Adam Smith, the Scottish economist and moral philosopher of the 18th century, in his book, An Inquiry into the Nature and Causes of the Wealth of Nations, generally referred to by its shortened title The Wealth of Nations, introduced the analogy of an invisible hand working within capitalism to promote the social good, by which he meant, according to many sources, a “process by which market competition channels individual greed toward socially desirable ends.” That invisible hand has failed “socially desirable ends” with the current pricing of prescription drugs in the United States.
Last week’s news reports about a former hedge fund manager raising the price of an AID’s drug by 700 percent is the most visible, outrageous, and egregious example of what I have seen with many other drugs in my family medicine practice over the past several years. Medicines that I have prescribed during all of my 33 years of medical practice have risen astronomically. While at the same time, due to the ever-increasing high deductibles and co-pays required by insurance plans, my patients are often not able to pay for medicines that their parents and grandparents easily paid for 20, 25 or 30 years ago.
Generic drug companies, that promised to make drugs that were previously patented—referred to as generic drugs— affordable, are miserably failing in keeping their promise. In addition to the highway robbery profits that most drug companies report, I am more concerned that the arbitrary and unjustified increase in drug costs is undermining the overall effort to insure more people.
For months, one of my patients has asked me to write a blog about the current drug pricing problem and possible solutions. Given the fact that presidential candidate Hillary Clinton’s drug proposals were announced last week, I present my thoughts and comment on some of Secretary Clinton’s ideas. I dedicate this blog to my patient.
First, let’s examine the status quo. We live in a world where Canadian drugs are, on average, 40 to 75 percent less expensive than U.S. drugs, according to the Canadian Patented Medicine Price Review Board. By comparison, drugs in India can be made at about one-twelfth the cost of drugs manufactured in the U.S. To review the pricing of drugs in the United States, we need to know that two current government policies contribute to the failure of capitalism to help lower or stabilize drug prices. First, the U.S. Food and Drug Administration (FDA) prevents individuals from buying drugs in other countries and importing them to the U.S. Second, drugs bought through Medicare are purchased via a circuitous route that involves pharmacy benefits managers in multiple different insurance plans. Both governmental processes, I believe, skew the possibility of capitalism making medicines less expensive.
I would propose changes to both processes. First, I would immediately let Americans buy prescription drugs from Canada and begin a process in which the FDA sanctions the purchase of drugs from other countries, given the FDA’s proof of safety and if a particular drug is deemed necessary to have foreign competition due to inappropriately high retail costs in the United States.
Second, I would eliminate Medicare Part D (the portion of Medicare that covers prescription drugs) as it currently exists and replace it with the Canadian program of bulk purchasing of medicines with a standard drug formulary. Exceptions should be available based on reasonable requests by the patient’s physician.
My extended family and I have been at the Disney Parks in Orlando, Florida this week. We have been impressed with the outstanding customer service and overall efficiency of the operation. Disney has a service called Fast Pass. It allows individuals to go ahead in line for certain rides for an added fee. Similarly, these two routes of service exist for health care in England. As much as I do not agree that it is fair, I am afraid it is a fact of life that for additional money, some people will always get extra service, at Disney, at the Mayo Clinic, or in England. That as a given, I would allow within a new Medicare Part D plan some ability for individuals to expand the Medicare Formulary for an additional fee.
I believe both of these efforts would create competition for drug pricing that will, in the long-term, protect the drug budget as well as the overall budget for health care.
Some people will criticize my proposals by using both reasoned disagreement and emotional gnashing of teeth by vested interests in the status quo. Some will say that government is intruding on capitalism. Instead, I say that we are, one) removing government FDA restrictions and expanding capitalism to include a world market for Americans, and two) using Medicare to maximize the capitalistic principle of bulk purchasing to negotiate better pricing. Some will say that the FDA cannot guarantee the safety of drugs from outside U. S. borders. I say we already use drugs manufactured outside our borders and that Western Europe has shown new ways to expand the access of affordable, safe drugs even farther.
Secretary Clinton’s proposals included allowing the purchase of drugs outside the border of the United States and some form of bulk purchasing for Medicare beneficiaries, however, my bet is that it would not go as far as I would in eliminating the current Medicare Part D program with my substitute program. She also would eliminate allowing pharmaceutical companies to claim advertising for prescription drugs as a business expense. I also agree with this proposal because of this fact: In 2012, the most recent year annual numbers were available; the pharmaceutical industry spent more than $27 billion on drug promotion—more than $24 billion on direct marketing to physicians and over $3 billion on direct advertising to consumers, mainly through television commercials. Finally, she would cap the maximum per month out-of-pocket cost someone spends on prescription drugs. This final concept is one that I will hold comment on.
Overall, I give her good marks on her ideas about changing this major impediment to affordable health care that will ultimately affect how many Americans will receive health care, now and in the future.
Finally, I have previously written that my vote in the Iowa Caucus is up for grabs. I challenged Republican candidates with certain policy questions about health care reform. I add to that challenge their response to this question: How does the United States deal with the cost of prescription medicines now and in the future?
Adam Smith and I await your thoughts.