The Solution to High Drug Prices
Ezekiel J. Emanuel, NYT
SEPT. 9, 2015
WE’RE paying too much for prescription drugs. The price for cancer drugs like Yervoy, Opdivo and Keytruda routinely exceeds $120,000 a year.
Some other specialty drugs have even higher prices. Cerezyme for Gaucher disease costs about $300,000 per year for life. Kalydeco for cystic fibrosis also costs about $300,000 per year.
Despite representing about 1 percent of prescriptions in 2014, these types of high-cost drugs accounted for some 32 percent of all spending on pharmaceuticals.
Polls show that Americans are fed up with high drug costs. A commonly proposed solution has been to let the federal government, through Medicare, negotiate with drug companies. Currently, while Medicare tells hospitals and doctors what it will pay for services, by law it cannot negotiate with companies for lower drug prices. Some independent estimates suggest that negotiated drug prices could save the federal government $15 billion or more per year.
But this approach will not solve the problem of stratospheric drug prices, for several reasons. For many diseases, there exist only a couple of effective drugs, with little price competition. Also, Medicare would have little negotiating leverage since, unlike private insurers, it cannot maintain an approved drug list and exclude overly expensive drugs from coverage.
The bigger problem, though, is that Medicare negotiations would do nothing to contain drug prices for the 170 million Americans who have private health insurance, through their employer, the exchanges, or by self-purchase. Having the federal government negotiate lower prices for Medicare would most likely drive up prices on the private side as drug companies tried to recoup their “lost” profits.
Almost all developed countries — including those run by very conservative governments — have an effective solution for drug prices, which is why these countries often pay less than half of what people in the United States pay for drugs. For instance, Australia’s more than 60-year-old Pharmaceutical Benefits Scheme has been the single purchaser of drugs for the country, making drugs available at fixed prices that are now listed online.
If the United States were to consider such an approach, drug companies would immediately raise two objections: the high risks associated with drug development and, related, the high cost of research and development. But both of these arguments are fatuous. It is true that a vast majority of drugs fail. On average, only one in every 5,000 compounds that drug companies discover and put through preclinical testing becomes an approved drug. Of the drugs started in clinical trials on humans, only 10 percent secure F.D.A. approval.
(More here.)
SEPT. 9, 2015
WE’RE paying too much for prescription drugs. The price for cancer drugs like Yervoy, Opdivo and Keytruda routinely exceeds $120,000 a year.
Some other specialty drugs have even higher prices. Cerezyme for Gaucher disease costs about $300,000 per year for life. Kalydeco for cystic fibrosis also costs about $300,000 per year.
Despite representing about 1 percent of prescriptions in 2014, these types of high-cost drugs accounted for some 32 percent of all spending on pharmaceuticals.
Polls show that Americans are fed up with high drug costs. A commonly proposed solution has been to let the federal government, through Medicare, negotiate with drug companies. Currently, while Medicare tells hospitals and doctors what it will pay for services, by law it cannot negotiate with companies for lower drug prices. Some independent estimates suggest that negotiated drug prices could save the federal government $15 billion or more per year.
But this approach will not solve the problem of stratospheric drug prices, for several reasons. For many diseases, there exist only a couple of effective drugs, with little price competition. Also, Medicare would have little negotiating leverage since, unlike private insurers, it cannot maintain an approved drug list and exclude overly expensive drugs from coverage.
The bigger problem, though, is that Medicare negotiations would do nothing to contain drug prices for the 170 million Americans who have private health insurance, through their employer, the exchanges, or by self-purchase. Having the federal government negotiate lower prices for Medicare would most likely drive up prices on the private side as drug companies tried to recoup their “lost” profits.
Almost all developed countries — including those run by very conservative governments — have an effective solution for drug prices, which is why these countries often pay less than half of what people in the United States pay for drugs. For instance, Australia’s more than 60-year-old Pharmaceutical Benefits Scheme has been the single purchaser of drugs for the country, making drugs available at fixed prices that are now listed online.
If the United States were to consider such an approach, drug companies would immediately raise two objections: the high risks associated with drug development and, related, the high cost of research and development. But both of these arguments are fatuous. It is true that a vast majority of drugs fail. On average, only one in every 5,000 compounds that drug companies discover and put through preclinical testing becomes an approved drug. Of the drugs started in clinical trials on humans, only 10 percent secure F.D.A. approval.
(More here.)
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