Most Generic Drugs Should Be Sold Direct-to-Consumer

This article was first published on LinkedIn on October 2, 2019.

Drug pricing is one of the most frustrating aspects of the health care system. A variety of proposals are being considered to address the problem including: pegging the prices of some drugs in America to those in other countries; importing some drugs from Canada; allowing Medicare to negotiate prices for some drugs with pharmaceutical companies; and prohibiting drug companies from raising prices faster than the rate of inflation. The concern with each of these ideas is trying to find a capitalist middle ground that prohibits government-controlled pricing while also reining in a system that increasingly batters consumers.

The problem is massive in scale. In 2017, 5.8 billion 30-day equivalent prescriptions were filled. What’s interesting to note is that 90% of prescriptions filled were for generic drugs. Generics are copies of established medications that have been on the market for years. The introduction of generics enables competition, and helps push pricing down. Between 2014 and 2018, the average price of generic drugs dropped 37%. During that same period, the price for branded drugs jumped 60%.

In other words, the vast majority of the drugs we take are at prices that are stable or dropping. Right now Medicare and many insurers offer tiers with different pricing for different drugs, and generics typically wind up in the cheapest, most accessible category. The problem is that insurers or pharmacy benefit managers negotiate and bundle pricing for the entire basket of drugs – specialty and generics – and it’s impossible to tell how much the volume and price of generics are impacting the pricing for everything else.

Tiers aren’t enough. We need generics available outside of insurance plans, direct-to-consumer. Doing so will allow us to separate the billions of transactions for goods that are at stable prices from the 10% of prescriptions that are responsible for the major pricing problems.

Such an idea might cause panic to many, and that’s because about half of all Americans have taken at least one prescription medication in the last 30 days. Other estimates put the daily use of drugs much higher. With more and more health care costs shifting to Americans, the last thing many of us want is to pay for drugs out-of-pocket too. One of the key criticisms of high deductible health plans is that when people have to pay out-of-pocket for drugs, they either delay or do not fill prescriptions. The problem is so acute that as of 2020, coverage for drugs for certain chronic conditions must be included as part of base insurance in a high deductible health plan.

I approve of efforts that ensure people get access to the care they need. Yet the more drugs and services that are covered under insurance programs, the more disassociated we are from understanding the cost of care – and from wanting to do something about it. We’re at a pivot point with health care costs in America and employers and the government cannot cover what they used to anymore. We’re going to have to become better at appreciating how we spend our health care dollars because more financial responsibility is being shifted to us.

There are ways to fund the cost of prescription generic drugs outside of insurance. For example, employers could contribute dollars to employees’ health savings accounts, giving them the funds to buy the medication they need. If anything, we shouldn’t scrimp on the less expensive stuff, like generic drugs. To ensure we spend our dollars properly, we need to work more closely with our primary care doctors. That way we can better understand our need for prescription drugs. And in an ideal world, we’ll determine ways to be healthier so we can wean ourselves off medications, especially those for treating chronic conditions. Then we’ll see how improving our health will also improve our pocketbook.

For more ideas about what we can do to improve drug pricing and usage in America, please listen to my podcast “Price Transparency Part II: What to Do About Drugs” on The Powers Report Podcast.

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