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Negotiating Prescription Drug Prices

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By Paula Acevedo
March 31, 2017

US healthcare

The U.S. spends more than twice as much per capita on health care as the average developed country. The spending per capita measure exceeds all Organisation for Economic Co-operation and Development (OECD) countries except Norway and the Netherlands. A significant part of the rising healthcare spending is due to prescriptions drugs.

According to a recent report by the Department of Health and Human Services, prescription drug prices, particularly specialty drugs, are expected to continue rising faster than overall health spending. The report found that of the total $457 billion spent on prescription drugs last year, $328 billion (71.9 percent) went to retail drugs and $128 billion (28.1 percent) was spent on non-retail drugs. Between the years of 2010 to 2014, prescription drug spending increases can be attributed to the following:

  • 10 percent due to population growth;
  • 30 percent due to an increase in prescriptions per person;
  • 30 percent due to overall economy-wide inflation; and
  • 30 percent due to changes in the composition of medication prescribed toward higher priced products or price increases for drugs that together drove average price increases over general inflation.

Over the years, many have proposed legislation to address the skyrocketing prices of prescription drugs. The most recent legislation, the Affordable and Safe Prescription Drug Importation Act, which would allow drug importation specifically by wholesalers, licensed U.S. pharmacies and individuals from FDA-inspected sites from Canadian licensed sellers. The new drug importation bill has bicameral support from Sens. Bernie Sanders, Cory Booker, Bob Casey, Martin Heinrich, Angus King and Reps. Elijah Cummings and Lloyd Doggett. The bill would also allow drug importation from OECD countries after two years, from FDA-certified sellers that would have to pay a fee to fund the program’s administrative and enforcement functions. Whether the Affordable and Safe Prescription Drug Importation Act will pass in a highly divided Congress that just failed to repeal the ACA with the AHCA remains to be seen.

In the past, drug importation measures failed to pass Congress. Just a month prior to the legislation currently being considered, an amendment proposed by Sens. Bernie Sanders (I-Vt) and Amy Klobuchar (D-Minn.) allowing drug importation from Canada by pharmacists, wholesalers and individuals with a prescription was struck down. Another proposed amendment would have allowed drug importation, one by Sen. Lamar Alexander (R-Tenn.) was also unsuccessful.

A proposed piece of legislation that gained traction to reduce costs to consumers, back in 2014, was the Safe and Affordable Drugs from Canada Act, sponsored by Sens. John McCain (R-AZ) and Amy Klobuchar. The law would have made it legal for U.S. citizens to import prescription drugs from Canada, a practice some citizens already take part in illegally, due to the price differences. For example, a month’s supply of allergy drug, Nasonex costs $105 in the U.S. and just $29 in Canada. The problem with drug importation from Canada is that pharmaceuticals would charge Canadians more, or not sell to them at all.

The Patient Protection and Affordable Care Act (PPACA) made notable changes to coverage, costs and care, but failed short of regulating pharmaceuticals, which set their own prices, have no restrictions on profit margins and little transparency on the pricing process, creating information asymmetry between them and their consumers.

The result has been the sick using more services, increasing market growth, specifically for specialty drugs with more of the costs falling on patients and the healthy. This is particularly true for patients with health plans through the exchanges, 46 percent of which combine medical and pharmaceutical deductibles, compared to 12 percent of employer plans. Independent studies have found insurers shift more drug costs to patients than to hospitals or medical care, which coincidentally is also what the pharmaceutical industry argue insurers do.

To improve, health policy experts have proposed efficiently using the treatments that are already available to leave resources for investments and preventive health care to send a message of what is considered worthy of additional payments. Instead of shifting the blame, and continuing to kick the can down the road, our elected leaders need to improve our current healthcare system by recognizing the need for affordable medications.

Author: Paula Acevedo is a recent graduate of American University’s School of Public Affairs with a Master’s in Public Administration and focus in Public Policy Analysis. She holds a BA in Marketing and Management from Florida Atlantic University. Paula is currently a Research Associate at Council for a Strong America. She can be reached at [email protected].

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