Expect More From... the Free Market!

Last week, RAND Corporation (International Prescription Drug Price Comparisons: Estimates Using 2022 Data | RAND) released a study that proved what we all knew to be true.  According to the study, U.S. drug prices average 2.78 times the prices charged in 33 other countries studied. For brand name drugs, it's even more pronounced, with U.S. prices for those kinds of drugs being 4.22 times higher than drug prices in other countries. (Prescription drug costs much higher in U.S. than in other nations, report says - UPI.com) Why are the cost of drugs in the US so much higher than in other countries? 

My husband is an avid New York Times reader, and he came to me a couple of weeks ago with an article “I had to read.” The article was called “Six Reasons Drug Prices Are So High in the U.S.” Typically, I find the New York Times’ explanation of issues to be very complicated, but this article did a wonderful job of succinctly outlining the issues we are facing.  The six reasons they identified:

1. No Central Negotiator

2. No Price Controls

3. Incentives are misaligned

4. Industry is fragmented and complicated (AMEN!)

5. Gamesmanship with Patents

6. The Market is bearing the cost
   

We are going to spend the next several weeks digging into each of these reasons, but this week I wanted to reflect a bit on how we got to this situation.

For the most part, US citizens are capitalists at heart.  We believe in the free market and rules of supply and demand.  As my economic professor, Dr. Johnson, used to say, “it’s like guns and butter.” (I still don’t know what he meant.) When supply goes up and demand doesn’t go up as much, costs should go down.  When supply decreases and demand increases, costs should go up.  The problem with the economics of the pharmacy benefit industry is that demand is not often a choice.  When a person needs a drug to survive or improve their life, they are often willing to pay whatever it costs.  In addition, the consumer is not often exposed to the actual cost of the drug, especially when they have benefits through their employers.

Let’s compare it to my latest trip to Kohls.  (I love it when I get the coupon card in the mail, and it reveals that I can get a 30% discount.  It is like I won the lottery!) I went to the store to buy new towels. I really needed towels, but I have a lot of old towels at home, so it really isn’t a need, but a want. I looked at the tags and calculated my cost after my 30% discount.  I am able to make a decision as to whether or not I really want to buy the towels and what towel brand I want.  I am in control of the purchase.  Kohls is not the one in control.  They lured me into the store with the discount, but the choice is ultimately mine.

When buying medications for yourself or a loved one, you are told by the doctor what you need and told by the pharmacist what your cost is.  Most people don’t question what they need or the cost.  They just deal with it and make decisions on what other items in their lives they may need to cut back on.

What if we thought of drug prices in the same perspective as our country’s influence on ensuring we have clean water and energy? We still have options within the market, but these entities are required to abide by strict rules ensuring access. When the market is influenced by external factors, State and Federal agencies step in to correct such forces mitigating impact. Clean water and energy require the same research and development for innovation, continuous infrastructure maintenance and meeting compliance standards. Lifesaving and life changing medication is required in the same public health argument as water and energy.

My point is that we need to stop thinking about pharmaceuticals from a free-market economy perspective.  Free indicates choice, and that is not the reality for most patients.  Those of us in the industry know that there are tools that patients can use to reduce their cost, but most don’t.  Even for consumer savvy patients, even their choices do not offset most of the overall cost bore by the government or employer. We need to better understand what the drivers of our high drug prices are, so that we can take action, as a society, to fix it. We are not stuck with this problem, but the first step is understanding the issues driving it, so that we don’t create another unintended problem.