Entrepreneurs Say High Drug Prices Are Bad for Business

The president-elect recently vowed to reduce the cost of prescription drugs, which is encouraging news for health consumers — including small business owners who say the high price of medications is affecting their bottom lines.

Small Business Majority released a new scientific opinion poll last week that provides a picture of the difficulties small business owners face when it comes to the cost of prescription medications. Most entrepreneurs surveyed include prescription drug coverage in the plans they offer their employees, and more than half say drug costs are a consideration when selecting a plan. But these small employers find themselves struggling to afford prescription drug costs and believe that these costs are hurting small businesses. In many cases, small business owners are either absorbing these increased costs themselves (31 percent) or passing them on to their employees (39 percent).

According to one small business owner who decided to absorb the costs of drug coverage, prescription medications have become so expensive that her business may not be able to continue offering this benefit.

The rising cost of prescription drugs affects the quality of insurance plans that small businesses can afford,” said Virginia McAllister, owner of Iron Horse Architects in Denver, Colo. “I’m experiencing this firsthand — currently, I’m absorbing these increased costs but I’ll have to consider changing our plan or passing some of these costs to my employees if drug prices continue to rise. If we don’t address this problem head on, many small businesses may stop providing health benefits and could lose employees as a result.” 

McAllister is not alone in this struggle: Between May 2015 and May 2016, drug prices rose an average of almost 10 percent, according to a Wall Street Journal review of pharmaceutical company filings. This growth far outpaced increases in many consumer goods over the same period, including food and alcohol (up 2.8 percent) and apparel (up 5.7 percent). During those 12 months, the inflation rate was just 1 percent.  

Looking at these numbers, it’s unsurprising that 88 percent of entrepreneurs who offer health insurance say drug prices are too high, according to Small Business Majority’s survey, and nearly two-thirds (63 percent) of small employers think the prescription drug market is dysfunctional.

With these perceived problems, it’s no wonder small business owners are looking for solutions. Fortunately, some states are looking to address these shortcomings. One proposal now on the table in California thanks to a bill recently reintroduced by state Sen. Ed Hernandez (D-West Covina) would increase transparency in the market by requiring drug companies to shed light on the process used to determine the price of their drugs.

Hernandez’s bill seems like a sensible fix, but it’s not the only solution available. In early 2016, Colorado state Rep. Joann Ginal (D-Fort Collins) introduced a bill similar to Hernandez’s that would require all manufacturers of individual drugs priced at $50,000 or more annually or per course of treatment to explain the costs associated with making that medication.

Pricing transparency would be a great way to get the cost of drugs down, but small business owners also have other ideas in mind. According to Small Business Majority’s poll, 89 percent of entrepreneurs say drugs developed at taxpayer expense should be more affordable, and 88 percent say it should be illegal for pharmaceutical companies to pay another company that makes generic drugs to delay the release of those generics.

There are plenty of ways to offer relief to small business owners; hopefully the president-elect and his administration turn words into action and implement smart policy solutions to address this issue. Until then, businesses will continue to grapple with the high cost of drug prices.   


John Arensmeyer is the founder and CEO of Small Business Majority. He heads a national organization that advocates on behalf of thousands of business owners on a range of issues.

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