Hot Rhetoric Obscures the Truth About Drug Prices

Bashing biopharmaceutical companies has become a popular pursuit for politicians in both parties.

President Donald Trump chastises drugmakers for raising list prices, and House Speaker Nancy Pelosi (D-Calif.) says this is a rare issue where Democrats can work with the White House to force those list prices lower. Every day brings new proposals to punish the industry.

The attacks have become so inflamed — and unmoored from reality — that one group accuses elected officials of taking bribes from the pharmaceutical industry and suggests its executives would rather “let children die” than lower prices. That kind of hot rhetoric obscures the reality of a complex market and feeds a dangerous temptation to adopt policies that would restrict patients’ access to existing medicine and choke off the pipeline of new treatments still in development.

The Trump administration has already announced a number of risky proposals to disrupt patients’ drug coverage. It is moving forward with a plan to import price caps from other countries.

It has given insurers more leeway to force patients off their existing medicine until they can prove lower-cost treatments are ineffective. And it wants to limit what treatments are covered for a range of serious illnesses under Medicare’s popular prescription-drug program, including cancer, HIV/AIDS and depression.

The health care business has always invited an outsized share of public scrutiny. But developing and marketing medicine is particularly sensitive. However, the latest wave of attacks has gone too far.

For starters, today’s debate lacks context. The costs of producing a new drug are enormous, and the regulatory process is extensive. Just a sliver of treatments is approved by the Food and Drug Administration, and few companies recoup their mammoth investments. Some have provoked legitimate criticism by dramatically increasing prices or gaming patent protections to block rival products, but those isolated incidents should not tarnish the entire industry.

Claims that industry executives want patients to suffer also defy reality. Millions of individuals who work for biopharmaceutical companies have devoted their lives to making people healthy through science. Some of the policy proposals, if enacted, will limit these individuals’ ability to research and develop new medicines that can save lives and keep people healthy.

The debate about drug prices is driven more by anecdotes and isolated examples than actual data about the broader trends. The headlines are dominated by medicines’ list prices, which rarely represent what patients actually spend because manufacturer rebates, insurance payments and other discounts dramatically reduce out-of-pocket payments. Lost in the shuffle are the hard facts about year-over-year spending on health care services.

Prescription drugs have not been the main driver of health care spending in recent years. According to the most recent data compiled by the Centers for Medicare and Medicaid Services, retail spending on prescription drugs represented just 10 percent of total health care spending in the United States in 2017 and rose a meager 0.4 percent, down from 2.3 percent in 2016. Hospitals, meanwhile, accounted for a third of health care spending and increased by 4.6 percent in 2017.

Those patients who are paying more at the pharmacy counter don’t always have drugmakers to blame for the increase, given the role of insurers and pharmacy benefit managers. The average insurance deductible jumped to $1,200 in 2016, up from just $303 in 2006, according to the Peterson-Kaiser Health System Tracker. Those higher deductibles mean patients might not see the benefits of a lower list price on their medicine, even if Congress or the administration imposes some form of price cap on the industry.

PBMs also muddy the waters. Because these middlemen determine reimbursement rates and what drugs are covered by individual health plans, they regularly retain the bulk of the rebates and other discounts offered by biopharmaceutical companies, instead of passing them onto the patient.

This is not to say drug prices haven’t increased. Retail spending on prescription drugs jumped by 12.4 percent in 2014 and 8.9 percent in 2015, driven in part by new, innovative medicines, such as a groundbreaking cure for hepatitis C.

The list price of that drug triggered a wave of negative publicity for the industry, but a pair of branded rivals that entered the market two years later drove down the list price of all three products. There is now a generic treatment.

That kind of competition is why the White House — and Trump — recently acknowledged drug prices are growing more slowly. In a report released last October, the Council of Economic Advisers estimated consumers have saved $26 billion since January 2017, thanks to increased competition. They estimate new brand-name drugs have generated an additional $43 billion in consumer savings over the same period by improving patients’ health.

Accountability is good for everyone as long as the attacks don’t stray into the absurd. Hot rhetoric cannot supplant objective data or justify bad policy that harms patients. And politicians who adopt misguided new rules to punish an unpopular industry could soon be the ones defending those decisions to the same patients they are trying to help.


Patrick O’Connor is the executive director of the Alliance to Protect Medical Innovation.

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