Making Medications Affordable

Drugs, money, and power


A pill bottle on its side with pill capsules containing shredded paper money

Two simple goals. Americans  seek two things pharmaceutical. One is public—vigorous innovation to develop drugs that ease pain, overcome disability, and extend life. The other is private—personal ability to afford those drugs.

Drug makers tell Americans we can’t have both. They say we must continue to pay them the world’s highest prices for drugs if we want innovation. They say this desperately—because other nations regulate drug prices, leaving the U.S. as the last financially fertile field from which drug makers may freely harvest profits.

Americans bridle at rapid price hikes for many older generic drugs from Mylan, Valeant, Turing, and other companies. This month, the public is reportedly more worried about affordable medications than about reforming or repealing the ACATwitter .

Political ups and downs.

This is not the first surge of public anger about high U.S. drug costs. Drug costs quadrupled from 1994 to 2004. Proposed responses included cutting patent durations, spurring generic competition, banning direct-to-consumer advertising, legalizing imports from Canada, state or federal regulation of drug prices, and allowing public programs to pay drug makers at low VA prices.

But the main result was the 2003 Medicare Part D drug benefit. Instead of cutting costs, it boosted drug makers’ revenue. Because three-quarters of Part D’s cost is financed by added federal debt, the federal government has borrowed hundreds of billions of dollars to buffer Medicare patients from drug makers’ high pricesTwitter . This temporarily insulated drug makers from mounting financial and political threats.

Then followed a decade of slow rises in U.S. drug costs. Patents expired for some costly drugs, fewer new blockbusters were marketed, and the Great Recession dampened price increases.

The past few years, though, have seen highly visible price hikes. And introduction of hyper-costly meds for Hepatitis-C, and for many cancers and other problems. The public’s anger at drug makers’ greed has returned—reinforced by individuals’ fear of inability to afford prescribed meds. Will drug makers be able to deflect today’s anger at high drug prices or even—as in 2003—turn it to their advantage?

Possibly. Those who fight for lower drug prices remain unorganized politically even though they can be transiently mobilized by grievances like Mylan’s EpiPen pricing. Drug makers remain politically powerful owing to their money, political donations, and lobbying. Politicians might pass laws that look good on paper but fail to rein in drug prices. Various patient groups continue to support pharmaceutical innovation at any price. Many Americans want all the meds that someone else is willing to pay for. With added federal debt unavailable, proposals that Americans pay for life-saving drugs by taking on heavy personal debt have surfaced.

But probably not. Four things are different today. One is that successive waves of price increases re-stoke public anger. A second is that many new meds that promise to work are priced unaffordably while others might do little clinical good. A third is that the federal government has abandoned the Republican borrow-and-bestow-on-drug-makers principle of 2003—partly because the national debt/GDP ratio has risen from 59 percent then to about 105 today. A fourth is the rapid rise in out-of-pocket payments (OOPs) imposed on patients. Higher prescription drug deductibles have been coupled with replacement of fixed-dollar co-payments ($20/month, for example) by open-ended co-payments (30% of retail price monthly, for example).

A Realistic Aim 

Americans spend enough already to buy all effective meds for all who need them. One reason is that we pay so much. Another is that the incremental cost of making more of most meds—after covering the cost of research and of setting up factories—is usually very low. Affordability recedes yearly as Americans are asked to pay more OOP for higher-priced pills. Drugs that should boost clinical security instead undermine financial securityTwitter .

The path to peace is through negotiation. Drug makers should signal their willingness to craft a durable compromise now—before their political influence is eroded by public anger. A prescription drug peace treaty would pursue both innovation and affordable meds for all Americans.


Ten Facts 

Some Americans pursue fat-free diets. Most Americans engage in fact-free debates about prescription drugs. Here are some useful factsTwitter .

  1. With 4.4 percent of the world’s people, the U.S. gives the world’s drug makers about 40 percent of their worldwide revenue.
  2. This year’s $457 billion for U.S. prescription drugs is almost enough to buy a nuclear-powered aircraft carrier weekly—for a navy that has 12.
  3. Americans pay the world’s highest prices for brand name drugs—almost 2.5 times as much as the average of 7 other rich democracies.  We subsidize the starving Swiss.
  4. Prescription drug prices rise here while the street prices for heroin and cocaine fall.   Though drug makers claim their innovation rests on high profits that require high prices, they devote large shares of their research to copy-cat drugs.  Their profits stem partly from beneficial innovation but partly from mergers, marketing, me-too’s, and price hikes.
  5. Americans pay 1/7 of our retail prescription drug costs OOP compared with 1/12 of our doctor costs and 1/33 of our hospital costs.
  6. Over one-quarter of Americans taking prescribed drugs have trouble affording them owing to the toxic mix of drug makers’ high prices with higher OOPs.
  7.  OOPs are hiked deliberately.  Responding to high U.S. drug prices and spending, insurance companies, employers, and some free market economists pushed OOPs to deter sick people from buying pills their doctors prescribed. Though plagued by stunted empathy, those who sought OOPs were not evil. They were desperate to contain U.S. drug costs and saw that alternative methods had either failed—methods like relying on generics, drug makers’ private charities, or coupons—or had been neutered politically by drug makers—like regulating prices publicly, importing from Canada, or prohibiting direct-to-patient TV advertising.
  8. Combined, drug makers’ high prices and price hikes plus higher OOPs imposed by insurers and employers amount to a tax on getting sick.
  9. Compounding this unfairness is that drug prices are set in confusing and complicated ways.  Pharmacy benefits managers (PBMs) were created to lower and standardize prices.  They have failed.  Worse, it’s been alleged that PBMs sometimes betray their duties of loyalty to their clients (employers, unions, and governments) by accepting money from drug makers to boost particular drugs’ sales.
  10. Recent days have seen angry Congressional hearings on drug prices, state efforts to require drug makers to justify price increases or to sell to state governments at lower prices, and even public finger-pointing by drug makers and big PBMs.  Worse, public and political pressure is seen as slowing price hikes, frightening stock-holders.


From Panic to Peace and from Price to Prize via Four Provisions

Drug makers have for years been among the most nervous very-well-dressed people in the northern hemisphere.  As nervous as Louis (“after me, the flood”) XV. Their business model is unsustainable, and they know it. But they see no alternative—none they can control. So they focus short-term on corporate stock price and on personal salary and bonus.

The path to peace is through negotiation. Drug makers should signal their willingness to craft a durable compromise now—before their political influence is eroded by public anger. A prescription drug peace treaty would pursue both innovation and affordable meds for all Americans. Key provisions could include:

First, a new fund, financed by the world’s rich nations, would be created to post and award prizes for research generating safe and effective new meds. The U.S. would push to finance such a fund by proposing, in its absence, to regulate U.S. drug prices at median rich democracy levels, thereby ending subsidies to other wealthy nations. Such a unilateral alternative would upset those nations.

Second, the fund would set prizes in proportion to new drugs’ demonstrated clinical value. In exchange, the fund would own new drugs and would license them for manufacture and sale at low prices.

Third, costs of innovation would thus be stripped from the retail prices of the pills. Those prices would reflect only incremental manufacturing costs—resembling free market levels—and making most meds much more affordable.

Fourth, drugs would not be marketed, detailed, or advertised—saving many billions of dollars yearly. Instead, researchers, physician groups, and payers would disseminate evidence on the efficacy, safety, and uses of new meds to doctors and patients.

Featured image: Lisa Yarost