This weekly column offers opinions on the latest pharmaceutical industry news.
From coast to coast, state lawmakers are pushing legislation in hopes of putting a lid on rising drug prices. More than a dozen bills have been proposed that require companies to either fork over information about their costs or explain recent price hikes for some medicines.
The idea is based on a simple premise – by forcing the pharmaceutical industry to provide this sort of data, the curtain will be peeled back on the decisions used to justify pricing. In turn, drug makers would presumably respond to the scrutiny by changing their practices.
“This bill is about accountability,” Vermont Governor Peter Shumlin declared this past June, when he signed legislation that demands companies account for certain price hikes. In doing so, he gave Vermont the distinction of becoming the first state to pass such a law.
Admirable as it is, this transparency movement is unlikely to make much, if any, difference.
To be sure, state legislators have good reason to look at pricing. Last year, average prices for prescription drugs increased 10 percent, according to Truveris, a health care data company. And prices for brand-name medicines, specifically, jumped nearly 15 percent.
Of course, it’s easy to vent at a few companies that jack up prices by sky-high amounts — think Martin Shkreli or Valeant Pharmaceuticals. But pricing was a “key driver” of overall industry profit growth last year, adding an estimated 8 percent to overall net income, according to Credit Suisse analysts. In other words, lots of companies have been boosting prices.
And for many Americans, this is a pocketbook issue that extends to a wide variety of medicines, which explains why drug costs are a talking point in the presidential campaign.
Yet Congress has not taken any steps to address the topic. And in the absence of any relief from Washington, more state legislators are looking to fill the void.
Besides Vermont, 13 states have introduced bills, according to the National Conference of State Legislatures. All of this activity is keeping the pharmaceutical industry trade group busy playing whack-a-mole as it tries to oppose the various efforts around the country.
And the trade group is having some success.
Several bills have either died or stalled. Late last week, for instance, a closely watched bill in the California legislature, which set specific requirements for drug makers to disclose and explain pricing, was “effectively gutted” by amendments added during a hearing, Melanie Moreno, chief consultant for the Senate Health Committee, told me. The bill’s fate is now uncertain.
Nonetheless, if these bills become law, they may well gather useful information. Drug makers argue it may be extremely difficult, if not impossible to disclose certain costs, but the longstanding secrecy surrounding their pricing practices is no reason to not push for more data.
Yet to what extent these bills can be used to actually alter pricing is unclear.
“Lawmakers are caught between their constituents and the marketplace,” said Ed Schoonveld, a managing principal at the ZS Associates consulting firm. “You can demand a lot of information, but it’s hard to see how it changes anything. But it does help politicians say they tried to do something.”
Posturing or not, pricing is a complex and convoluted matter to tackle.
At the same time that drug makers are raising prices, they are also paying more rebates to the middlemen that negotiate coverage for their medicines with health insurers, according to the Credit Suisse analysts. In fact, they noted rebates have been rising faster than pharmaceutical sales. Of course, rebates are a cost of doing business, and drug makers can still try to raise prices to compensate.
Meanwhile, there is already speculation companies may try to avoid having to explain price hikes by simply raising prices below thresholds stipulated in any state law.
In effect, these transparency laws may simply be a vehicle for channeling outrage.
“I don’t think the bills will be effective by themselves, but they do create more pressure to justify prices,” said John Rother, who heads the National Coalition on Healthcare, a group of insurers and employers, among others, that object to rising drug prices. “And I don’t think industry would be trying so hard to defeat these bills if it didn’t think they would make a difference.”
Even so, counting on shaming companies into explaining their tactics is not a sure-fire strategy for slowing or halting price hikes. What might have a bigger impact is for states to assess the value of certain medicines, set ceiling prices, and then require drug makers to pay a minimum rebate to state Medicaid programs. That is likely to get still more attention from industry.
Transparency, by itself, may yield more information, but it won’t clear the air.
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Japan (not a full NHS scheme state) is moving towards a more equitable HSA system based on mutually agreed criteria which do not require companies to reveal their pricing strategy, but they do need to provide quite a lot of comparative pricing data (viz a viz other products in the same ther. category, generics available, and overseas product pricing). Take a look?
Agreed, useless effort. Although internal documents reveal the 98% profit margins on most blockbusters – I have seen those documents – the industry is based on hiding unpleasant facts under mountains of obfuscating data and irrelevant claims. A routine NDA is 20,000 pages or more. You would have to be really naive to think that they would willingly reveal their actual operating costs and margins. That is just not in their DNA…
No company on our planet will ever reveal the price structure of their products. If they do, they are giving away their family jewels.
No government can force them to reveal the cost and profit structure. In addition, state and federal legislatures are a pawn in the pricing game. They want to look good to their constituents when they introduce a bill on drug price controls. However, they are a commodity that is sold and bought by the highest bidding lobbyists. Generally the elected representatives will side with who helps them to retain their seat irrespective of constituents needs. Bill stall game is well-excepted practice and constituents are told I tried but the opposition won the day. I call this “heads I win and tails you loose” game.
Rebates are another way to camouflage higher prices. Reverse calculation can be used to show approximate pricing of products but not many are well versed in this game. End result is we pay the asked price as we all want to extend our life. This works well in a mutually subsidized healthcare system. We can make noise but no one listens.
Even if there was a national ‘wall of shame’ with the Top 50 or 100 drugs by percentage price rise, what legal basis does our system have for control of those prices? We will only have the consumer’/ market pressure (however that will come about). Our system simply does not have a mechanism to just control prices.
We regulate other the price of other commodities, including retail electricity and milk prices.
The real issue for American patients is not drug pricing per se but, rather, the burden-shifting by pharma companies that has been going on for decades. Other countries tighten up on pricing and pharma raises US prices to compensate. Prescription management companies demand more rebates and list prices go up placing a greater burden on patients. Transparency will help bring these artificial boosts to light as they will be harder to mask and, thus, bring pressure to make pharma pricing in the US more equitable instead of depending on an acquiescent US market to maintain world-wide profits.