Prices for some prescription drugs have gotten out of hand. That much we know. We also know that politicians have been debating about how to lower prescription drug prices for decades. For people who are supposed to be so smart, they sure are having a tough time coming up with a fix for a problem that doesn’t exist in most other developed countries.
Bringing drug costs down requires being honest about what causes high prices. And no, Canadian-style price caps are not the solution. Nor are Canadian pharmacies filling prescriptions online. Enterprises like Canada Pharmacy are a good alternative for now, but they are not sustainable in the long term. We need to actually fix what’s wrong with the U.S. system.
So how do we do it? It is not as hard as the politicians make it out to be. Do these three things and drug prices will fall dramatically:
1. Return to the Old Payment System
Before HMOs were a thing, most people utilized their health insurance policies by paying for their care upfront, then seeking reimbursement from their carriers. Sure, the system wasn’t efficient. But it did control prices. How so? By putting consumers in charge.
Think about what would happen if we all paid for our prescriptions the old-fashioned way. If you are thinking that a lot of people could not pay the upfront costs, you’re on the right track. Such a scenario would force prices to drop because consumers couldn’t, or wouldn’t, pay full price at the counter. If drug companies weren’t selling drugs, they’d have no choice but to crater their prices.
If you think this is a wild idea, you don’t understand retail. Look past prescription drugs to something else, like gas. Did you know that pump prices are based almost exclusively on what consumers are willing to pay? That’s why gas prices always go up during the summer.
Pharmaceutical companies price the same way. They charge whatever insurance companies are willing to pay. Go back to the old system and you put consumers back in charge. If we were not willing to pay such high prices, drug companies would know soon enough.
2. Eliminate the Middlemen
Next, bringing drug prices down requires eliminating the middlemen. There are several players that stand between you and the pharmaceutical company that makes your medications. One of them is the Pharmacy Benefit Manager (PBM).
PBMs administer prescription drug benefits for employers, Medicare contractors, pharmacies, and pharmaceutical companies. They have to get paid for what they do. Who pays? Generally, it’s the pharmaceutical companies. But ultimately, it’s you and me. We pay by way of higher prices. Get rid of them and you eliminate another cost of doing business. They aren’t necessary to the system anyway.
3. Revamp the Approval Process
Finally, getting FDA approval for new drugs is time-consuming and expensive. Companies spend billions to get new drugs to market. Then they only have 10 years to recover their costs before generics come into play. Change that and prices will fall. Cut the bureaucratic red tape, make approval less costly, and create a fast-track processes. Drug companies will spend less and, ultimately, won’t have to charge as much to make their margins.
It is absurd that Canadian drugs are so much cheaper than their U.S. counterparts. It’s unforgivable that some U.S. patients have to rely on charity to get their medications. Worst of all, it is insane that we continue to operate this way. Lowering prescription drug prices is easy to do if we are willing to make hard decisions. So far, those decisions have been fleeting.
