Drug Prices Remain on the Cutting Board - Pharmaceutical Technology

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Drug Prices Remain on the Cutting Board
Efforts to cut healthcare outlays will focus on drug costs, despite a drop in prescription sales.


Pharmaceutical Technology
Volume 33, Issue 2, pp. 28-34

Savings elusive

Many popular reform proposals, though, are unlikely to save much money, particularly during the next 5 or 10 years, according to the Budget Options report. Permitting the federal government to negotiate lower Medicare drug prices with pharmaceutical companies, for example, is likely to produce "small if any savings," the budget analysts conclude. The main problem is that the Secretary of Health and Human Services (HHS) would not have sufficient leverage to secure significant discounts. HHS might negotiate small savings for certain single-source drugs by persuading manufacturers to reduce individual prices, but that measure would not be enough to make a visible difference.

Insurers, pharmacy benefit managers, and manufacturers make the same claim about the disadvantage of centralized price negotiations, but Congress still may support such a move for political reasons. Former Congressman James Greenwood, now president of the Biotechnology Industry Organization, told reporters at a September 2008 briefing that members of Congress assume that either Medicare negotiates prices or drug companies charge whatever they want. The legislators fail to realize, he noted, that every drug under Part D is subject to "very tough negotiations" between the private parties.

Similarly, CBO describes how prevention and disease-management programs may reduce the need for expensive care for some patients, but that such initiatives have costs, especially if provided for large populations.

Antiobesity and antismoking campaigns may enable people to live longer, but in the long run will increase demand for care for the elderly. And modifying the system for identifying and penalizing medical malpractice similarly would have only a modest impact on total healthcare expenditures. Many policymakers support wider adoption of health information technology (IT) as a key strategy for lowering healthcare costs and improving the quality of care, but implementation will be costly at first.

Comparing effectiveness

Both public and private health officials also believe that comparative research on which drugs and medical procedures are most effective can reduce inappropriate and expensive care. In assessing the potential savings from such efforts, CBO projects that total spending on healthcare could decline by about $8 billion over 10 years, but up front costs would eat into most of those gains and yield limited savings.

Even so, support in Congress for establishing an independent comparative-research organization is growing. Senate Finance Committee Chairman Max Baucus (D-MT) has proposed creating a nonprofit, quasi-governmental entity that would contract with public and private organizations to obtain evidence of the clinical effectiveness (CE) of medical products and treatments.

A key issue is whether such a CE research program addresses costs as well as treatment effectiveness. Insurers and payers maintain that effectiveness research must weigh prices and expenditures to be useful to the healthcare system, as does the United Kingdom's National Institute for Clinical Excellence (NICE).

While paltry gains may diminish enthusiasm for some reform proposals, high costs will doom others. Part D critics want to fill in the confusing and costly coverage gap in the Medicare drug benefit. But such a move, says CBO, would cost $42 billion during 2010–2014 and $134 billion over the next decade. That high price tag makes it unlikely that Congress will eliminate the doughnut hole, but the inequities of the system will continue to draw criticism of the Part D benefit. For example, many seniors stopped taking prescribed medications or switched to other drugs because they exceeded their coverage limits.

These issues will be addressed in the coming months under several initiatives. Congress moved quickly to reauthorize the State Children's Health Insurance Program, but still has to tackle the 2010 budget, tax changes and additional economic stimulus proposals. And the Medicare physician-pay fix looms ahead.

Last summer, Congress enacted a limited Medicare reform bill that put off hard decisions on revising Medicare's outmoded payment system for reimbursing doctors. In fact, the legislation calls for a 20% cut in physician fees in 2010, setting the stage for another heated battle over Medicare rates and regulations. Many legislative experts believe that Congress will not have enough time to address broad health issues this year, but reform advocates insist that American industry cannot compete globally unless the nation develops a more efficient and cost-effective healthcare system.

Jill Wechsler is Pharmaceutical Technology's Washington editor, 7715 Rocton Ave., Chevy Chase, MD 20815, tel. 301.656.4634,


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