I have made this point many, many times over the years. It was recently reinforced in a New England Journal of Medicine article. The authors make the same point, including in regard to the distribution chain for drugs through wholesalers, pharmacies of all types, pharmacy benefit managers, health plans and the patients. But it all starts with the manufacturers. As with most developed countries, the US has a patent system which is designed to give inventors exclusive rights to market their protects for some period of time, and thereby encourage innovation, which is generally economically beneficial and in the case of health care, good for patients. There are some constraints on anti-competitive or monopolistic behavior by a patent holder, but not many.
The drug manufacturers have used the patent system to both charge very, very high prices for their products and to be creative in extending patents and deterring development of competitive products. They could not do this if it were not for the monopoly created by the patent system. In a truly free market, there would be no patents and prices would be far lower. As the authors of the articles suggest, there has to be a method to balance the desire to incent innovation with preventing the public from being ripped off. This is particularly a concern in health care, where the drug makers are aided by the typical insulation of the patient using the product from the full cost of the product.
The laughably named inflation reduction act attempted to partly rectify the problem by having Medicare negotiate on drug prices. But the same act capped beneficaries out-of-pocket costs, lessening their sensitivity to prices. And I don’t think the negotiation of prices is going to do a thing to really reduce prices. The drug industry is among the very most profitable, and is very clever at maintaining that profitability. You can see how profitable it is by how much less the generic version of the drugs cost when patents expire. It is a small fraction of the on-patent price. To really address the abuse of the government-granted monopoly, the patent system needs to be reformed. Both initial prices and subsequent price changes must be addressed. The initial price is the hard one, but the federal government should gather all data on supposed costs of developing the drug, with projected volume and set a price cap that recovers the cost with a meaningful but modest profit. Changes in price should only occur if the manufacturer can demonstrate that costs increased, considering the total volume. If anything, drug prices should go down over time because total costs are declining. If manufacturers raise price more than warranted, they should lose their patent on the drug. (NEJM Article)
We can help the manufacturers keep costs low and avoid inappropriate utilization, by banning advertising of pharmaceuticals and detailing, or marketing, to prescribers. Both patients and prescribers can get all the information they need from FDA-approved material posted online. Others in the chain of distribution have more competiton and no patent protection, so they shouldn’t be adding large markups to the manufacturer price, but monitoring is needed. And patients need to have some copay on non-generic drugs, to maintain sensitivity to price. This is particularly true for drug often misused, like mental health meds.
A lot of the inflation in health care over recent years is due to prescription medications. There are ways to rein that in. But have I mentioned before that the biggest barrier to doing that is our campaign contribution system and lack of restrictions on lobbying?
