Consumer Confidential: Obama’s Budget Plan Would Allow Greater Scrutiny Of High Drug Prices
Buried deep within President Obama’s $4 trillion budget plan are a couple of health care proposals that could change everything for U.S. consumers.
The fact that the drug industry wasted no time in dismissing the ideas — and that their Republican friends in Congress said they wouldn’t even look at them — should tell you something big was afoot.
The Department of Health and Human Services broke out Obama’s health care proposals in a 173-page document. You have to wade all the way to page 75 to find what may be the single most important policy idea.
It’s labeled “Establish Transparency and Reporting Requirements in Pharmaceutical Drug Pricing,” which is a bureaucratic way of saying that drug companies should have to justify their ridiculously high prices. “Currently, limited public information exists on how pharmaceutical manufacturers price drugs, and no law requires manufacturers to report on the costs driving their pricing decisions,” HHS says.
“To bring greater transparency to prescription drug pricing, this proposal requires pharmaceutical manufacturers to publicly disclose production costs, including research and development investments and discounts to various payers for specific high-cost drugs that the secretary identifies through regulation based on the public’s interest,” it goes on to say.
That means exactly what it looks like. Drug companies would have to say how much they spend to develop, manufacture, distribute and market certain prescription meds so that health authorities could make sure that people aren’t being ripped off.
While administration officials have been floating trial balloons for months about the need for greater drug-price transparency, Obama gave the idea significantly more political heft by including it in his official budget plan.
You don’t have to look farther than recent headlines to understand why such a measure is warranted. Gilead Sciences raised eyebrows when it priced its hepatitis C drugs at about $1,000 a pill.
Former Turing Pharmaceuticals Chief Executive Martin Shkreli bought the rights to a 62-year-old drug used to treat infections in AIDS patients and others and raised the price 5,000 percent.
And as I reported recently, the price of a drug commonly used since the 1970s to treat swimmer’s ear in kids has soared by about 3,000 percent after licensing rights changed hands multiple times through a series of mergers and acquisitions.
When I asked the current manufacturer of Cortisporin-TC Otic Suspension, Endo International, why a drug that once cost a few bucks now goes for $200, I was told that “Endo has taken price increases in line with market conditions and competitor product pricing.” In other words, Cortisporin costs a small fortune because drug companies can get away with charging that much.
The Obama administration is proposing that Endo and others come up with a better explanation than that — or, presumably, face the possibility of a regulatory crackdown.
Stephen J. Ubl, head of Pharmaceutical Research and Manufacturers of America, aka PhRMA, aka the lobbying group that showered $18 million on lawmakers last year, was not amused.
He called the price-disclosure requirement “harmful and misguided,” and said it would “hurt patients.”
“Mandating public disclosure of proprietary information would undermine our competitive market-based system and incentives for innovation,” Ubl insisted.
“It’s hard to see how that would be the case,” said Trevor Gallen, a health economist at Purdue University. “It certainly would undermine their bargaining power. But from a market perspective, more information is good.”
On the other hand, Gallen said, he was wary of a government agency “picking winners and losers” by applying increased scrutiny to pricing of specific drugs. “Why only have disclosure for drugs in ‘the public’s interest’?” he asked. “Why not for all drugs? Anything that allows for the discretion of political figures is fairly suspect.”
It’s unclear from the budget proposal what government officials would do with this pricing information. Would regulators set limits on how much could be charged to consumers? Would they settle for shaming drugmakers by publicizing the data?
Joel Hay, a health economist at USC, said setting limits on prescription-drug prices could backfire for consumers. He said drugs are more widely available when manufacturers can cut deals at different prices with different insurance systems.
Then maybe what’s needed is a leveling of the playing field. Right now, Medicare is prohibited by law from negotiating prices with drugmakers. If pharmaceutical companies’ pricing is to remain a closely guarded secret, at the very least we should allow our largest public insurance system to flex its market muscle on behalf of patients.
Obama is proposing that as well in his budget. The Health and Human Services secretary would be empowered “to directly negotiate prices with manufacturers for high-cost drugs … covered under Part D,” Medicare’s prescription-drug program.
Drugmakers would be able to access Medicare’s 52 million beneficiaries only if they agree to haggle and to “supply HHS with all cost and clinical data, as well as other information, necessary to come to an agreement on price.”
Private insurers almost certainly would demand equal treatment in their own negotiations with drug companies, thus placing even more downward pressure on prices.
PhRMA’s Ubl hates this idea too. He said allowing Medicare to negotiate drug prices would “fundamentally alter the structure of this successful program … jeopardizing access, driving up premiums and reducing choice.”
The drug industry clearly likes things the way they are, operating in the shadows and to a great extent being unchallenged on pricing. It doesn’t seem a stretch to think that Obama is doing a little grandstanding in his last-ever budget plan.
This much is clear, though: U.S. drug prices are out of control and something needs to be done.
Also, any time business interests say greater oversight would harm consumers, and any time Republicans say there’s no need to even consider additional regulation of an industry, they’re almost always acting out of self-interest, not the best interests of society.
And that’s just sick.
David Lazarus, a Los Angeles Times columnist, writes on consumer issues. He can be reached at david.lazaruslatimes.com.