A majority of Americans believe increased healthcare transparency should be a top national priority. It’s easy to understand why. Rising healthcare costs, coupled with high profile stories of price-gouging at some small pharmaceutical companies, have left consumers feeling ripped off, especially when it comes to drug prices.
But most drug companies aren’t whimsically increasing prices. In fact, if the healthcare industry was really transparent, people could see the truth: drug companies often aren’t the culprits behind high costs. In fact, they’re the best hope for dramatically lowering healthcare spending. The so-called pharmaceutical “transparency” bills under consideration around the country won’t solve the price gouging problem, but they will make it harder to create the medicines that will actually reduce healthcare costs.
The prices patients actually pay aren’t set by drug manufacturers — they’re determined by pharmacy benefit managers, insurers, hospitals, and pharmacies.
And these third parties frequently engage in … price-gouging.
Consider the “prescription price shell game” uncovered in Minneapolis, where a local CVS jacked up the price of a kidney medication to more than $6 per pill from 87 cents. Or the Levine Cancer Institute in North Carolina, which collected nearly $4,500 for a colon cancer drug that hospitals typically buy for $60.
Unfortunately, the media largely ignores such abuses, preferring to concentrate just on alleged misbehavior or greed by pharmaceutical companies. When one drug maker released a breakthrough Hepatitis C cure, headline after headline blasted the company for the drug’s initial $84,000 price tag.
Few follow-up stories have noted that, because of competition from other drug makers, the manufacturer granted such big discounts — often in excess of 50 percent — that the medicine now costs less in the United States than in price-controlled Europe.
Even fewer stories put America’s healthcare spending in perspective. Name-brand drugs accounted for just 7 percent of $100 billion increase in healthcare spending from 2013 to 2014.
Of course, medicines aren’t cheap to create. The average cost of developing an FDA-approved prescription medication is $2.6 billion, according to the Tufts Center for the Study of Drug Development. That represents a 145 percent increase over the past decade. For every successful new compound, hundreds of others once deemed promising end up abandoned.
Understandably, pharmaceutical companies don’t love to publicize their frequent failures. As a result, everyday Americans only see the successful, profitable drugs — and the high price tags that stem from the cost of research plus the markups tacked on by third parties.
Misguided activists in multiple states, including California and New York, are capitalizing on public anger about seemingly overpriced drugs to advance legislation that would require companies to disclose their profits on certain high priced medicines, and the costs associated with developing them.
Such “transparency” bills won’t paint a representative picture of pharmaceutical profits or stop healthcare price gouging, especially among hospitals, insurers, and pharmacies. But that’s not the real purpose of the bills anyways. The proposed laws are prerequisites to price control bills that would let the government cap drug prices.
Consumers are justifiably mad about healthcare costs. But their anger is misdirected. If the healthcare industry was truly transparent, Americans would see who’s really to blame for rising prices. With rare exception, it’s not the companies creating lifesaving medicines.
Peter J. Pitts, a former FDA associate commissioner, is the president and co-founder of the Center for Medicine in the Public Interest.