Drug Prices, Possible Solutions
BETLEHEM MEKONNEN – The United States, while the world’s leader in new drug development, is also a leader in drug prices. The divisive tension about the increasing drug prices has caused a problem to arise: What should the United States do to address the problem of overpriced medication? Many policy options have been proposed such as the using external reference pricing or allowing the import of medication to the United States from Canada, and this article will discuss the benefits and potential criticisms of each option as well as provide a recommendation of what option to choose.
In order to understand this problem, one must know the background of drug prices. Drug companies have the ability to function relatively unregulated and raise drug prices to increase revenue beyond what is reasonable . From 2010-2015, the growth of prescription revenue for 30 drugs averaged 61%, which is three times higher than the increase in prescription for those drugs. This means that the majority of a pharmaceutical company’s revenue comes from steadily increasing the prices of drugs in the market. By 2024, total sales of prescriptions are predicted to reach $1.2 trillion .
Increasing drug prices has created a division between pharmaceutical companies and the citizens of the United States. Drug manufacturers like Sanofi state that, “[they] understand some patients are angry…” and are claiming to be cooperating with lawmakers, but many other companies state that data showed a decreasing percentage of drug price hikes . The public, however, tells a different story. Stories of people reducing medication to save money are common examples of the effects of high drug prices. A new study demonstrated that nearly 23 percent are unable to afford drugs that were prescribed to them in the past 12 months. Even the government has taken interest in this problem and while Democrats and Republicans have different approaches to this problem, both are united in their disdain for the industry’s pricing.
One option to solve high drug prices includes importing drugs from Canada. The only benefit in such a policy is the immediate retrieval of drugs at a lower cost, but there are extensive consequences of implementing such a policy. For one, importing drugs would not provide a permanent solution. Increasing demand for drugs from consumers in the U.S. would drive up prices in Canada, leading the Canadian government to limiting or stopping the supply of drugs to the United States. Furthermore, pharmaceutical companies would not be incentivized to sell drug prices at a lower price than what they are already sold even with the importation of drugs from Canada. Lastly, the FDA thoroughly checks every drug sold in the United States market, and importing drugs from another country could potentially jeopardize the safety of U.S. citizens .
Another policy option is to use external reference pricing. The rationale of using external reference pricing (ERP) is to ensure that the price paid for a drug is not excessive relative to its prices in comparable countries. With this policy, drug prices are directly affected in the United States without undermining the safety of these drugs like if importing drugs were allowed. In 2018, Researchers estimated that adopting average prices of drugs in the reference countries would save $72.9 billion on Medicare Part D drugs. This option directly affects drug prices in a way importing drugs does not.
The attraction of using external reference prices is its direct effect on drug prices in the U.S. through a structured mechanism. Although the idea was proposed by Donald Trump, external reference pricing interests both major parties because of their adamant disdain of drug prices, meaning it has the possibility to be implemented as a policy. The moldability of the policy, the possible savings it produces, and the reassurance to the public that drug prices are not higher than in other countries is enough motivation to reconsider its implementation into United States policy.
Copy Editor: Akshay Nair