5 Ways To Really Fix High Drug Prices

Doug Hirsch
Doug is co-founder of GoodRx.
Posted on

What to do about drug prices?

This question has once again got Washington in a boil, with the White House promising some big ideas. It’s a question that we’re thinking about pretty much all the time – and so it seems like a good time to offer some suggestions on where to start.

Here are five proposals to help reduce the amount Americans spend on prescription drugs, especially out of pocket costs:

1. Stop the rebate and co-pay card games.

It’s hard to fix drug prices if you can’t figure out how much a drug actually costs. Today, the “list price” of a drug is manipulated by many parties and factors that obscure the true cost and distort the market. For example, last year, more than $130 billion in rebates was sent back to pharmacy benefit managers, plans, payors and members. Meanwhile manufacturers woo consumers with co-pay cards that make expensive drugs seem cheaper at the point-of-sale, but end up increasing overall costs. These shenanigans create confusion and inefficiency, creating distrust between buyers and sellers and concealing the true cost of a prescriptions. Moving to a cost-based pricing system would be more logical and easier for everyone in the pharmacy business to understand.

2. Allow the government to negotiate drug prices.

The US government, in the form of Medicare, Medicaid, Tricare, and other government programs, is the largest buyer of prescription drugs in the world. But the Department of Health and Human Services is prohibited by law from negotiating what it pays with manufacturers. This despite the fact that nearly 90% of Americans think they should have the ability to negotiate – heck, it’s one topic that both Trump and Clinton agreed on during the 2016 campaign. But it would require Congress to act.

3. Reduce and/or eliminate patent exclusivity loopholes.

Patents create an essential incentive to drug companies to invest in new therapies;  without patents, the economics of pharmaceuticals just wouldn’t work. But it’s essential that patents have an expiration date, as this allows generics to enter the market and lowers prices. Unfortunately pharmaceutical companies are getting crafty about working loopholes for not-really-different drugs that extend or modify patents, blocking the evolution of a generics market. Let’s close those loopholes and ensure that patents work as intended.

4. Tie drug prices to drug effectiveness.

A prescription drug should do two things – improve the lives of patients and reduce medical costs (i.e., you take the drug so that you don’t end up in the hospital). Drugs that don’t materially improve patient outcomes should not be subsidized by the government and payors. We need to take the long view of the impact of a drug’s long term benefit when establishing pricing and insurance coverage.

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5. Government control for crucial rare drugs.

For a small number of life-saving but rarely used drugs (so-called orphaned drugs), we can’t allow a single company to exploit a small market of desperate patients in a life-or-death situation. But more than once – with Daraprim, Cheondal, Cuprimine, and several other drugs – we’ve seen just this happen. The government should either take the lead on manufacturing these drugs, or treat them like vaccines with prohibitions against aggressive price-gouging.

There are many other ideas floating around, some very grand (such as switch to a single-payer system like most countries), and some focused on specific issues (such as changing the FDA approval process for biosimilars). At GoodRx, we only care about one outcome – making drugs much more affordable for all Americans – and we support any ideas that bring us closer to that goal.


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