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By Simon F. Haeder
Americans pay more for their prescription drugs than any other nation in the world. And the discrepancies are growing. Indeed, while per capita spending in the US today exceeds $1,000, the Germans and French pay about half that. Surprisingly, until the mid-1990s, the United States was really not an outlier when it comes to drug spending. Indeed, countries like Germany and France exceeded the US in per capita spending.
However, since then, spending growth in the US has dramatically outpaced other advanced nations.
And it is not like Americans are overly reliant on prescriptions drugs as compared to their European counterparts. Indeed, Americans use fewer prescription drugs, and when they use them, they are more likely to use cheaper generic versions. Instead the discrepancy can be traced back to the issue plaguing the entirety of the US health care system: prices.
The reasons for the divergence starting in the 1990s are relatively straightforward. For one, dozens of so-called blockbuster drugs entered the market.
Indeed, the number of drugs grossing more than $1 billion in sales increased from 6 in 1997 to 52 in 2006. The recent introduction of extremely pricey drugs treating Hepatitis C are only the latest of these. Lacking even rudimentary prices controls, US consumers bore the full brunt of pharmaceutical pricing while Europeans did not.
The Food and Drug Administration has also consistently moved to relax direct-to-consumer advertising regulations, a practice that is either banned or severely limited in most other advanced nations. While there are limited information benefits to consumers, this practice has certainly increased consumption of high-priced drugs.
Additionally, all entities in the pharmaceutical supply chain including manufacturers, wholesale distributors, and pharmacy benefit managers have become extremely skilled at finding regulatory loopholes to game the system and maximize profits. Lack of transparency in the supply chain complements the overall complexity of the US health care system, no doubt.
Finally, the United States has undergone a series of coverage expansions, including the prominent creation of the Children’s Health Insurance Program and the Affordable Care Act.
For many of the newly covered, this meant access to prescription drugs for the first time and pent-up demand was released. However, it also encouraged pharmaceutical companies to take advantage of the new-found payers for their drugs.
High Prices Come with High Costs
The pathologies described above leave us with a pharmaceutical system focused on profits, where access and effectiveness often fall by the wayside.
High prices for pharmaceuticals, unfortunately, come with high costs for many Americans. Numbers of individuals skipping doses or refusing to fill prescriptions wholesale are high and increasing.
Indeed, close to 20 percent of adults report skipping medications over cost concerns. Recently, after a series of increases in insulin prices, newspapers have been full of stories about people rationing their life-saving drugs. Not everyone has been successful, and the anecdotes about deaths are starting to pile up.
To be sure, politicians frequently talk about protecting Americans from high drug prices. So far, little has come off it. And we should expect little change in the future.
It seems to me that pharmaceutical companies are unlikely to be willing to simply give up profits. They will resort to any instrument at their disposal to protect their margins.
To be sure, pharmaceutical companies are well aware that even many insured Americans are unable to afford their needed prescription drugs. So they have devised a number of instruments to maximize their profits.
They fund patient advocacy groups to lobby “on behalf of patients” to require insurers to cover high-cost, brand name drugs. Or they simply establish non-profit organizations themselves to disguise their bidding.
One of the latest tools used are coupons and discounts, i.e. copayment assistance devices. At first glance, these things look like great, benevolent devices to support patients.
Yet this is precisely what has Americans gotten stuck between a rock (the pharmaceutical companies) and a hard place (the insurance companies). Insurers are getting tired of paying the pharmaceutical companies’ sky-high prices. So more and more of them are using the fine print in their contracts to disallow these discounts, leaving patients holding the bag. The technical term is co-pay accumulator policies.
In many states, the quick response has been to come to the aid of patients by restricting insurance companies from this practice. Our neighbor to the south, West Virginia, has gone this route.
In Pennsylvania, legislation (SB731) sponsored by Sen. Judy Ward, R-Blair, does just that, as well. And Senator Ward should be applauded for her work on this issue because really sick members of our communities are suffering real hardship.
Yet unfortunately, these types of restrictions, while providing immediate help to patients, do not address the underlying problem: high drug prices. And hence, in order to make real long-term progress for Americans, we will have to tackle the real tough issue that goes well beyond pharmaceuticals: we are simply paying too much for our health care in this country.
Capital-Star Opinion contributor Simon F. Haeder is an assistant professor of public policy at Penn State University’s School of Public Policy. He is also a Fellow in the Interdisciplinary Research Leaders Program, a national leadership development program supported by the Robert Wood Johnson Foundation. His work appears frequently on the Capital-Star’s Commentary Page.
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