Price Transparency for Rx Drugs…At Last!

Lost in the daily deluge of the media’s nonstop attacks on President Trump were a couple of stories that may have huge consequences. They both concern the pricing of prescription drugs. We Americans pay more for prescription drugs than anyone else in the industrialized world. Not a little bit more. A lot more!

Recently a local post-menopausal woman received test results that showed she was at very high risk for osteoporosis. Her numbers were such that her Doctor

recommended an expensive drug named Prolia, a drug injected-usually in the Physician’s office-every six months for two years.

Here are some interesting things about pricing. Prolia (Denosumab) is manufactured by pharmaceutical giant Amgen. According to GoodRx, a 60 mg/ml syringe carries an average cash price here in the U.S. of $1724.34. The average GoodRx coupon price is $1188.62. A nice savings.

But according to the Alberta College of Family Physicians, the price for that same Prolia syringe is only $210 in Canada. In other words, more than five times more here on this side of the border. This is just one drug. According to Pew Research, our total drug spend will be about $530 Billion in 2018. If we are spending 40-400% more than our industrialized competitors for branded drugs, you begin to see a major reason why our healthcare costs are through the roof.

We will deal with exactly how Canadians get such favorable pricing in another piece. Hint, they do their homework.

Whether the insurance company or the government pays all or any part of America’s annual drug costs matters not. We all pay. Too many of us concern ourselves only with the co-pay that we individually are forced to pay.

The cozy relationship between the rapacious drug industry and our government ran into the Great Disruptor in 2016. The Orange Agitator said that Americans were being overcharged “big time” for drugs and things were going to change. Big Pharma thought they had dodged the bullet when they managed to get some of their friends appointed to key positions. The former CEO of drug giant Eli Lilly was named Secretary of HHS. During his tenure at Lilly, he managed to triple the price of Insulin. So, the PhARMA lobbyists believing the storm had passed, popped the corks on the expensive champagne.

Whatever his critics may say of him, Donald Trump can be quite persistent. Especially when it comes to his campaign promises. Perhaps the Secretary noticed that his boss has a pattern of replacing people who can’t (or won’t) get his agenda implemented. So, Secretary Azar developed a plan to bring more market forces to bear on drug prices. Much of his plan is typical lofty bureaucratic nonsense. But, one point deserves special attention and a large attaboy.

This is a very big deal. It has the potential of putting valuable information in the hands of insurers, regulators and consumers. The PhARMA defenders often talk about our “free market” for healthcare and pharmaceuticals. But free markets require price transparency and real competition. No one can argue with a straight face that either of these exist in the American Rx drug market today. American consumers are a captive market. The drug companies have used government guaranteed exclusivity and a very opaque pricing system to keep real price transparency from ever becoming a reality.

Reference pricing means that our government will begin to look at the prices these drug companies charge in other industrialized countries. They presumably will share that information with us. It blows a hole in the wall that the drug companies have created.

The second major development occurred earlier this month. The Centers for Medicare and Medicaid Services proposed a rule that would require the posting of list prices of prescription drugs in television advertising. Drug companies spent over $5 Billion on TV ads this year. They studiously avoid any discussion of their prices. Americans will be surprised when they learn that those tablets which may cure their skin rash (while potentially leading to severe constipation or even death) carry a list price of over $3,000 a month. Or that the Hep C medication is over $87,000.

The pharmaceutical industry will be fighting these two proposals with everything they have. They understand the consequences. Information is power. A well informed citizenry will demand serious changes. Big Pharma is already funneling big advertising dollars through groups like Citizens for Tax Reform. They are running ads warning of the dire consequences of price transparency.

But in the end, PhARMA will lose. Price transparency will prevail. Drug prices in the United States will be forced down. The drug companies’ ROI may start to look more like the rest of the S&P. And one more campaign promise made by the populist Agent of Change in the Oval Office will be brought to fruition. A big win for President Trump. An even bigger win for our country.

I don’t think that the government should be able to tell a private company what profit is sufficient. Drug companies spend millions of dollars on R&D for new drugs, many of which never pan out. If they can’t charge for their finished product what the market is willing to pay (which is how it works for just about every other business in America, which still is a free country), then they won’t spend as much on R&D and we won’t have as many medical breakthroughs. How many life-saving nedicines have been developed in socialist countries? The Founding Fathers were right to place patent protection in the Constitution among Congress’s enumerated powers.

That being said, the government’s participation in the purchase of drugs on behalf of our citizens—and strong-arming companies into offering “health insurance” to their employees—disrupts market forces and permits drug companies to charge more than people would be willing to pay if they had to pay for the drugs themselves. The cost of medicine that is not covered by health insurance, Medicare or Medicaid is reasonable, since it is paid by the people using such medicine and thus the free market establishes the price. But when a drug is covered by a person’s health-insurance plan (whether private or public), the cost to the patient is the co-pay, not the amount that the drug company (and all the middlemen, of course) get. If it costs patients $20 to buy a drug that actually costs a lot more, whether the price charged is $200 or $1,200 is determined not by marjet forces, but by who has more leverage with the government. It also results in many people using non-vital medicines that they never would have taken if they had to pay what they cost.

