Proposals to lower prescription drug prices: too little, too late?

- Kenny Lin, MD, MPH

A bright spot in the annual U.S. health spending report published last week by the Centers for Medicare and Medicaid Services (CMS) was a 1% decrease in retail prescription drug costs from 2017 to 2018, due to greater use of generics and a slower rise in brand-name prices. According to CMS, this was the first time that these costs have declined since 1973. A previous American Family Physician Community Blog post described ongoing efforts by physician groups, payers, and government to restrain rising drug prices; a 2017 editorial reviewed actions that individual health professionals could take to help patients; and a 2019 editorial discussed the high costs of insulin and what family physicians can do. It's possible that some of these efforts are beginning to bear fruit.

Prescription drug prices vary considerably across pharmacies, geographic regions, and even within the same town or metropolitan area. A cross-sectional study of cash prices for 10 common generic and 6 brand-name drugs in the fall of 2015 obtained using the online comparison tool GoodRx (which AFP uses to estimate drug prices) found that generic drugs were least expensive in big box pharmacies, followed by large chain (more than 100 retail locations) and grocery pharmacies, while small chains (4 to 100 stores) and independent pharmacies had the highest prices. For example, the mean price of one month of generic simvastatin 20 mg was $35 at big box pharmacies, $42 at large chains, $50 at groceries, $112 at small chains, and $138 at independent pharmacies. Cash prices for brand-name drugs varied less; one month of esomeprazole (Nexium) 40 mg, for example, cost between $302 and $345 across pharmacy types.

The American College of Physicians recently joined a growing number of groups advocating that CMS be given the authority to directly negotiate drug prices in Medicare Part D, which is currently forbidden by law. In contrast, the Department of Veterans Affairs (VA) Health System already controls prescription costs through direct negotiation and a closed formulary. A study in JAMA Internal Medicine calculated that in 2017, Medicare could have saved $1.4 billion on inhalers for asthma and chronic obstructive pulmonary disease by paying lower VA-negotiated prices, and $4.2 billion if it had paid VA prices and instituted the VA formulary.

But what about the pharmaceutical industry's assertion that lower negotiated prices would stifle innovation and reduce incentives for drug development? In a recent commentary, Dr. Peter Bach proposed that CMS adopt a "too little" or "too late" strategy, selectively negotiating prices of drugs that have either received conditional FDA approval based on a surrogate rather than a patient-centered outcome ("too little") or have passed their guaranteed 5-year period of FDA monopoly protection ("too late"). In 2019, if CMS had negotiated the prices of the top 10 most costly drugs in each category down to those in the United Kingdom (an average savings of 57%), Dr. Bach estimated that it could have saved $1 billion on the 10 "too little" drugs and $26 billion on the 10 "too late."

The potential savings are substantial. But compared to the staggering $336 billion the U.S. collectively spent on prescription drugs in 2018, are these proposed pricing reforms too little, too late?