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When Drug Costs Are Hard to Swallow

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THE ADVENT OF MEDICATIONS effective for a number of chronic conditions has improved the quality of life of millions of people in the United States and abroad. But steep out-of-pocket costs for expensive drugs puts many of them out of reach for people with limited means — or forces them to make difficult choices between pills that can improve, or even save, their lives and other basic necessities.

For the older-adult population in the U.S. that relies on medications more than any other age group, expensive drugs are a particular concern because pharmaceuticals impose higher cost-sharing requirements than other services such as doctor visits and hospital stays, notes Dr. Stuart Schweitzer, professor in the Fielding School’s Department of Health Policy and Management and co-director of the UCLA Research Program in Pharmaceutical Economics and Policy. “Worse yet is that insurers are more strict when it comes to covering drugs than they are with respect to physician or hospital services,” Schweitzer says. “Physicians and hospital administrators encounter coverage denials with respect to some of their services, but they typically are aware of these constraints ahead of time and work around them, so that patients are not affected. With drugs the story is different.”

Schweitzer believes that the high cost of certain drugs for older adults is cause for concern, but he suggests the source of the solution lies less with pharmaceutical companies than with third-party payers, both public (through Medicare Prescription Drug Plan - Part D) and private (through private health insurance). “Pharmaceuticals are no less crucial to medical treatment than are physician services, medical devices, diagnostic procedures or hospital care,” Schweitzer says. “Insurers should be encouraged to reduce cost-sharing to patients, especially for costly medications.”

He notes that the emphasis on Accountable Care Organizations under the Affordable Care Act is a step in that direction. “Treatment patterns will be more transparent and patients will not have to go through negotiations concerning choice of drug and cost,” Schweitzer explains. “Insurers will have incentives to use the most cost-effective therapies, just as hospitals do now.”

The problem isn’t high pharmaceutical prices across the board: Nationally, 85 percent of prescriptions are filled with generic drugs, which often cost in the neighborhood of $5 for a 30-day supply, Schweitzer notes. But there are also well-publicized cases of exorbitant prices for medications used to treat chronic conditions that are most prevalent in older populations. The Canadian company Valeant Pharmaceuticals, for example, recently raised the price of a hypertension drug by 625 percent ($1,346 per vial), a heart drug by 820 percent ($36,811 for 25 pills) and a rheumatoid arthritis drug by 2,949 percent ($26,189 for 100 capsules). Turing Pharmaceuticals raised the price of a life-saving anti-infective drug from $13.50 to $750 per pill.

“The cost of drug development is high, and in the long run those costs have to be met by sales revenue, but it has never been true that the price of a particular drug is based on that drug’s research and development costs,” Schweitzer says. He explains that the cause of exorbitant drug prices is not usually manufacturer greed, but a market that allows barriers to entry for competing products that would cause prices to fall. Some markets, even for generic drugs, have only one manufacturer. Schweitzer notes that patent laws restricting competitors from entering markets until the company producing a new drug has had a reasonable period to recover its development costs are important for encouraging product innovation, but he believes steps can be taken to make generic drug markets more competitive. The U.S. Food and Drug Administration could encourage more competition, Schweitzer says, through increased speed in approving licenses to competing companies interested in producing generic products, and by allowing competition from compounding pharmacies in the case of products that are comprised of combinations of generic drugs. Such actions could result in lower prices, to the benefit of older adults.

For new innovative drugs that have patent protection and are thus more expensive, Schweitzer adds, insurers should be encouraged to follow the lead of Great Britain, France, Germany and other countries in using new value-based pricing tools to decide which drugs are worth the high cost and which are not. He suggests that insurers could develop higher-premium plans that are more accepting of high prices, along with other policies that are more stringent, at lower premiums. Beyond that, he says, “we as consumers will have to get used to expensive drugs if they do wonderful things, just as we have gotten used to higher costs for diagnostic equipment, surgical interventions, and other medical procedures.”