When the pharmaceutical industry feels threatened by lawmakers or regulators, it often plays what I call the “Miracle Cure card.” Here’s how that works. The industry trots out one or more gravely ill people whose lives have been prolonged or even saved by a drug the industry spent an enormous amount of money developing. Then it warns that the pipeline of such miraculous drugs will shut down if the industry is forced to do what lawmakers (or regulators) are proposing.
Take this example from a recent op-ed in the San Jose Mercury News about a bill (SB 1010) aimed at prescription drug prices: “If government bureaucrats proceed with such shortsighted measures, severely-ill patients like Corey Wood will never reach the finish line in their battle against cancer and other deadly conditions.”
Wait, what? SB 1010, which passed the Senate and is now awaiting action in an Assembly committee, would require drug makers simply to disclose more information, and only under certain conditions. In particular, manufacturers would be required to give insurers more advance notice and a more complete explanation when they increase a drug’s price by at least 10% or when they introduce a new medicine priced at more than $10,000 a year.
The bill would also require insurers to report to regulators which prescription drugs are generating the most frequent and the most expensive claims, as well as the effect drug costs are having on premiums. The point is to give policymakers a better picture of what’s happening with drug prices in California and how that’s affecting consumers.
Ordinarily, we could trust market forces to drive the price of prescription drugs down to their cost. But the market for medications is hardly ordinary.
Makers of conventional and biologic pharmaceuticals aren’t happy about the spotlight, which they argue is undeserved — despite the introduction of blockbuster drugs that cost $1,000 or more per pill, and moves by the likes of pharmaceutical company chief Martin Shkreli to raise the price of obscure but crucial drugs by an order of magnitude or more. The manufacturers’ point is that prescription drugs make up roughly the same small share of healthcare costs — less than 10% — as they always have.
They also argue that the real aim of measures such as SB 1010 is to lay the foundation for lawmakers to impose price controls on prescription drugs. Yet state legislators can’t restrict the prices that drug makers charge for products marketed and sold across the country without running afoul of the U.S. Constitution, which gives Congress exclusive power to regulate interstate commerce. They might try to limit how much the state pays for drugs through insurance programs for current and retired state employees, but doing so risks making vital but expensive drugs less available to those beneficiaries.
Ordinarily, we could trust market forces to drive the price of prescription drugs down to their cost. But the market for medications is hardly ordinary. Consumers don’t have the expertise to shop around for alternatives. Prescribers typically make their decisions with little sensitivity to price, knowing that they won’t be paying the bill and their patients have insurance to cover much of it. Drug makers have a government-imposed monopoly over their new products, and even when that monopoly ends, less common drugs may not generate enough volume to attract more than one manufacturer.
So, the field is sharply tilted in the drug makers’ favor. And it’s not clear what policymakers could or should do in response to the rise of hyper-expensive medications or in the face of Shkreli-style gouging. They — and the public — need more information about what’s actually happening in the market. That’s where SB 1010 comes in. It wouldn’t open the door to price controls, but it would be a step toward enlightenment on prescription drug spending.