Does Price Disclosure Make a Difference in High Drug Prices?
Medication prices continue to rise faster than many people can keep up with. Long told that pharmaceutical companies needed to recoup their costs from research and development, recent studies have found this is not true. The price of research and development are often covered within the first few years the medication is released to the public. The companies, however, rarely lower the retail price they charge the patients who are in need of the medicine.
An analysis of 75 brand-name medications with the highest Part B expenditures in 2016 shifted Medicare Part B drugs to Part D. It was estimated to decrease total drug spending by 7% to 18% after rebates. However, under the 2018 Part D benefit out-of-pocket costs for most drugs were projected to be lower in Part D among the fee-for-service Medicare beneficiaries without Medicaid. In fact, however, out of pocket costs actually increased for Medicare beneficiaries with supplemental insurance such as Part D. these prices are estimated at $21.6 billion annually. Department of Health and Human Services should ensure proposed reforms help both patient and payers. Their idea to shift some drugs from Medicare Part B to Part D may reduce spending but it may actually increase out of pocket expenses for Medicare patients; especially those with Medicare supplemental insurance (Hwang et al, 2019).
Why medication costs so much?
This study asked the question of how the cost of research and development of cancer drugs compared with the selling price. Their findings are sadly representative of all drugs approved by the Food and Drug Administration; not just cancer drugs. In 2017 it was found $14.50 (range $3.30-55.10) for every dollar of research and development costs. High costs of research and development have long been touted as the justification of the skyrocketing drug prices.
The industry has claimed that 20% of its revenues are reinvested into research and development. In reality, previous studies have found some cancer drugs were more than sufficient to cover past research and development expenses from originator companies. This study looked at all drugs approved by the FDA between 1989-2017 for any cancer-related indications. In 2017 median sales across all drugs was $435.2 million with a range from $1.8 million to $8.2 billion.
Forty-nine cancer drugs accumulated sales of more than $5 billion. By the end of 2017 five drugs had accrued sales of more than $50 billion for the originator companies. The outcome of this study highlights the falseness of the claims by the originator companies that they need to recoup their spent money on development. They found the incomes from sales of cancer drugs greatly exceeded the reported research and development costs. If this was just cancer drugs what about other medications that are no less in demand (Tay-Teo et al, 2019)?
Manufactures, companies and health care professionals, and organizations use all sorts of promotional activities to sell and increase market share of their products. These activities seek to shape public and clinical beliefs and harm of prescription drugs and some disease definitions.
Medical marketing influences behaviors and choices. They can either influence how doctors prescribe medications or can adversely influence efforts to control unsustainable health care spending.
One method used by these companies is direct to consumer marketing. They also employ disease awareness to the general public and direct to physician marketing. In the study, from 1997 to 2016 annual spending increased from $17.7 billion to 29.9 billion. The greatest change in spending was direct to consumer advertising. This increase included $72,000 for television advertising in 1997 and $663,000 television advertising in 2016. In addition in 2016 pharmaceutical companies paid doctors and teaching hospitals $58.95 trillion for disease awareness education including speaker fees at company events to the tune of $51.18 million. Increased medical marketing reflects a convergence of scientific, economic, legal and social forces.
As more drugs convert once fatal disorders to chronic illness marketing of treatment and services have expanded. Medical marketing has increased from 1997 to 2016 especially in direct to consumer advertising for drugs. In spite of this regulatory oversight remains limited (Schwartz & Woloshin, 2019).
Steps for solutions
The issue with expensive medicine or medical procedures is not just experienced in the US. Israel has had to enact programs to try and rein in soaring costs. When discussing the importance of the finds of the ministry of health they see gifts to contracts as a fundamental change that makes corruption less likely. However, in the US it is felt a competitive market is more beneficial. It is felt that the contracts between pharmaceutical companies and doctors could amount to nothing more than conferring lavish bribes. In addition, doctors and health care organizations may seek to curry favor with the pharmaceutical companies to keep the stream of payments ongoing.
The effectiveness of private regulation of conflict of interest between doctors and drug companies need to be addressed. Even small gifts can lead to doctors departing from the ethical requirement to act for the good of the patient rather than earning money for the donor.
The best protection for consumers where there are third-party payers is to control the flow of dollars but this ends with competition impaired. It is felt that requiring doctors to reveal the risk and benefits of the medications and the size of the co-pay associated with the drugs could go a long way in giving some semblance of control to the patients (Avraham & Silver, 2018).
In May of 2018, President Trump took a step toward lowering the price of prescription drugs. It is felt that by combining the free market system and generous public investment that made America home to such milestones as the first chemotherapies for cancer, the first effective treatment for HIV, first cure for Hepatitis C, and now the first therapies that turn the patient’s own immune system against cancer a solution can be found. And while access is great-it is meaningless without affordability. With prices spiraling out of control, now is the time to effect change. Too often the people who least can afford it is saddled with high prescription prices necessary for basic quality of life.
This document published under President Trump lists four major challenges to decrease costs of medication. High list prices for drugs, seniors and government programs overpaying for drugs due to lack of the latest negotiation tools, high and rising out of pocket costs for consumers and foreign governments free-riding off American investment and innovation.
The Department of Health and Human Services is taking steps to prevent manufacturers from gaming of regulatory processes such as Risk Evaluation and mitigation Strategies. They are developing proposals to stop Medicare and Medicaid and ACA programs from rising prices in the private market. In addition, this paper states they are requiring the FDA to mandate manufacturers include a price list in advertising. And they are prohibiting Part D contracts from preventing pharmacists telling patients they could pay less out-of-pocket by not using the insurance. It is time to realign the system by increasing competition and increasing incentives to lower list prices (DHHS, 2018).
Research has shown that consumers demanding high priced drugs are now demanding drug ads include language explaining that the medication would be low-cost or no-cost because of insurance coverage or other discounts. No, price disclosure will not be effective in bringing down the amount of money made by pharmaceutical companies by itself, but there is hope that recent legislation will help control drug costs. Legislation needs to require drug companies to provide equivalent discounts to all payers. So if the drug is marked down 90% for the patient, then it needs to be also marked down 90% for the insurer as well. Make the medication affordable for all people (Garrett et al, 2019).
Avraham,R. & Silver,R. (2018). Regulating pharmaceutical companies financial largesse. Israel Journal of Health Policy Research, 7(28).
Department of Health and Human Services. (2018). American Patients First. US Department of Health and Human Services.
Garrett, J. et al. (2019). Price disclosure legislation unlikely to lower drug costs. Clemson University.
Hwang, T.J. et al. (2019). Analysis of proposed Medicare Part B to Part D shift with associated changes in total spending and patient cost-sharing for prescription drugs. JAMA Internal Medicine.
Schwartz,L.M. & Woloshin, S. (2019). Medical marketing in the US, 1997-2016. JAMA Special Communication
Tay-Teo,K. et al. (2019). Comparison of sales income and research and development costs for FDA[Food and Drug Administration] approved cancer drugs sold by originator companies. JAMA Network Open. https://jamanetwork.com/journals/jamanetworkopen/article-abstract/2720075