Increasing the Cost of Prescription Drugs
The ever-increasing prices of prescription drugs should be motivating state lawmakers to find ways that reduce the costs of medicine for health plans, their enrollees and individuals. Incredibly, one bill, now gathering steam in the legislature, will do precisely the opposite - increase the cost of prescription drugs!Today, prescription drugs are at least as important as the availability of a hospital bed was in 1965. The focus then was on how many days people could stay in the hospital to get medical treatment. The emphasis has now shifted from costly hospital stays to prescribing medications that deliver high-quality, more cost-effective preventative care.
One study has concluded that restrictions in some state Medicaid programs have resulted in a 28.7 percent increase in physician expenditures and a 39 percent increase in inpatient mental hospital expenses. Its authors concluded that “the adoption of a policy (that restricts access to drugs) might actually increase overall Medicaid expenditures.”
Pharmaceutical innovations are, of course, dramatically improving - even saving - the lives of more and more people. Unfortunately, these technological advances are also increasing the prices of prescription drugs, straining budgets so much that some households are being forced to pick between buying food or medication. Costs have risen nearly 20 percent a year over the last three years, according to the Denver Medical Society.
Insurance coverage is one effective way to protect patients from high retail prices at the pharmacy. Insurers give patients “strength in numbers,” acting as powerful bargaining agents with drug companies. Group plans also cut costs by setting up formulary lists of preferred, discounted medications and structuring their copayments so that patients pay less for generic versions of important drugs.
Offering policyholders mail-order pharmacy options is another highly effective price-fighter (and convenience), especially for those who rely on long-term maintenance medications. Volume discount purchasing and reduced overhead allow mail-order pharmacies to pass on the savings to consumers. Mail-order drugs represent an example of health care entrepreneurship that encourages competition in the marketplace, allowing customers to shop for the best service at the least price.
Rather than fighting the competition on service, quality and price, retail pharmacists have chosen to retaliate politically, attempting to legislatively neutralize the lower-cost advantage of mail-order pharmacies. This is like legally requiring all mail order CD companies to discontinue price discounting and sell for the same price as any retail outlet. With drugs, CDs or any other product, such protectionism will force mail-order costs upward to the level of retail prices.
Such self-interested behavior is not really new. In the 1940s and ‘50s, small retail druggists lobbied to restrict the pharmaceutical services offered by major grocery stores. One would be hard pressed to find anyone today arguing that King Soopers, Safeway or Albertson’s should be curtailed from offering pharmacy services.
For all the talk of the retail pharmacist lobby’s misleading mantra of “leveling the playing field,” this legislation simply raises the cost of prescription drugs to consumers. Instead of trying to tilt the playing field toward a powerful group through legislative or regulatory fiat, lawmakers should focus on empowering consumers with choice, competition, and information. We need to improve the market's ground rules in order to decentralize decision-making, spur innovation, reward efficiency and respect personal choice.
Over time, this strategy would result in a health care system in which both group plans and providers compete for business on the basis of superior quality and cost. We need a buyer's market in prescription drugs, not cartels for sellers.
For example, Gov. Owens and the legislature should explore requesting a Bush administration waiver from Medicaid’s “best price” rule. The rule says that a drug company must offer the same discounts to state Medicaid programs and private insurance plans, severely limiting the discounts private insurers, hospitals, clinics and chain pharmacies can negotiate with drug companies. While well-intentioned, this mandated price control has turned into a price floor rather than a ceiling.
The legislature should consider these and other market-oriented initiatives and say “NO!” to misguided price-control proposals that stifle innovation, freeze in place old habits and practices, and slow the adoption of new ideas for more cost-effective care. Otherwise, consumers will get hurt.
Sen. Bob Hagedorn is chair of the New Democrat Caucus and Rep. Dan Grossman is a co-chair of the Colorado Democratic Leadership Council, a think tank advocating new ideas and the Democratic Party's historic commitment to economic growth, personal responsibility, community, individual liberty and equal opportunity.
(Shortly after the Colorado DLC announced its opposition to this bill in the April 2001 New Democrat Update, the House GOP leader called for the death of her prescription drug price-hike bill.)