Why Prescription Drug Prices Keep Rising – and 3 Ways to Bring Them Down
Prescription drug prices have been rising at a blistering rate over the last few decades. Between 1980 and 2016, overall spending on prescription drugs rose from about $12 billion to roughly $330 billion, while its share of total health care spending doubled, from 5% to 10%.
Although lawmakers have shown renewed interest in addressing the problem, with pharmaceutical CEOs testifying before the Senate Finance Committee in February and pharmacy benefit managers (PBMS) scheduled to do so this week, no comprehensive plan to halt the relentless increase in prices has been proposed, let alone agreed upon.
Robin Feldman, a professor at the University of California Hastings College of Law, takes a look at the drug pricing system in a new book, “Drugs, Money and Secret Handshakes: The Unstoppable Growth of Prescription Drug Prices.” In a recent conversation with Bloomberg’s Joe Nocera, Feldman said that one of the key drivers of rising prices is the ongoing effort of pharmaceutical companies to maintain control of the market.
Fearing competition from lower-cost generics, drugmakers began over the last 10 or 15 years to focus on innovations “outside of the lab,” Feldman said. These innovations include paying PBMs to reduce competition from generics; creating complex systems of rebates to PBMs, hospitals and doctors to maintain high prices; and gaming the patent system to extend monopoly pricing power.
Feldman’s research on the dynamics of the drug market led her to formulate three general solutions for the problem of ever-rising prices:
1) Transparency: The current system thrives on secret deals between drug companies and middlemen. Transparency “lets competitors figure out how to compete and it lets regulators see where the bad behaviors occur,” Feldman says.
2) Patent limitations: Drugmakers have become experts at extending patents on existing drugs, often by making minor modifications in formulation, dosage or delivery. Feldman says that 78% of drugs getting new patents are actually old drugs gaining another round of protection, and thus another round of production and pricing exclusivity. A “one-and-done” patent system would eliminate this increasingly common strategy.
3) Simplification: Feldman says that “complexity breeds opportunity,” and warns that the U.S. “drug price system is so complex that the gaming opportunities are endless.” While “ruthless simplification” of regulatory rules and approval systems could help eliminate some of those opportunities, Feldman says that the U.S. doesn’t seem to be moving in this direction.
Read the full interview at Bloomberg News.
For Richer or Poorer: An Updated Marriage Bonus and Penalty Calculator
The Tax Policy Center has updated its Marriage Bonus and Penalty Calculator for 2018, including the new GOP-passed tax law. The tool lets users calculate the difference in income taxes a couple would owe if filing as married or separately. “Most couples will pay lower income taxes after they are married than they would as two separate taxpayers (a marriage bonus), but some will pay a marriage penalty," TPC’s Daniel Berger writes. “Typically, couples with similar incomes will be hit with a penalty while those where one spouse earns significantly more than the other will almost always get a bonus for walking down the aisle.”
Trump Administration Wants to Raise the Rent
Housing and Urban Development Secretary Ben Carson will propose increasing the rent obligation for low-income households receiving federal housing subsidies, as well as creating new work requirements for subsidy recipients. Some details via The Washington Post: “Currently, tenants generally pay 30 percent of their adjusted income toward rent or a public housing agency minimum rent not to exceed $50. The administration’s legislative proposal sets the family monthly rent contribution at 35 percent of gross income or 35 percent of their earnings by working 15 hours a week at the federal minimum wage -- or approximately $150 a month, three times higher than the current minimum.” (The Washington Post)
New Push for Capital Gains Tax Cut
Anti-tax activists in Washington are renewing their pressure on lawmakers to pass new legislation indexing capital gains taxes to inflation. The Hill provided an example of such indexing that Grover Norquist recently sent to Treasury Secretary Steven Mnuchin: “Under current policy, someone who made an investment of $1,000 in 2000 and sold it for $2,000 in 2017 would pay capital gains taxes on the $1,000 difference. But if capital gains were indexed, the investor would only pay taxes on $579, since $1,000 in 2000 would be equivalent to $1,421 in 2017 after adjusting for inflation.” Proponents of indexing say it’s just a matter of fairness, but critics claim that it would be just another regressive tax cut for the wealthy. Indexing would cost an estimated $10 billion a year in lost revenues. (The Hill)
Bernie Sanders to Propose Plan Guaranteeing a Job for Every American
Sen. Bernie Sanders (I-VT) is preparing to announce a plan for the federal government to guarantee a job paying $15 an hour and providing health-care benefits to every American “who wants one or needs one.” The jobs would be on government projects in areas such as infrastructure, care giving, the environment and education. The proposal is still being crafted, and Sanders’ representative said his office had not yet come up with a cost estimate or funding plan. Sen. Kirsten Gillibrand (D-NY) last week tweeted support for a federal jobs guarantee, but Republicans have long opposed such proposals, saying they would cost too much. (Washington Post)
The High Cost of Child Poverty
Childhood poverty cost $1.03 trillion in 2015, including the loss of economic productivity, increased spending on health care and increased crime rates, according to a recent study in the journal Social Work Research. That annual cost represents about 5.4 percent of U.S. GDP. “It is estimated that for every dollar spent on reducing childhood poverty, the country would save at least $7 with respect to the economic costs of poverty,” says Mark R. Rank, a co-author of the study and professor of social welfare at Washington University in St. Louis. (Futurity)