By John Castellani
September 16, 2015 at 5:00 am ET
The United States leads the world in medical innovation because we have a health care system that recognizes and rewards risk-taking in the pursuit of healthier, more productive lives for patients. As a result, HIV/AIDS death rates are down nearly 85 percent, cancer death rates have declined 22 percent since their peak in 1991 and hepatitis C treatments now have cure rates of more than 90 percent. And with more than 7,000 medicines currently in the pipeline globally, patients have more reason to hope than ever before.
So it is discouraging that some states are pursuing policies that would halt this progress by imposing arbitrary and unnecessary price controls on medicines. These policies would result in fewer new medicines for patients and cost countless jobs in an industry that is vital to every state’s economy and our economic competitiveness.
Under the guise of so-called “transparency” legislation, Massachusetts and Pennsylvania are considering legislation to cap pharmaceutical prices. In Massachusetts, bill S1048 would set up a commission to “set the maximum allowable price that the manufacturer can charge for that prescription drug that is sold for use in the commonwealth.” A similar proposal in Pennsylvania, senate bill No. 893, would “review pharmaceutical retail pricing and determine whether those prices are reasonably related to the costs.” It would then cap what an insurer can be required to pay for a medicine to no more than 20 percent of those costs.
In addition to legislative efforts, ballot measures in California and Ohio would go even further by requiring state agencies to pay no more than what the Veterans Administration currently pays for medicines.
As the Boston Globe recently reported about the legislation in Massachusetts, “One driver of the effort has been America’s Health Insurance Plans, the national insurance trade group.” Yet AHIP and others’ claims that medicine costs are increasing at an unsustainable rate do not hold up to the data.
Not only have medicines consistently accounted for just 10 percent of health care spending for the past 50 years, but the federal government recently projected that spending on medicines will grow in line with overall health care costs for the foreseeable future. This is happening all while investments of new medicines are being made available to patients fighting cancer, high cholesterol and rare diseases like chronic myelogenous and chronic lymphocytic leukemia, pulmonary arterial hypertension, hereditary angioedema and cystic fibrosis.
How is this possible?
This is possible in part because medicines are purchased in a competitive marketplace where powerful insurers and pharmacy benefit managers aggressively negotiate medicine prices.
A recent analysis by Sector & Sovereign Research demonstrates how much these negotiations can impact the price of medicines. The SSR analysis found that after factoring in all rebates and discounts, prices on branded prescription medicines grew just 0.7 percent in the second quarter of 2015. And for some categories of medicines, including popular examples like the new hepatitis C treatments, prices actually declined compared to last year.
Another reason that medicine costs have remained a stable share of health care spending is that, unlike other parts of the health care system, most medicine prices decline over time. That is because medicines eventually lose their patent protection and then face competition for lower-cost generic alternatives. This typically results in further price declines of as much as 80 or 90 percent.
Rather than pursue short-sighted policies that would thwart medical innovation and threaten an industry that employs more than 800,000 people across the country, policymakers should focus on efforts that would enable patients to access existing treatment options while encouraging the development of the next generation of medicines that will improve and extend the lives of even more patients.
This means supporting a vibrant scientific and economic ecosystem that supports progress for patients and is vital to the U.S. economy and our country’s competitiveness in the global market.
It means tackling the inequities in insurance coverage that force patients to pay a far larger share of their medicine costs than for hospital or physician services.
And it means continuing to incentivize the development of new medicines to treat Alzheimer’s, Parkinson’s, cancer and other debilitating diseases – the costs of which are the real threat to the sustainability of our nation’s health care system.
John Castellani is president and CEO of PhRMA.