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Federal policy promotes high drug prices

Written by Steve Findlay

The guy who in the early 1980s helped design the current regulatory structure that governs the pharmaceutical industry has some incisive thoughts about how things have played out and the current outrage about drug prices.  In a blog for the journal Health Affairs, Alfred Engelberg argues that the 1984 law (called the Hatch-Waxman Act) that allowed drug companies to sell their products without generic competition for over a decade has “not withstood the test of time.”

He says that law and subsequent legislation have created a monopoly situation for the companies that make brand name drugs, permitting them to price gouge the American public.

The big worry today surrounds so-called biologic drugs—those made from living materials and through biotech engineering.  Most are very expensive–$10,000 to $200,000 or even more for a year’s treatment.  Many new cancer drugs are biologics, with more to come over the next decade.  Here, too, Engelberg argues, Congress went too far in 2010 when it permitted such drugs 12 years of market exclusivity (meaning no generic competitors allowed.)

“High prices… are the inevitable result and will remain so unless Congress makes fundamental changes in existing law,” he writes.

Engelberg also asserts that today’s laws and regulations discourage competition based on price or the comparative effectiveness of medicines.  For example, Congress has barred Medicare from negotiating directly with drugs companies to get the best price based on price and effectiveness.  Say drugs A, B and C treat a certain form of cancer but drug B has been proven to be 20% more effective and is also 15% less expensive.  Medicare is not allowed to go to the makers of drugs A and C and say we won’t pay your higher price. (Drug price negotiation is a top policy issue for Americans.)

To boot, current law allows drug companies to manipulate this dysfunctional marketplace by spending tens of billions of dollars every year to stoke demand for high-priced, low-value drugs (for example, through drug advertising that is allowed in only one other developed country (New Zealand), and by paying doctors to give educational seminars on brand-name drugs.  Medicare wasted over $4 billion in 2013, for example, on the heartburn drug Nexium and the cholesterol drug Crestor.  For both drugs, equivalent alternatives are available at a tiny fraction of their cost, Engelberg says.

Finally, Engelberg inveighs against the “false notion” that high drug prices and monopolies are necessary to support the high cost of research.  In fact, he says, studies show that what high drug prices over the past 25 years have primarily yielded is “one of the most profitable industries in America,” which enjoys a median return on assets two to three times higher than the median return for all Fortune 500 companies.

To read Engelberg’s prescription for reform, access his article here.  And, if you have Medicare, here are six tips for bringing your drug costs down and six things to know about your over-the-counter medications.  Keeping a list of your medications and the medications of your loved ones on your phone or in your wallet helps ensure that, in case of emergency, you and the people you love get appropriate care. Here are four other important tips.


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