What we need in order to bring down the cost of medicine in America is to let the free market determine the price of medicine, which only can be accomplished by getting the government out of the business of health insurance and by making private health-insurance plans taxable as income to the employee if they cover more than catastrophic events. And everything that I’ve said for medicine also goes for the price of medical procedures and treatments, whose costs also are inflated under our current system.

BTW, in In 2003, Thomas Sowell wrote three very short (but excellent) columns regarding why health care was cheaper and better prior to health insurance (which only started due to FDR’s wage freeze during WWII, when employers were looking for ways to retain employees without paying them a higher salary). Here they are:

‘Universal health care’
Thomas Sowell
May 6, 2003

If there was one defining moment in the debates among an already crowded field of Democrats seeking their party’s presidential nomination in 2004, it may well have been when Congressman Dennis Kucinich, pushing for government-provided health care, spoke with obvious disgust of the “profits” of the insurance companies and provoked a burst of spontaneous applause from like-minded members of the audience.

Insurance companies, like every other kind of institution, have to earn money in order to keep functioning. So does every individual who was not born rich. But some people react to the word “profit” with automatic responses, like Pavlov’s dog.

Such prejudice against a word was far more common half a century ago than it is today. Congressman Kucinich may think of himself as a “progressive,” but he is in fact a throwback to a bygone era.

Profit was defined as “overcharge” by George Bernard Shaw, one of the founders of Fabian socialism. “Never speak to me of profit,” India’s Prime Minister Nehru once said to his country’s leading industrialist. “It is a dirty word.”

Why are such conceptions of profit no longer as common as they were 50 years ago? Because of half a century of experience with economies that tried to operate without profit. Back in the 1950s, socialism was the wave of the future and countries around the world tried out one variety or another.

With profits eliminated, in theory there should have been lower prices for the consumers, who would now be able to afford a higher standard of living. In reality, countries that went the socialist route found themselves falling farther behind countries that allowed the hated profit system to continue to exist.

Naturally, political leaders with the vision of a government-controlled economy did not want to admit that they were wrong, much less have the voters realize that they were wrong. Only when decade after decade of blatant evidence from around the world became undeniable did governments begin to withdraw their suffocating controls and sell government-owned industries to private entrepreneurs.

But, just as there are still pockets of resistance in Iraq and Afghanistan, so there are still holdouts like Congressman Kucinich and like-minded Democrats. Socialism has been discredited as an explicitly avowed belief but it still lives on in a thousand disguises, of which “universal health care” is just one.

Like so many pretty words used in politics, “universal health care” is seldom examined in terms of what its actual track record has been in the countries where it has been tried.

Probably the first country to have universal health care provided by the government was the Soviet Union. After decades of socialized medicine, what was the end result? In its last years, the Soviet Union was one of the few countries in the world with a declining life span and a rising rate of infant mortality.

But that terrible word “profit” had been banished and apparently that is what matters to the true believers.

Not all countries that tried socialized medicine went as far as the Soviet Union. But there has been a whole pattern of problems common to government-controlled medical care systems, whether in China, Britain, Canada or elsewhere. And none of the anti-profit zealots want to talk about any of those problems.

None of those who wants us to move in the direction of Canada on health care ever faces the question: Why do so many Canadians come to the United States for medical treatment and so few Americans go to Canada?

Could it be that we should look at what actually works, rather than what sounds good? Nor should we be overly impressed by words that sound bad, like “uninsured Americans.” The bottom line is medical care, not insurance. People without insurance are treated at hospitals all across America every day.

Before we even consider throwing away what works in favor of something that has failed repeatedly, we need to stop reacting to words and start looking at facts. Socialism by any other name is still socialism — whether it is advocated by shrill zealots like Kucinich or by other Democrats whose words are smoother.

©2003 Creators Syndicate, Inc.
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‘Universal health care’: Part II
Thomas Sowell
May 7, 2003

Whenever I hear about how many Americans do not have health insurance, my usual response is to wish that I were one of them.

That does not mean that I want to continue paying taxes and insurance premiums without getting the benefits. It means that I would rather pay doctors and pharmacies directly, without sending the money through bureaucratic channels in the government and the insurance companies, with all the restrictions and red tape that bureaucrats produce.

Neither bureaucracies nor red tape is free. So we are talking about my having to pay more money for things I don’t want, rather than paying just for what I do want, namely medical care and prescription medicine.

What about catastrophic illnesses that can be as devastating to your life’s savings as it is to your health? That is one of the legitimate uses of insurance, to guard against the unforeseeable. We have automobile insurance for the same reason — but our automobile insurance does not cover gasoline or oil changes.

“Universal health care” means insuring against the trivial and the catastrophic alike. Most of us have no problem with buying insurance to cover catastrophes. But it is a waste to have us drawn into a bureaucratic maze, in order to cover routine things like annual checkups or occasional antibiotics.

