A price that does not fly away: prescription drugs


Yves Herman/REUTERS

For our sins, we spent part of Wednesday browsing through the Bureau of Labor Statistics’ Inflation Report price charts for June. Fun, right? Ok, not a hoot, but call it a labor of love. And, what do you know, we discovered a remarkable fact that you won’t see anywhere else: the prices of prescription drugs are rising more slowly than almost any other item.

Yes, the same drug prices that are the subject of so many whistleblowers in Washington rose only 0.1% last month. It is not a one-time event. Drug prices have only increased 2.5% over the past year. That’s significantly less than the increase in non-prescription drug prices, which rose 1.2% in June and 4.7% last year. Other medical care prices also increased much more. Health insurance climbed 2.1% last month and 17.3% over the past year.

While politicians whip high prices for some new treatments such as gene and cancer immunotherapies, generic competition is driving down the prices of older drugs that more patients are using. Overall healthcare spending on newly launched drugs was $87.7 billion between 2015 and 2020, which was more than offset by $93 billion in savings from new generics.

A Congressional Budget Office report in January estimated that the average net prescription drug price for the Medicare Part D program fell to $50 in 2018 from $57 in 2009, and to $48 from $63 for Medicaid. This does not include lifetime savings to the healthcare system from treatments like hepatitis C drugs that cure most patients.

Yet Democrats are targeting drugmakers to pay their leaner — please, don’t call it lean — spending bill for climate and social welfare. Senate Majority Leader Chuck Schumer and West Virginia Sen. Joe Manchin reportedly agreed to a deal forcing Medicare to “negotiate” prices for more expensive drugs.

There is no negotiation when the government is pointing a gun at you. The deal would impose a 95% excise tax on companies’ sales if the government claims they are not negotiating in good faith. Drugmakers won’t even be able to challenge the government’s price controls – seen as the “maximum fair price” – through an administrative appeal or in court.

This non-fixing of drug prices would lead to a faster rise in prices by discouraging the development of new generics. Medicare-negotiated prices will also not apply to privately insured patients. They will likely be forced to pay higher prices to offset the so-called savings drugmakers would be required to give to Medicare, which will be used to subsidize green energy.

Worse still, the agreement would discourage investment in new treatments. What would most Americans wish they had: more life-saving treatments or rooftop solar panels? The first rule of medicine is to do no harm. The same should apply to legislation.

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Appeared in the July 15, 2022 print edition as “A Price That Doesn’t Skyrocket: Rx Drugs”.

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