Scholar argues that lowering prescription drug prices can increase innovation.
Almost 30 percent of American adults say they don’t take medications because of the high cost. Compared to 32 other countries, prescription drug prices in the United States are 256 percent higher. The US government does not regulate the price of prescription drugs, leaving drug companies to set costs at levels that benefit their bottom line.
In a recent report for the Center for American Progress, health policy analyst Thomas Waldrop suggests that the United States should adopt a value-based pricing system to ensure reasonable drug prices and access to drugs.
Waldrop explains that the high drug prices stem from the patent protection the US government gives to drug companies and the lack of negotiating opportunities. Pharmaceutical companies receive market exclusivity, most often for five years, after the drug has been approved by the US Food and Drug Administration (FDA). Meanwhile, other companies cannot produce a generic version of the approved drug. Once generic versions are produced and marketed, the price of a drug usually drops.
Pharmaceutical companies have extended their monopoly on certain drugs by paying generic manufacturers to delay market entry. In addition, companies can use intellectual property law to extend their patent protection. Patent protection only lasts for a limited time. Pharmaceutical companies, however, can modify minor parts of a drug to establish a new patent worthy of a new period of protection.
Health insurance funds do not ease the financial burden on patients. The Medicare Modernization Act 2003 prohibits Medicare from negotiating the prices of drugs for Medicare patients.
Private health insurance providers can negotiate the prices of prescription drugs, but patients still feel the weight of these high prices in their insurance premiums and out-of-pocket expenses. The nature of the product leaves little choice for patients: either to buy the drug at too high a price, or to forgo the drug and suffer serious health effects. Medicines can be essential to a patient’s life, often leaving buyers without the bargaining power that may exist in other less essential industries.
Waldrop argues that the high price of prescription drugs does not lead to better, more effective, more accessible, or more innovative drugs. Pharmaceutical companies typically invest the benefits of high drug costs in the research and development of other drugs that they can get the most benefit from, rather than the drugs that patients need most. Pharmaceutical companies often invest in the research and development of new drugs that are only slightly different from existing drugs, called “me too” drugs. Me too drugs do not lower prices like generic drugs do, because they generally have very similar purposes to drugs already on the market. A large majority of drugs approved by the FDA fall into this “me too” category.
A report by the United States House of Representatives Oversight and Reform Committee found that, from 2016 to 2020, the largest pharmaceutical companies spent $ 56 billion more on share buybacks and dividends than in research and development. These companies have also devoted “a significant portion” of their research and development budget to “finding ways to remove competition from generics and biosimilars while continuing to raise prices, rather than on innovative research,” according to the report. Committee.
Most of the real innovations in drug development come from federal investments. Waldrop cites a 2017 study finding that every new prescription drug approved from 2010 to 2016 came in part from federally funded research.
To meet the needs of U.S. patients, Waldrop argues that the U.S. government should regulate prescription drug prices using a value-based pricing system. Value-based pricing determines the cost of a drug based on the benefits it provides to patients over existing drugs. Benefits can be determined by several factors, including efficiency, innovation and affordability.
This system rewards a drug with a price consistent with the value it adds to society, rewarding new drugs with high prices but preventing the arbitrarily and inaccessible valuations that pharmaceutical companies currently award. Waldrop cites the changes Germany and Australia have made to implement value-based pricing systems and the resulting drop in prescription drug prices and spending.
Waldrop argues that value-based pricing can change incentives in the pharmaceutical industry to improve patient health. Waldrop explains that value-based pricing can lower the prices of drugs whose benefits have not been proven. The cost of ‘me too’ drugs, for example, which traditionally lack proven benefits, would drop to their relative value – often similar to generic brands – encouraging companies to shift research and development toward new drugs.
Instead, value-based pricing would encourage research into historically unstudied and underserved health issues. Many of these diseases affect marginalized individuals at a disproportionate rate. Waldrop argues that implementing a value-based pricing system would solve pressing fairness issues.
Waldrop also explains that the United States does not have the information necessary to conduct valuation-based assessments of prescription drugs. Currently, the federal government does not have a comprehensive, centralized review of how drugs are prescribed, dispensed and used. The FDA collects information on the efficacy and safety of drugs, assessing whether the drugs are more effective than a placebo. However, the FDA does not benchmark against other drugs necessary for a value-based pricing system.
Waldrop argues that with better data collection, the U.S. government could implement a value-based pricing system for prescription drugs. Pricing drugs based on their value to patients would increase the accessibility of prescription drugs, foster drug innovation, and better meet the needs of American patients.