Explore Harvard's Nieman network Nieman Fellowships Nieman Lab Nieman Reports Nieman Storyboard

What can be done to lower the price of the prescription-drug benefit?

ASK THIS | March 07, 2005

Maybe it's time to start revisiting some of the provisions of the prescription-drug bill that are making it so expensive. First in an occasional series.

By Merrill Goozner

Q. Recent estimates suggest the Medicare prescription drug benefit, which goes into effect in 2006, will cost more than $700 billion just in the next 10 years, not $400 billion as originally suggested by the Bush administration. Can anything be done about the rising price of prescription drugs?

Q. The prescription-drug bill passed last year severely limits the government's ability to negotiate prices with pharmaceutical companies on behalf of senior citizens. Is it time to rethink that?

Q. The bill also limits the government's ability to establish and deploy lists of preferred drugs that are effective against disease but are cheaper. Is it time to rethink that as well?

This question should be directed to the Center for Medicare and Medicaid Services, run by former FDA Commissioner Mark McClellan, and the appropriate oversight and appropriation committees on Capitol Hill, which over the next few years will have to grapple with how to pay for the new senior citizen prescription drug benefit.

Any discussion about drug pricing starts from the fact that Americans already pay the highest prices in the world for drugs and they're heading higher. Price increases in recent years have been two to three times the rate of inflation. According to AARP studies, the average annual increase in drug manufacturers' prices for widely-used brand name drugs rose from 4.1% in 2000 to 6.9% in 2003, while the annual rate of general inflation fell from 3.3% in 2000 to 2.2% in 2003. Over a four-year period, this translates into an average cumulative price increase of over 25 percent. According to IMS Health, an industry consulting group, U.S. drug expenditures by 2013 will total more than $500 billion, two-and-a-half times what we spend today.

Since the government next year will begin paying some of senior citizens' drug bills, it has the power to do something about these skyrocketing prices. It could negotiate on behalf of seniors as a bulk purchaser in the marketplace -- just like every other large purchaser already does. Major employers, health maintenance organizations, hospital chains and foreign countries have no qualms about negotiating with the member companies of the Pharmaceutical Research and Manufacturers Association. Even the Veterans Administration negotiates with the drug industry and as a result pays among the lowest prices in America.

The other proven method for big purchasers to hold down drug prices is by paying closer attention to what they buy. This means establishing formularies - lists of preferred drugs that are effective against disease but are cheaper either because they're generic or because the government has negotiated a lower price. In order to do that, however, the government needs good information comparing the medical efficacy of drugs. No one wants to deny seniors when a better drug comes out, even if it is more expensive. A few years ago, the National Institutes of Health conducted a multi-year study of various blood pressure control medications. Lo and behold, it discovered that diuretics -- the so-called water pill which has been around since the 1950s -- worked just as well as a first-line therapy as the pricier ACE inhibitors and calcium channel blockers that had come on the market in recent years. The government needs to sponsor similar studies for all classes of medicines.

Unfortunately, the Republican-initiated senior citizen prescription drug bill severely limited the government's ability to engage in negotiations or deploy formularies, and appropriated only a tiny amount of money for comparative trials. Not only that, the Bush administration is fighting efforts to rethink the legislation. But with even some Republicans balking at the price tag, the time may be right for some hard questions about the government plans to make Medicare's prescription drug benefit affordable -- for senior citizens and for taxpayers.  

Center for Science in the Public Interest

The NiemanWatchdog.org website is no longer being updated. Watchdog stories have a new home in Nieman Reports.