Americans throw away unused epinephrine auto-injectors worth more than $1 billion annually. Or maybe it would be more accurate to say that Americans waste more than $1 billion annually on $50 million worth of epinephrine auto-injectors that are discarded unused. The devices should only cost $20 a pair. So, why do they cost $608 instead? More on that below.
Much has been written about the dramatic price hikes for EpiPens, which inject a drug that counters severe allergic reactions (anaphylactic shock). According to Aaron E. Carroll, writing in the New York Times, the real (inflation-adjusted) price of EpiPens has risen 4.5 times since 2004.
Both Carroll and the Wall Street Journal have described how government has allowed EpiPen’’s manufacturer to hike prices so much. EpiPen is complicated, being both a drug and a device. The drug is very inexpensive, and not patented. The device is protected by patents issued in 2005, which expire in 2025.
First, the government made a couple of interventions in the market that allowed the manufacturer to raise prices above the free-market level. The federal government changed its guidelines such that the EpiPens have to be sold in packages of two (while customers might prefer just one, or at least an odd number). Also, the federal government gave public-emergency grants to states on condition they stockpile EpiPens.
Newsflash! Hillary Clinton is concerned about your drug costs. Unfortunately, her plan could actually raise drug prices and force you to pay more, albeit indirectly. She proposes to accomplish both feats simultaneously by capping your prescription drug co-pays at no more than $250 per month. This reckless proposal is central planning of the ilk you would find in Cuba or Venezuela. But I’m getting ahead of myself.
In a recent print issue of National Review, David French has a sobering article describing how the Veterans Health Administration is overdosing veterans on prescription drugs. A veteran himself, French has plenty of anecdotes about his buddies:
They couldn’t sleep, so they had to take Ambien. They were depressed, so they were taking Lexapro. They had chronic neck and back pain after hanging 90 pounds of gear on their frame day after day, month after month, so they took Lortab. They were anxious, so they took Xanax.
It was as if a VA doctor had simply listened to a list of symptoms, located a pill to address each complaint, loaded up the patient with prescriptions, and called it “treating” a soldier with PTSD.
In 2014, an inspector-general report found that the VA was systematically over-medicating its patients – even to the point of death.
Wisconsin’s Senate race is being roiled by a report on the VA facility at Tomah, a place so notorious for freely writing narcotics prescriptions that it gained the nickname “Candyland.”
(David French, “Casualties of the VA,” National Review, Vol. LXVIII, No. 12, July 11, 2016, pp. 20-21.)
Price transparency is an enormous benefit to consumers in retail markets. Consumers who make the effort to shop around often discover drug prices can vary from one pharmacy to the next. Retail drug prices are mostly transparent; patients generally encounter few problems when calling a pharmacy to ask what a given drug costs on their health plan. However, with the possible exception of buying an automobile, wholesale price transparency provides little benefit to consumers. The reason price transparency serves almost no purpose for consumers in wholesale markets is because consumers don’t buy from wholesale markets!
The U.S. Food and Drug Administration (FDA) has a backlog of nearly 4,000 generic drug applications – each of which currently requires more than two years to approve. Over the past few years the FDA typically approved between 400 and 500 generic drugs a year. Under pressure from Congress, the agency hired 1,000 new employees and managed to approve (or tentatively approve) 99 drugs in December alone. That is more than in any other single month. The FDA has taken a lot of heat for the backlog. But the reality is actually more positive than many people realize. The primary reason for the backlog is competition; generic drug makers have filed an average of more than 1,000 abbreviated new drug applications (ANDAs) a year for the past four years. That is about one-third more than what the FDA expected. That is good news: Research finds that the average price of a generic drug relative to its brand prior to generic competition is inversely correlated to the number of competing firms producing a generic version. Basically, the more the merrier!
Americans’ prescription drug bills are on the rise. Total drug spending increased by nearly one-quarter in the past couple years. Much of that increase is on high-tech, specialty drugs — such as those used to treat cancer, hepatitis, rheumatoid arthritis and multiple sclerosis. Drugs whose patents have not yet expired are sometimes very expensive; especially those recently approved. By contrast, most of the drugs Americans take are actually cheap generic drugs. Generics are cheap because they are no longer protected by patents and different manufacturers can compete on price. Consumers opt for a generic drug about 88 percent of the time when filling a prescription. Nonetheless, policymakers have a solution; but it’s the wrong one.
A few weeks ago, Medicare proposed a pilot program to test a new way to pay doctors who inject drugs. Cancer is the big kahuna, cost-wise, when it comes to injected drugs. Medicare payment policy leads to certain industry practices to profit from the status quo. When the status quo is threatened, the “preservatives” immediately form a defensive coalition to stop the change.
Although I do not endorse this precise reform, the campaign to roll it back has become irresponsible and misleading. Currently, physicians who inject drugs are paid by Medicare a margin of 6 percent on top of a reported price called the Average Sales Price (ASP). The concern is that the oncologists make more margin off an expensive drug than a less-expensive drug.
The Center for Medicare and Medicaid Services (CMS) recently proposed a pilot project to test alternative payment methods for drugs under Medicare Part B. These are the drugs administered in hospital outpatient clinics and physicians’ offices.
Professor Jack Hoadley of Georgetown University recently gave an excellent presentation discussing prices of prescription drugs. Two slides stand out. First, a slide showing how much prescription spending is controlled by insurers and governments versus patients directly:
As recently as 1990, patients controlled over half of drug spending. Today, it is under 20 percent. Has this cost shift made drugs more “affordable”? Obviously not: 8 percent of patients do not take medicines as prescribed, because of cost. Hillary Clinton promises to impose government price controls on drugs if she becomes president.
