Controlling Cost Through Value

The supporters of Oregon bill LC-1285 are calling for pharmaceutical price controls. So, let’s be honest, it doesn’t do that. The proposed legislation will not lower the price of one medicine but will put many millions of dollars into the pockets of insurance companies and result in less research and development for new, life-saving treatments.

“Facts,” John Adams said, “are pesky things.” LC-1285 ignores the reality that the “price of drugs” is a complicated ecosystem. Rather than an ill-conceived bill with dangerous unintended consequences, we need legislation that shines sunlight on the system as whole. We don’t need price-controls — we need pricing transparency and a recognition of value to patients.

When Oregonians voice their displeasure over the “price of drugs,” they’re generally referring to the co-pays they have to fork over at the local pharmacy. But, surprise!  Pharmaceutical companies don’t set co-pay rates, insurance companies and pharmacy benefit managers do. What most people don’t know is that drug manufacturers give huge discounts and rebates to these “payers,” savings that aren’t passed on to consumers in the form of lower co-pays. Consider the giant PBM Express Scripts. Since 2003 our nation’s biggest PBM has increased its profits per prescription by 500 percent.  LC-1285 would put millions more into the coffers of Express Scripts — at the expense of investment in research and development into new medicines — without lowering the price of one pill.

What’s even more disturbing (and immediately relevant to the people of Oregon) is the history of price controls enacted in other countries. Fact: They have resulted in reduced access to medicines for serious and life-threatening diseases. As Aldous Huxley reminds us, “Facts do not cease to exist because they are ignored.”

The Beaver State has been down this road before. In 2015 Oregon’s Health Evidence Review Commission issued an update to its guidelines for providing cancer treatment to low-income individuals covered by the state Medicaid program. These new guidelines require that Medicaid deny coverage for certain cancer treatments for patients who have been deemed “too” sick, haven’t responded well to previous treatments, or can’t care for themselves. Through these new rules, Oregon state bureaucrats are severely restricted access to appropriate care, dooming potentially thousands of local patients to a premature death. Price controls = Choice controls.

Disturbingly, PBMs are maximizing their negotiating leverage, and thus their rebates, by refusing to cover dozens of lifesaving drugs. Combined, the top two PBMs in the country deny coverage to 239 medicines. Why is LC-1285 rewarding them with even more proposed payments?

As the saying goes, “Everything you read in the newspaper is true except for those things you know about personally.” LC-1285 is premised on the “runaway cost of drugs.” But, once again, let’s let the facts do the talking. Medicines represent 10 percent of our national health care expense — a dime on the dollar, and they are the slowest growing slice of the health care pie. According to the Bureau of Economic Analysis, spending on pharmaceuticals is growing at a slower rate (less than four percent) than either hospital (just less than five percent) or physician costs (just more than five percent).

Rather than a knee-jerk bill on ill-considered price controls with devastating negative impact for patients and medical research, let’s put down the torch and pitchfork and ask Salem to come up with smarter legislation on healthcare system transparency and, even more importantly, value. Let’s understand the ecosystem so that Oregon can facilitate getting the right medicine to the right patient. After all, expediting positive patient outcomes is the best way to reduce healthcare costs.


Peter J. Pitts, a former FDA associate commissioner, is president of the Center for Medicine in the Public Interest.

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