Polls consistently show Americans are fed up with specialty drug costs, and even drug company executives believe high prices are not sustainable. While drug makers may protest, the U.S. needs to come up with a solution for more reasonable prices for specialty drugs, according to Ezekiel Emanuel, MD.
Dr. Emanuel, a bioethicist and fellow at the Center for American Progress, recently penned an op-ed in the New York Times calling for a new regulatory system to ensure drugs are priced fairly related to their value. He pointed out other countries with reasonable drug pricing systems from which the U.S. could adopt possible solutions.
Despite representing approximately 1 percent of prescriptions in 2014, high-cost specialty drugs accounted for nearly 32 percent of all spending on pharmaceuticals, according to Dr. Emanuel. That's because some drugs, such as cancer treatments Yervoy, Opdivo and Keytruda, exceed $120,000 a year. Cerezyme for Gaucher disease costs about $300,000 annually for life, and Kalydeco for treating cystic fibrosis also costs nearly $300,000 per year.
As outrageous as these prices are, price alone is not the problem. The biggest problem is value — expensive drugs that do not provide a cure. For example, the Opdivo adds an average of 3.2 months of life to cancer patients and costs $150,000 per year for treatment, according to Dr. Emanuel. On the other hand, some drugs have through-the-roof price tags but are cost effective. Solvadi costs $1,000 per pill but helps cure hepatitis C, for instance.
One commonly proposed solution for regulating the price of specialty drugs is to let the federal government negotiate with drug makers through Medicare. Currently, Medicare can't legally negotiate with drug companies for lower prices. However, some independent estimates suggest doing so could save the federal government $15 billion or more each year.
According to Dr. Emanuel, this will not solve the problem of "stratospheric" drug prices. First, for many diseases, there are only a few effective drugs with little price competition. Additionally, unlike commercial insurers, Medicare cannot maintain an approved drug list and exclude excessively expensive drugs, limiting its negotiating leverage. The biggest issue Dr. Emanuel has with this proposed solution is that Medicare negotiations would have no effect on containing drug prices for the 170 million Americans who have private health insurance. In fact, lower drug prices for Medicare would most likely raise prices on the private side as drug companies would seek to recover lost profits.
Current pricing arrangements created by the federal government actually pervert incentives. For instance, since Medicaid usually gets the lowest prices in the market, drug companies are discouraged from experimenting with other payers on lower price arrangements, because they know they will most likely have to give the same price to Medicaid. Similarly, the Orphan Drug Act of 1983, which created incentives for developing drugs for diseases with fewer than 200,000 patients nationwide, encourages drug makers to develop treatments that benefit thousands instead of millions.
Nearly all other developed countries — even those run by conservative governments — have effective solutions for drug prices, which allow their citizens to pay often less than half of what Americans pay for drugs. According to Dr. Emanuel, Australia's Pharmaceutical Benefits Scheme has been the single purchaser of drugs for more than 60 years, making drugs available at fixed prices that are listed online.
The most plausible solution for the U.S. is modeled by Switzerland, according to Dr. Emanuel. The Swiss health system, which is frequently praised by conservative commentators, includes only those drugs that are effective and cost-effective on its approved drug list. It establishes a maximum allowable price for each drug, meaning companies can decide what to charge up to the cap.
Dr. Emaunel suggests the U.S. could cap the price of drugs based on objective, quantitative measures of value. In his solution, private payers would continue to negotiate prices with drug companies as they currently do, but there would be a ceiling to prevent prices from becoming unsustainable.