationale was that the market would lower prices and that each of the private prescription drug plans, in competition to attract more Medicare beneficiaries, would negotiate with prescription manufacturers to reduce costs. In fact the opposite effect occurred, with drug prices from high-tech cancer drugs to simple generics rising.

Medicaid, the program for low-income people that is administered by the Centers for Medicare and Medicaid Services and the Department of Veterans Affairs, is able to negotiate with drug companies for lower prices. In fact, under federal law, drug makers must provide a discount or rebate equal to at least 15 percent of the average manufacturer price for most brand-name drugs covered by Medicaid. Federal law also guarantees discounts for the Department of Veterans Affairs, which can negotiate with drug makers to secure discounts on top of those guaranteed by law. Generally, they are able to negotiate prices that are at least 25 percent lower than Medicare.

The nominal cost of prescription drugs rose 13 percent in 2014, the largest percentage increase in more than a decade.

It’s a Tax, Not Reform
The rise in pharmaceutical costs has continued to accelerate with the Affordable Care Act in 2010. USA Today reported in June that the nominal cost of prescription drugs rose 13 percent in 2014, the largest percentage increase in more than a decade. About the same time, Dr. David Belk, an Alameda, California internist, made a list of 335 brand-name prescription drugs for which there is no generic equivalent. Except for one medication, between October 2012 and April all of those medications saw prices rise by an average of more than 40 percent.

Another reason drug prices have risen: Obamacare taxes.

Another reason drug prices have risen: Obamacare taxes. No, this isn’t because of the so-called penalty for not carrying insurance. The Branded Prescription Drug Fee is one of the new taxes included in the Affordable Care Act to help cover the federal government’s expanded role in the health care system. It is designed to bring in at least $27 billion of additional revenue over 10 years.

The drug fee targets pharmaceutical companies that sell branded prescription drugs. Unlike most taxes, this one is calculated, not as a percentage of pharmaceutical company’s total sales, but in proportion to its share of the branded prescription drugs market. For every year, beginning in 2011, the Affordable Care Act specifies a certain lump sum that the IRS must collect from the branded prescription drug industry. Then, each pharmaceutical company pays a portion of this sum that roughly corresponds to their market share of branded prescription drugs.

No wonder prices of branded drugs have risen more dramatically than generics during the past two years. According to the Institute for Healthcare Informatics, the average price of branded prescription drugs grew by 17 percent in 2013 and 24.9 percent in 2014, while the average price of generic prescriptions grew by 2.9 percent and 9.8 percent in those two years.  According to Statista.com, the U.S. rate of inflation in 2013 and 2014 has been 1.5 percent and 1.6 percent, respectively.

Taxpayers Foot the Bill
A cure for hepatitis C is here for 170 million people around the world with the drug Solvaldi. But its pricing has generated a great deal of indignation.

In the U.S. a pill is priced at $1,000 a day, while an entire treatment regimen of 84 pills costs just $900 in Egypt. It’s the exact same medicine, but priced quite differently. In Canada, it’s about $55,000 for the full regimen.

That’s tough luck for Americans. And the $84,000 doesn’t include supplemental therapies that can raise the cost of treating a U.S. patient to more than $100,000 for a course of treatment. If Sovaldi were prescribed to the estimated 3 million hepatitis C patients in the United States, it would cost around $300 billion. No one suggests that Gilead doesn’t deserve to make a reasonable return on its investment, but the four-week course of therapy costs only $130 to manufacture.

In February, a federal judge overturned Maine’s first-in-the-nation law allowing residents to purchase medication by mail from other countries.

U.S. Chief District Judge Nancy Torresen ruled in favor of several Maine pharmacy groups, as well as national industry group Pharmaceutical Research and Manufacturers of America, which filed a lawsuit against the state over the 2013 law.

They argued the law jeopardized the safety of the nation’s prescription drug supply and would open the door to counterfeit and tainted medications, but could not provide a single example.

Another argument proffered against such imports is that higher U.S. prices fund necessary research and development. That argument is baseless, since promotional spending is nearly twice as high as R&D spending. Even if the claim were true, why should U.S. patients subsidize patients in other nations who generally pay far less for their prescriptions?

Drug prices, like health care and health insurance, is too expensive because we have too much government involvement, not too little.

The reason: Drug prices, like health care and health insurance, is too expensive because we have too much government involvement, not too little.

The market can work via competition to lower prices and “increase access” to better drugs and better care. But the fact of the matter is that forced buyers are not in a position to debate prices.

The Affordable Care Act codified making all Americans forced buyers. Given the significant role that health insurance and pharmaceutical lobbyists played in crafting the ACA legislation, such a result should be expected. Wouldn’t a simple and effective solution to exploding prescription drug cost be to enforce the antitrust laws in health care as it is in other aspects of the American economy?