In any marketplace, prices are everything. Knowing how much something costs allows people to make sensible decisions about how to assess value.
The market for health care is no different. That’s why many on both sides of the aisle have prioritized providing patients with accurate pricing information about the cost of their health care.
For example, in an executive order this year, President Trump wrote: “To make fully informed decisions about their healthcare, patients must know the price and quality of a good or service in advance.” He ordered the secretary of health and human services “to require hospitals to publicly post standard charge information, including charges and information based on negotiated rates and for common or shoppable items and services, in an easy-to-understand, consumer-friendly, and machine-readable format….”
Of course, a fight is raging over whether this is the ideal way to ensure patients are provided with clear and accurate information about pricing. An arguably even bigger issue, though, is still being overlooked.
In addition to providing more pricing information, it’s important that more pricing options be available to more people. But thanks to an old decree, prices for too many prescription drugs remain far higher than they ought to be.
Before leaving office in 2016, the Obama administration began allowing generic drugs to be placed on the same pricing tier as brand-name drugs at out-of-pocket rates.
What does that mean? When a drug is under patent, it has no competition. Once that patent expires, other companies are allowed to make the same drug, but charge less. It’s like buying store-brand paper products or groceries. The product is the same but the price is lower.
Obama’s order has boosted existing health care interests, but it hasn’t helped consumers. In fact, it’s cost us quite a bit.
Today, three years after the decision, Medicare Part D formularies exclude first generics almost 40 percent of the time. Despite opponents arguing that the change will result in lower negotiated prices for beneficiaries, seniors have already paid nearly $22 billion more in out-of-pocket costs because their lower-cost generic was placed on a higher-cost brand tier than it could have been.
This practice has worked out so poorly for consumers that Senator James Lankford recently called it out in volume five of his “Federal Fumbles: Ways the Government Dropped the Ball” report. To rectify it, he proposed three changes to the status quo: “First, we should ensure patients have access to lower-cost drugs when they come on the market. Second, these drugs should be placed on the lowest cost-sharing formulary tier. Third, we should create a specialty tier for lower-cost alternatives with reduced patient cost sharing.”
My organization, the Coalition to Reduce Spending, along with 22 other conservative and health care-focused groups, agree with Lankford’s sentiments. “Generics and biosimilars offer immense value to patients and the health care system,” we wrote recently in a letter to lawmakers. “Over the last decade, they have saved America’s patients and our system nearly $2 trillion, including more than $90 billion for Medicare in 2018 alone. However, recent changes in treatment of generic medicines on formularies often reduce the full value of generics and put those savings in jeopardy.”
A bipartisan group of congressmen this year wrote a letter to Trump administration officials expressing a desire to fix this mess as well. One of those lawmakers, Congressman David McKinley of West Virginia, has also proposed legislation to combat the abuse.
It’s important for Congress to address the issue, but there’s also the possibility that the administration could simply change the rule. The executive branch can thereby ensure that generic drugs are placed on the tiers where they were originally meant to be.
Prescription drug pricing shouldn’t be a partisan issue. Everyone agrees that patients should know what their treatment costs and that drug costs should be affordable. Now it’s time for the president and Congress to grab this low-hanging fruit and do something about it before costs spiral even more.
Jonathan Bydlak is a fiscal policy expert and the president of the Coalition to Reduce Spending.
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