Incentivize prescription drug policy by encouraging market competition


The controversial and publicly scrutinized issue of prescription drug pricing is at the center of the debate about the high cost of healthcare in the U.S. and as a result, both state and federal elected officials are weighing policies designed to reign in the cost of prescription drugs.

{mosads}This week, the American Legislative Exchange Council (ALEC), released a new analysis, Price-Fixing Prescription Drugs Will Cost Us in Cures, which outlines issues impacting prescription drug policy and educates policymakers on practical solutions that will help bring down the cost of brand and specialty prescription drugs.


Like other economies that encourage greater competition and choice, the U.S. healthcare system will benefit from access to multiple therapies for doctors and patients to choose from, ultimately bringing down the cost of care. This was shown most recently by our experience with the Hepatitis C prescription cure.

In December 2013 Gilead Sciences, Inc. released Sovaldi, a breakthrough Hepatitis C prescription cure to market. The new drug provided patients a 90 percent cure rate; however at $84,000 the price brought sticker shock to payers everywhere.

Within 12 months of the Sovaldi release, a competitor drug developed by AbbVie Inc. also came to market. The availability of a second drug in that class allowed pharmacy benefit managers to leverage competitive market forces and significantly reduce the final price paid by states, employers and insurers.

Within one year of the release of the competitor drug the average price paid for the Hepatitis C prescription drug cure dropped by 46 percent.

Prior to these biopharmaceutical innovations, patients who suffered from the Hepatitis C virus experienced severe damage through either the advancement of liver disease, liver cancer or cirrhosis of the liver, in which treatment for these medical events can range from $59,995, to as much as $500,000 for a liver transplant.

Each year, the U.S. biopharmaceutical industry reinvests a record amount of research and development (R&D) funding — $58.8 billion in 2015 — in search of life-saving treatments and cures.

Private industry voluntarily working to advance innovation and discovery should be encouraged with a regulatory framework that will further incentivize reinvestment, not face government price controls for its product.

For instance, one policy alternative to price caps is to encourage payers and drug manufacturers to work together and implement value-based purchasing for new drug therapies, so invasive surgery and costly hospital care can be prevented through adherence to prescription drugs.

The U.S. biopharmaceutical industry is a complex and heavily regulated market with different rules governing each industry sector, including those for Medicare, Medicaid and employer-sponsored health insurance, as well as regulations governing the complex clinical trial process required to become a Food and Drug Administration (FDA) approved drug.

Each of these markets has a specific set of compliance measures that drug manufacturers must adhere to in order for their product to be included on the drug formulary or preferred drug list. This is a key factor in increasing prescription drug prices.

For instance, the Medicaid Drug Rebate Program statutorily mandates a prescription drug rebate of 23.1 percent for brand and specialty drugs by Section 1927 of the Social Security Act, and often, states will negotiate additional supplemental savings sometimes over 40 percent off of the list price.

Public policies beginning with top-down regulatory control of private industry will lead to less investment in R&D for new life-saving medical innovations over time.

For policymakers, the best approach is to balance patient access and affordability by creating a regulatory framework that is market-based, and one that clearly tied payment reimbursement to adherence and health outcomes.

Increased drug development and a competitive marketplace will encourage the opportunity for the discovery of more breakthrough therapies, ultimately leading to more affordable and accessible prescription drugs. With these policies the U.S. will continue to be a global leader in biopharmaceutical innovation for decades to come.

Mia Palmieri Heck is the Director of the Health and Human Services Task Force at the American Legislative Exchange Council (ALEC).

The views expressed by contributors are their own and not the views of The Hill.

Tags Clinical pharmacology Health Pharmaceutical drug Pharmaceutical industry Pharmaceutical sciences Pharmaceuticals policy Pharmacology Pharmacy Pharmacy benefit management Prescription costs Prescription drug Specialty drugs

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