(www.youtube.com/watch?v=ZwMVMbmQBug)
For those of you older than “a minute,” it will be well worth your while to take a second and watch the film clip from the movie Network (1975). The premise of the movie is that a television network cynically exploits a deranged former anchor’s ravings and then find themselves unable to control his message (if you have time, a great movie and, even though it was produced in 1975, it is still timely). As I was writing this article, I kept hearing the voice of Howard Beale (Peter Finch) exhorting his viewers to scream out their windows, “I’m as mad as hell, and I’m not going to take this anymore.”
As healthcare providers over the last couple of years have dealt with salary inflation, though it still continues to eat into their earnings, they are now shifting gears to focus on managing rapidly escalating drug prices. Those drug prices that are, seemingly, enjoying this inflationary period with drug price increases occurring at dizzying rates. So, how has the United States gotten itself into this mess and what are some of the reasons why we seem to be facing higher drug prices than other countries?
Putting on my economics hat, prescription medications in the United States tend to be more expensive than in other countries for several reasons. First, believe it or not, unlike many other countries, the U.S. does not have direct price controls on prescription medications. Until very recently in the U.S., governments in other countries are negotiating directly with pharmaceutical companies to establish prices for their national health systems, or they may regulate the price that can be charged for a drug. In a previous article, I talked about how the U.S. is moving forward, albeit slowly, in being able to negotiate Medicare’s drug prices.
Pharmaceutical companies often argue that the high prices of drugs in the U.S. are necessary to fund expensive research and development (R&D) processes. Why the U.S. has to bear the excess burden of those costs while the pharmaceutical companies sell these drugs worldwide is a quandary. While it’s true that developing a new drug can cost billions of dollars, it is also worth noting that these same companies also spend substantial amounts of money on marketing and administration.
The U.S. patent system is also a source of higher prices. The patent system gives market exclusivity preventing competitors from producing generic alternatives for a number of years. This allows the company that developed the drug to set the price without competition. While patents are a global phenomenon, the U.S. patent system can sometimes allow for longer periods of monopoly pricing compared to other countries.
We also have to understand that drugs pass through many hands. For instance, in the U.S., the system of drug pricing involves multiple intermediaries, such as Pharmacy Benefit Managers (PBMs). These entities negotiate drug prices with manufacturers on behalf of insurance companies. While PBMs can secure discounts, they also introduce another layer of complexity and cost into the pricing structure (unsure if there is any value added).
I will mention the high cost of litigation in the U.S. and the attempt to recoup legal costs and potential liabilities with no further discussion.
Consumers are also not without guilt in this pricing cycle. The American consumer often demands and expects to receive the newest treatments, which may not always be the most cost-effective. This can drive up demand for higher-priced drugs even when cheaper alternatives are available. (Caduet that includes amlodipine and atorvastatin ($500/$250 generic) when you can get the generic equivalents of the two drugs for about $6.00 and $12.00, respectively).
The government is also not without blame. The process of getting a drug approved by the U.S. Food and Drug Administration (FDA) is rigorous, which can add to the cost of drug development. While rigorous approval processes exist in other countries too, the specific requirements and length of the process in the U.S. impacts pricing.
And, we have to look at the cost to administer the U.S.’s healthcare system. Because of our system’s fragmentation, we have many players, private insurers and various plans, attempting to negotiate the best results for their companies instead of streamlining the process to reduce some of the administrative burden making the negotiated results available for all. This complexity can add to the cost of drugs.
It all adds up to a lot of finger pointing! The answer/solution/change of paradigm might require that all the parties sit down and draft a solution that “splits the baby.” A solution that disadvantages all the parties yet preserves the system. Maybe a larger role for government to fund R&D and retaining all or some property rights over the drugs/devices that find themselves to market. There are many options to be considered.
What I know is that none of the players want to start hearing, “I’m as mad as hell, and I’m not going to take this anymore.” For it is at this point that congressmen and legislators become experts and start developing healthcare policy that has political facing but fails to reach the goal of mutual reasonableness.