Like so many welfare state programs, government health insurance is based ultimately on an implicit assumption of getting something for nothing. I must confess to a certain grudging admiration for the fellow who said, “The government has its own money.” At least he made explicit what is only implicit in others.

If the government indeed has its own money, and is gracious enough to spend some of it on me, what is there for me to do but express my thanks and get on the gravy train? On the other hand, if the government has only the money that it takes from the rest of us, how are we better off to have to pay not only for what we want but also for all the hoops we have to jump through to get it?

Just as there is no free lunch, there are no free hoops.

Some believe — contrary to all evidence — that the government can provide things cheaper, that it can “bring down the cost of health care,” for example.

Virtually everything that the government does costs more than when the same thing is done in private industry — whether it is building housing, running prisons, collecting garbage, or innumerable other things. Why in the world would we imagine that health care would be the exception?

When people talk about the government’s bringing down costs, what they really mean is that the government can impose price controls. But bringing down costs is wholly different from not allowing those costs to be paid in full.

Price controls have a history that goes back for centuries in countries around the world. Their consequences have long been known by economists, though not by enough voters to prevent politicians from bamboozling them.

Keeping prices lower than they would be under supply and demand produces shortages, quality deterioration, and black markets — whether the price that is being controlled is that of food, housing, medical care or innumerable other things. (Anyone who is interested in how this happens under rent control can read pages 22 to 32 of my book Basic Economics.)

The only difference with medical care is that the consequences are more disastrous. Shortages mean more time sitting in waiting rooms and less time in doctors’ offices. It means more time on waiting lists before there is someone available to perform surgery.

Under the British government’s health service, for example, more than 10,000 people waited more than 15 months for surgery. These included a woman whose cancer surgery was postponed so many times that it finally had to be cancelled because the cancer had become inoperable. Meanwhile surgery was performed to provide breast implants for a 12-year-old girl. Third-party payment reduces the need to set priorities.

Similar horror stories can be found under government health care systems in countries around the world. But such facts will never come out, so long as the public and the media continue to accept pretty words and unsubstantiated assumptions.

‘Universal health care’: Part III
Thomas Sowell
May 8, 2003

Those of us who are getting on in years can remember a time when most people had no health insurance, when we simply paid the doctors or the pharmacies and went on our way, without giving it a second thought. I have especially painful memories of having a hospital bill of $50 for the treatment of a baseball injury back in 1949.

You have no idea how big $50 was for me at that time. It was the most money that I had ever paid for anything. But the bill got paid off, a few dollars at a time, over a period of months.

When and why did health insurance, paid by third parties, become widespread in the American economy? Like so many things that the government does, third-party health insurance grew out of problems created by previous government policies.

During World War II, the government imposed wage and price controls. This meant that employers who wanted to hire more workers were forbidden to offer higher wages to attract them. So employers started offering various benefits instead. One of these benefits was employer-paid health insurance.

Since these benefits were not taxed as income, and could be treated as a business expense by the employer, everybody seemed to be better off. But, long after the war was over and wage and price controls were gone, the idea that third parties ought to pay for health insurance continued on. Eventually the government itself got into the business of providing health insurance and now some politicians depict it as a scandal that not everyone has health insurance paid for by third-parties.

This might make some sense if third-party insurance was cheaper or better than insurance that each individual pays for directly. All the evidence is that it is just the opposite. When third parties pay, use of the insurance — and of the medical resources that it pays for — has skyrocketed beyond anything contemplated at the outset.

China, Britain and other countries have been surprised to discover that the costs of government-provided health care greatly exceeded the costs initially projected. But they should not have been surprised. It is one of the oldest and simplest principles of economics that people demand more when they pay a lower price, especially when that price is zero.

There is no fixed amount of medical “need.” There are some minor ailments that you may either ignore or treat with some over-the-counter medication, perhaps with the advice of a pharmacist. There are some other ailments that might cause you to phone your doctor for advice but which neither you nor he considers serious enough for an office visit. And of course there are other things that require immediate and perhaps extensive medical attention.

When you are paying your own money, you sort these things out accordingly. But when someone else is paying, then the trivial and the urgent are both likely to find their way to the doctor’s office. This means that both are likely to get less time and that patients with serious problems are the biggest losers.

Countries with government-provided health care have been known for shorter office visits, whether in the Soviet Union, Canada, Japan or elsewhere.

As bureaucratic hassles multiply under third-party payments, being a doctor becomes a less attractive occupation for some, leading to such things as earlier retirement or fewer young people going into medicine. More than half the doctors in Britain, for example, were not trained in British medical schools, but have been imported from other countries, including Third World countries where the training may not be up to the standards of British medical schools.

These are just some of the real-world problems of third-party payments and government controls that are passed over in utter silence by those who are pushing for “universal health care.” Lurking just beneath the surface is the old lure of something for nothing.

What about the poor when it comes to health care? If this were the real issue, then money could be provided to take care of the poor. But here, as elsewhere, the poor are being used as excuses to fasten a whole system of controls on all of us. The left uses the poor as political human shields.

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