New Directions in Health Care Podcast: Controlling Rising Drug Costs

By Sandy Hausman
The Commonwealth Fund, June 22, 2016

Prescription drug spending, a significant driver of overall health care costs, has been rising rapidly over the last few years. This episode explores the reasons for higher drug prices, including the introduction of new high-value medications, potentially inefficient research and development, and a lack of price regulation. Producer Sandy Hausman interviews Commonwealth Fund President David Blumenthal, M.D., Duke-Margolis Center for Health Policy Director Mark McClellan, M.D., and Johns Hopkins University School of Public Health Professor Gerard Anderson about the underlying causes and potential solutions.

At Johns Hopkins University’s School of Public Health, Professor Gerard Anderson argues government should more aggressively regulate drug prices.

“There are no rules. There’s no legislation. You just basically, as a drug company, have the ability to set the price, and if the government has given you a monopoly – and that’s what a patent is – then there are no competitors for your drug, and so you can charge essentially whatever you want. You don’t have to worry that a lot of people won’t have access to the drug, because you’re going to make a lot of money on a few people, and that’s exactly what happens.”

He adds that even generic drug makers may be charging too much.

“Five drugs companies—and soon it will be four—in the generic drug industry control over half of the market, and the reason why generic drugs have been inexpensive in the past is pure price competition. They’re selling exactly the same product. That’s what a generic drug is, but they’re selling it on the basis of price competition, but if there’s not a lot of competitors, then you don’t get very good price competition.”

But Mark McClellan warns against the imposition of price controls, since they may limit patient access to certain medications.

“In the United Kingdom, which has significantly lower drug prices than the United States, there is a government body set up that reviews whether or not the price set by a manufacturer is worth it for certain kinds of patients, and in some patients makes a decision that the price is not worthwhile. That’s negotiating leverage. That means that unless the price comes down, people don’t have as much access to the drug.”

As that debate continues, Dr. Blumenthal says the federal government has found some ways to negotiate for better prices.

“The Veterans Administration and the Department of Defense negotiate drug prices and have the statutory authority to set an upper limit on drug prices — that is the lowest amount that any single purchaser can get from a drug company, and there are other drug price controls that are imposed, for example, by states on behalf of their Medicaid programs. When you put California and New York together — two blue states that often pioneer with these kinds of new programs — those are big parts of the national market.”

Podcast link:

Transcript link:

As usual, Professor Gerard Anderson is right again. Between patents for brand products and consolidation in the generic market, drug prices are out of control. He argues that the government should more aggressively regulate prices.

You may remember Anderson as coauthor with Uwe Reinhardt et al. of the classic Health Affairs article, “It’s the Prices, Stupid.”

Mark McClellan argues that government involvement in setting drug prices risks impairing access to higher priced drugs, but it is the excessive prices in the United States that creates much greater access problems because of the lack of affordability.

David Blumenthal points out that the Veterans Administration, the Department of Defense, and some state Medicaid programs have been effective in limiting drug prices, thus the government does have the potential to play a very important role in combating price gouging by the pharmaceutical industry.

And, of course, with a well designed, government funded and administered single payer system our drug costs would be brought down to reasonable, fair levels – for all of us, collectively.