Drug Prices Trend Up, and States Want to Know Why

April 28, 2015

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Source: The Wall Street Journal

Should drug makers be required to disclose their costs to justify rising prices?

This is what a growing number of state legislatures are considering. Over the past several weeks, lawmakers in a handful of states stretching from California to Massachusetts have introduced bills in a bid to force the pharmaceutical industry to conduct an economic striptease.

“We need to have some transparency,” says Tony DeLuca, a Pennsylvania Democrat who introduced one such bill into the state legislature earlier this week. “Some of the sticker prices are outrageous. I’m hoping it achieves lower health-care costs.”

The bills aren’t wholly identical. Some would require drug makers to report profits and various operational expenses for any drug costing more than $10,000 a year, while others seek this information for all medicines, regardless of price.

The effort comes as a national debate intensifies over pricing.

Over the past year, payers—both public and private—have remonstrated over the cost of new specialty drugs for hard-to-treat ailments, and for older generic drugs that were supposed to offer low-cost alternatives.

The issue has placed drug makers on the defensive, even as they argue that pricey new medicines—notably, those for combating hepatitis C and certain rare diseases—represent good value for illnesses that would, otherwise, cost more to treat in the long run.

These bills represent a new front, though, in trying to blunt escalating price tags. And the legislation is winning enthusiastic backing from business groups, consumer advocates and health insurers, which helped some legislators craft language.

“This is about starting a conversation,” says Charles Bacchi, chief executive at the California Association Plans, which worked with a California legislator on one bill. “We need real answers about why these drugs are priced so high. It’s a debate we need to have.”

To what extent these bills may succeed is uncertain. Drug makers are pushing back and recently helped defeat legislation in Oregon.

Earlier this week, a pharmaceutical industry trade group rallied opposition against the bill in California, where a vote was postponed until next week.
As far as drug makers are concerned, the bills aren’t only onerous, but make demands they maintain cannot be met.

For instance, the industry trade group argues that providing development costs for some drugs may be impossible when research is simultaneously conducted on other medicines that fail.

“The price charged for an individual drug is not a reflection of development costs,” says Ken Kaitin of the Tufts Center for the Study of Drug Development, which receives industry backing. “Pricing strategies are based on therapeutic value, market size, usage, patent life, competition and other factors.”

Even if one or more bills become law, there is no certainty prices would stop rising. But supporters say the effort may resonate, especially with a coming presidential campaign. “This may be a model that other governments want to build upon,” says Jamie Love of Knowledge Ecology International, a nonprofit group that tracks access to medicines issues.

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