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Expect More From... Price Controls!

Writer's picture: Christine JohnstonChristine Johnston

Our economy is founded on free market ideals, expecting the basic rules of supply and demand to control costs.  As we have been highlighting in the last 6 weeks, that is simply not possible when it comes to the pharmacy industry. Consumers do not have access to all the data they need to make educated decisions, the industry is very fragmented and when you or a family member need a drug you are going to pay for it, not matter what.  Today, we are going to focus on the last reason the New York Times gave as to why drug costs are so high: No price controls. 


The US Government has tried to implement price controls in the past, but the focus has always been on controlling the amount the patient will pay.  Although an honorable pursuit, each time the government has controlled the patient’s out of pocket cost the overall cost of drugs have increased.  Here are a few examples:


  1. Removal of the lifetime maximum.  Once the lifetime maximum was removed, we started to see a lot more investment in rare and orphan diseases, and the release of the first million-dollar drug treatments.

  2. $0 copayment on preventative drugs.  Prior to the implementation of the $0 copay on contraceptives and vaccines, these products were cheap.  Therefore, charging a $0 copay wasn’t really a big deal.  Now, we have contraceptives that cost $200+ a month and the latest RSV vaccine costs between $300 and 500 per dose.

  3. Closure of the Coverage Gap in Medicare. Starting in 2011, Medicare required brand drug manufacturers to pay 50% of the patient’s cost when a Medicare member reached the coverage gap (aka donut hole). Drug manufacturers increased their list prices in 2011 to cover the additional expense they would be incurring in the Medicare program.

The impacts of these changes are demonstrated below.  The implementation of these changes to the patient’s out of pocket did not change the overall cost trajectory for prescription drugs.



Now the government is dabbling in price negotiations with the manufacturers.  Although we think that it is finally time to have this conversation, we are concerned about the process which they are using.  We are concerned:


  1. Only a few drugs are being targeted.

  2. The negotiations only effect Medicare.

  3. The maximum fair price is not based on the QALY (Quality Adjusted Life Year) calculation.


As with every other government program implemented to control cost, we expect that drug manufacturers are going to play the game and make up the lost revenue in other sectors or on other drugs.  Foundational Pharmacy Strategies will be measuring the cost trends and constantly be advocating for effective cost control policies.  We expect there will be a lot more hearings on this topic in the coming months, as we approach the November election. We can’t wait to bing watch these hearings.

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