Everyone agrees: prescription drug prices are out of control. In survey after survey, voters overwhelmingly cite the skyrocketing price of prescription drugs as a top problem to solve. Why? Because when the price of medicines goes up, families and individual pay more – higher premiums, higher co-pays, and higher deductibles.
President Trump has put a bright spotlight on this problem. He is giving a major address on drug prices later this week, and we at America’s Health Insurance Plans applaud his focus on this critical issue. As evidenced by both public opinion and hard data, we have a lot of work to do to bring drug prices back under control.
First, we all need to acknowledge that the problem is the price. Launch prices for new drugs, as well as the relentless upward trend of list prices for existing drugs, are detached from reality. These prices, which are controlled by drug manufacturers alone, have a domino effect that cascades down all the way to the patient, increasing their premiums and what they pay out of pocket. When the price of a drug starts high, it inevitably ends high. That’s common sense.
Our research has found that 22 percent of every dollar spent on insurance premiums goes to prescription drugs – more than for any other cost. This doesn’t include what is dispensed in hospitals, where prices are also out of control. And this growth shows no signs of stopping.
This is a systemic problem. As Health and Human Services Secretary Alex Azar noted in his confirmation hearing, “I don’t know that there is any drug price of a branded product that has gone down from any company in the United States because every incentive in this system is for higher prices.”
But we can effectively flip those incentives.
First, we need to increase competition by allowing more generic drugs and “biosimilar” versions of very expensive biotech drugs. Make no mistake: rewarding innovation is a good thing. But innovation should encourage competition, not stifle it. That is why our legal system – including our Constitution – protects intellectual property for a limited time before that knowledge is shared in the public domain.
Instead, pharmaceutical manufacturers have created decades-long monopolies. One recent study found that out of the 100 best-selling drugs in the United States, 80 percent extended their patent protections at least once, while 50 percent extended it more than once to maintain monopoly pricing power.
Drugmakers deliver amazing breakthroughs and cures, but that doesn’t give them the right to price-gouge patients or game the system. Let’s end the monopoly shenanigans, cut the red tape, and get generics and biosimilars to patients faster.
Second, we need to encourage an open and honest view into how drug prices are set. By understanding why prices increase so fast year over year, we will have a starting point for working together to figure out how we can reduce them. In fact, several states are considering bills of their own. Last year, California passed SB17, which requires drug manufacturers to report when they plan to raise drug prices more than 16 percent over a 2-year period, and explain why the price will increase.
Third, we need to prioritize paying for patient value. For health care to be efficient and effective, we need to use proven treatments that work. Drugmakers and health insurance providers are working together on promising payment models that pay when drugs work but not when they don’t. We also need to reduce the regulatory hurdles that block our ability to engage in value-based strategies.
Insurance providers work hard to keep drug costs low for consumers. Our work has made a real difference in consumer out-of-pocket spending, which has declined from 57 percent of U.S. retail drug spending in 1990 to only 14 percent in 2015.
But Americans are still paying too much for the medications they need – much more than in other countries, especially for branded drugs. More needs to be done. We need to keep working together to advance policies swiftly, effectively and sustainably improve drug pricing. Any policy that does not get to the heart of how prices are set will miss the mark and not deliver on the promise of affordability for Americans.
Matt Eyles is incoming president and CEO of America’s Health Insurance Plans, the national trade association representing health insurance providers.
