The Boston Globe
September 25, 2001
“Kennedy to Launch Drug Program” by Rick Klein
“Former US Representative Joseph P. Kennedy II today will launch a private drug-discount program that could save elderly and poor consumers thousands of dollars in medication costs.”
“Kennedy said he has negotiated substantial discounts in drug prices with drugstore chains through his nonprofit Citizens Health Corp., a subsidiary of Citizens Energy Corp.”
“Kennedy’s announcement comes after several years of failed attempts to get the state to move forward with its own bulk-purchasing program. The Legislature has required the administration to establish bulk purchasing each of the past two years, but no major steps have been taken.”
“In the summer, the administration of Acting Governor Jane Swift appeared ready to embrace the concept, at least on a limited basis. But those efforts now appear stalled However, Swift administration sources said they will meet to discuss whether they can work with Kennedy’s plan to offer discounts to seniors enrolled in Prescription Advantage, the new state-sponsored drug insurance plan for the elderly and disabled.”
Alan Sager, Ph.D., a professor at the Boson University School of Public Health:
“This sounds like a well-intentioned effort that could help some people, and on balance, it’s probably worth doing. Unfortunately, it can tackle only a very small share of the problem of unaffordable medications.”
Comment: Joseph Kennedy’s effort to improve access to pharmaceuticals, through private efforts to make them more affordable, is most admirable. But what will happen? Other efforts to contract discounts will compete. With no other mechanisms to contain costs, the pharmaceutical industry will merely grant discounts from an artificially inflated wholesale or retail price. An example of the perversity of this process is the current process by which pharmaceutical firms grant Medicare a discount from the Average Wholesale Cost (AWP) which has proven to be an artificial construct that the industry has used to assure that high drug prices are maintained.
Also, other entities will be demanding the same discounts, including federal and state programs, such as Prescription Advantage, pharmacy benefit managers, and any other element that must pay for pharmaceuticals. Lacking control of the process, the balloon phenomenon is operational – push in here and it bulges out there – shifting costs so that the industry does not have any net reduction in revenues. Who pays for these shifting costs? They are funded by everyone who requires prescription drugs, but the funding is inequitable at a time that we are attempting to improve equity in our health care system.
Fee controls through contracting by health plans and through government action have been relatively effective in limiting the profits of physicians, hospitals, laboratories, and radiological services to a level that have allowed fair but not excessive profits. This is because the joint private and government control of these sectors of health care is almost complete. On the other hand, the pharmaceutical industry still has a large sector of patients that do not have a private or government intermediary to control the market. This sector includes a major segment of the Medicare beneficiaries, the uninsured, those covered by privates plans that do not offer pharmaceutical benefits, and those that must purchase a significant amount before their plans kick in. This has left the pharmaceutical industry with an intact balloon, allowing unlimited cost shifting.
Pharmaceutical costs are the greatest inflationary element in health care today. When other sectors of health care are subjected to price controls, why should this industry be insulated?
Is there room for price reductions that will allow fair profit for the pharmaceutical firms? Clearly there is. This industry has also been egregiously wasteful in administrative and marketing costs, much of which could be eliminated. Drugs should be selected based on medical benefit. Physicians should be updating their knowledge through legitimate continuing education rather than by accepting sales pitches of this industry. Copy cat drugs should be funded based on their real value rather than based on their patents and success of their marketing programs. R & D should be directed to new breakthroughs rather than for the purpose of extending patents via copy cats. Perhaps the most important change that needs to be made is to make drugs available to every person that genuinely needs them. The marginal costs to expand production to meet this need are almost negligible. Diluting average costs with this very low cost expansion of production would have the greatest impact on reducing the per prescription price of drugs.
The United States has one of the least equitable health care systems of all industrialized nations. Inequity is particularly a problem in our allocation of pharmaceuticals. The solution is simple. Establish a publicly administered, universal health insurance program. Require the pharmaceutical industry to end waste, to produce value, and then to negotiate for rates that meet their legitimate costs and still provide a fair profit. The pharmaceutical industry would thrive, but, much more importantly, more patients would thrive.