A core goal for any health care system must be providing people with the care they need, when they need it. In the United States today, however, we pay more for less effective health care than in most other developed countries. Working people across the country experience this through hollowed-out health insurance plans. Unchecked prescription drug prices, in particular, are driving up both the cost of health care coverage and what patients must pay out of pocket. If excessive drug prices are not dealt with head on, this situation will become even worse, jeopardizing access to lifesaving medicines.
Americans already face the highest drug prices in the world. According to a recent study, we pay three times more than patients in Switzerland for a commonly prescribed rheumatoid arthritis medication, and nearly twice as much for one of the new drugs to treat hepatitis C. The average annual cost of widely used specialty drugs is $53,000, as much as the median household income and almost three-and-a-half times the average annual Social Security benefit. It is not just ultra-expensive new treatments, however, that are responsible for soaring drug costs. The prices for many existing drugs have skyrocketed, too. According to one analysis, the makers of brand drugs raised net prices for 27 major drugs by 25% or more between 2009 and 2015, with the discounted price of one diabetes drug more than tripling.
Unreasonably high drug prices and unjustified price increases do not happen by chance. They are the result of deliberate policy decisions. The United States is the only Organisation for Economic Co-operation and Development (OECD) member country that lacks any government oversight or prescription drug price regulation. When drug companies create a new product, current law gives them unchecked monopoly rights to make and sell it for long periods of time. There is no regulation of the prices they can charge. Drug companies are not even required to justify their prices or explain their price hikes. Medicare is barred by Congress from even negotiating volume prices for its prescription drug benefit. While patients and their health plans are “free” to negotiate with drug companies, in reality they face a take-it-or-leave-it proposition: pay the company’s price or go without a needed drug. With no competition and no limits on what they can charge, it is no surprise when drug companies set prices far higher than what is needed to provide a reasonable return on investment.
To make sure drug prices are fair, we need to change the rules that give drug companies unchecked monopoly rights. The first essential step is to authorize the federal government to negotiate directly with drug companies over the prices it pays for prescription drugs under Medicare—something industry lobbyists blocked both in Medicare Part D and in the Affordable Care Act. Further, working people must be able to benefit directly from this power (ultimately as part of a single-payer system) by the federal government negotiating on behalf of everyone who pays for health care. There is absolutely no reason American workers and their health plans should have to pay more than the rate negotiated by the government for any drug.
Our long and deep experience with collective bargaining and some of the country’s biggest, most sophisticated health plans tells us, however, that negotiating a fair deal requires that each side has real bargaining power. This means there must be concrete and meaningful consequences for a company’s refusal to agree to a reasonable price. While not covering a particular drug under a government program is a bargaining lever when there are alternative drugs available, it is not an option for a single-source drug, especially one for which a company still has monopoly rights.
When the federal government and a drug manufacturer cannot agree on a reasonable price, the government should have access to a wide array of tools for resolving these disputes, in lieu of drug formularies or other limits on coverage. These tools should include, but not be limited to, binding arbitration between the government and a drug manufacturer on behalf of all payers to determine the price, conducted by a panel of experts and informed by independent research about a drug’s effectiveness. The federal government also could exercise its existing legal rights to patents for drugs developed with taxpayer funding, or its longstanding authority to use patented inventions, and have a generic manufacturer produce the drug.
But clearing the way for Americans to get the medicines they need without the barrier of unjustifiably high prices will require changes beyond new bargaining structures. Congress must take a fresh look at drug companies’ monopoly rights and address unfair and abusive practices. We support reducing the marketing exclusivity period given for biologic drugs to seven years, from the 12 provided under current law. We oppose corporate manipulation of current rules to extend monopoly rights and block the entry of generic competition. We urge Congress to stop pay-for-delay agreements between brand and generic manufacturers, the so-called evergreening of patent rights through noninnovative changes to drugs, and the efforts of brand drug companies to impede access to drug samples necessary to create generic competition.
Congress also must reject trade agreements like the Trans-Pacific Partnership (TPP). If adopted, this agreement would embed new international monopoly rights for drug companies and give the pharmaceutical industry more avenues to interfere with and challenge government cost-saving efforts.
Drug companies contend their high prices, and the current rules that enable them, are necessary if we want the continued investment in research and development (R&D) needed to come up with new, innovative cures. But we know high drug prices reflect much more than the investment of time and money to bring a drug to market. Drug companies spend more money on television advertising and other marketing than they do to develop new drugs, and the industry as a whole is among the most profitable in the world.
Exorbitantly high prices paid by patients and health benefit plans are not the only way to fund the development of new drugs. The federal government already invests $30 billion annually in R&D through the National Institutes of Health, with much of that money flowing to universities and other institutions. Medicines developed with taxpayer dollars and brought to market by drug companies, however, are not required to be sold at fair prices. So, we end up paying twice, both at tax time and at the pharmacy counter, and the very purpose of our public investment—to increase access to affordable, high-quality medicines—is frustrated. This needs to stop. Medicines developed with taxpayer dollars should be subject to extra scrutiny and be available at fair prices, backed by the government retaining the right to revoke licensing should a drug be sold at an unreasonable markup. We also should explore approaches that begin to delink the prices patients pay for lifesaving drugs from how we pay for innovation, as well as take a serious look at how we define innovation when granting monopoly rights.
Too many policymakers—many of whom accept large campaign contributions from drug companies—mistakenly think the solution to soaring health care costs is to make working people and retirees pay more for the medicines and health services they need. They say we should be better health care shoppers, as if choosing between brands of soap, when often the only alternative to a high-priced drug is to go without it. This kind of thinking is behind misguided policies like the so-called “Cadillac tax” on health benefits, which are driving big increases in patients’ out-of-pocket expenses and thereby creating unproductive barriers to necessary care. Working people should be the beneficiaries, not the targets, of our health care policies.