Column 99 - Rx costs out of control

Column 99 Rx costs out of control

Our health care and health insurance systems in this country are so complex, with so many moving parts, it's clear there is no one solution to controlling expenses.  Since insurance companies are basically a "pass through" entity they are only a part of the problem. Prescription drug costs have been a big cost driver for many years.

A recent article in the "Mayo Clinic Proceedings" hits some points regarding prescription drugs that simply cannot be ignored.  The abstract for the article states:

In the United States, the average price of cancer drugs for about a year of therapy increased from $5000 to $10,000 before 2000- to more than $100,000 by 2012, while the average household income has decreased by about 8% in the past decade. Further, although 85% of cancer basic research is funded through taxpayers' money, Americans with cancer pay 50% to 100% more for the same patented drug than patients in other countries.

We often hear the following explanations of why these medications are so expensive. 

1)      High cost of research and drug development.   There are many numbers thrown around about the cost of research.  I have a relative who is director of toxicology at a pharma company.  We discuss this periodically and I can certainly see anecdotal evidence of the high cost of research.  I know how long it takes them to get a drug to market and the have an idea costs involved to support the effort.  The authors of this article estimate that research is actually only about 10% of the total cost.

2)      You get what you pay for: in other words higher cost drugs are more effective.  An example cited is one breast cancer drug study that showed a difference in life expectancy of less than two months  at a cost difference of $30,000 per Rx. The Affordable Care ACT (ACA also known as Obama Care) has an important section about comparative effectiveness.  In my opinion this is one of the most important parts of the law, but it will take time for us to see the effects.

3)      Relatively few actual pharma companies. The article cites one of my favorite authors, Joseph E. Stiglitz (Nobel Prize winning economist) who states that we have an oligopoly that causes the companies to refrain from competing on price.  The effect is a sort of price fixing. Further we have seen companies buy up supplies of generic drugs to corner the market and then raise prices.  In some rare cases, it may be reduced supply of the ingredients that will raise the cost, but in many it is purely a business decision to raise prices to increase profits.  

4)      Innovation and creativity may come with a price, but there is "more to it".  They cite the now infamous Hep C drug, Sovaldi.  The initial expected cost was about $34,000.  "Gilead Sciences, Inc bought Pharmasset at an 89% premium, figuring they could charge any price they wished for Sovaldi, regardless of the consequences to patients. Gilead now charges $80,000 to $160,000 for a 3- to 6-month course of the drug" according to a Forbes Magazine editorial.

The article suggests   possible solutions to the problem with emphasis on patient activism.  Sadly most people are too sick by the time they see this craziness and aren't able to take on the fight.  


Other solutions require legislative intervention, such as allowing legal imports of drugs from other countries and allowing Medicare to negotiate drug prices.  Medicare can negotiate prices for almost all other services in health care, why not Rx? There is a 50% discount for brand name Rx in the donut hole for Part D beneficiaries, but that is not enough.

Insured contracts have been creating Rx coverage tiers that force more of this cost for expensive brand name Rx back on the patient.  But cancer or Hep C treatments are numbers to give anyone sticker shock.

At one of our industry events called "Day on the Hill" I asked Wally Herger if he would consider introducing legislation that would restrict direct advertising of Rx to the public.  (Oh, how I miss the days of TV BEFORE Viagra commercials!)  Sadly, he did even know the difference between a brand name Rx and generic.  Clearly our legislators need a lot of education!  





For Reference, the article may be found at: