Why the ‘free market’ isn’t best for customers when it comes to prescription drugs

I find myself inspired to write by Mr. Robert Coulter’s recent commentary on prescription drugs and Medicare Part D. Mr. Coulter describes himself as a free-market activist who focuses on protecting the interest of mature Americans. Let’s presume that is true. Then I would say that his oversimplified commentary on Medicare Part D portrays a lack of understanding on how drug prices have gotten to where they are today.

To condense Mr. Coulter’s commentary to a few words, “Drug companies are good and charge fair prices; government attempts to negotiate drug prices are bad.” First, there is the idea that the negotiating arena is “reserved for bilateral transactions between drug manufacturers and insurers.” I would note that both drug manufacturers and insurers are in the business to make money, and both will charge what the market will bear. Doubtless insurers and drug company lobbyists had some input on this portion of the law.

One of the most interesting determiners of medication costs is the impact of pharmacy benefit managers, i.e., CVS Caremark, Express Scripts, and Optum RX. These companies negotiate with drug manufacturers for a fee to get insurers to allow drugs to be placed on a list of drugs the insurer will cover — the “formulary.” The drug company sells a drug to a pharmacy at a price. The cash price is inflated to be sure that a discount negotiated by the pharmacy benefit manager for an insurance company will still allow the desired profit. In other industries, this fee to the pharmacy benefit manager, or PBM, would be an illegal kickback, but an exception was made by Congress. Can we say lobbyists?

So this is how the process looks. Drug company makes a drug for a certain cost — call it $. Price is listed as $$$. The PBM negotiates with the insurance company to get the drug on the formulary and receives $ in its legal kickback, and the insurance company gets a “price break” and will cover the drug at the price of $$ so the drug company can still get a profit.

Medicare Part D is certainly a decent benefit, but far from perfect. A senior choses between multiple plans depending on what medications the plan covers. The plan is free to change its list of covered medications from year to year, and the senior’s medications can be changed at any time based on health requirements. In my practice, I can’t tell you how many seniors expressed utter confusion on how to choose which program.

Then there is that same old claim that medication costs reflect the cost of research by pharmaceutical companies. No mention is made of the vast amount of research done by publicly funded agencies provided to drug companies. The public does not get any portion of the profits from the drug manufacturer from this research.

There are many tricks used by drug companies to up their profits. Let’s look at three famous examples. EpiPens are epinephrine delivery devices used to treat anaphylactic shock — severe, life-threatening reactions — and severe asthma attacks. The drug is decades old; the delivery system is patented. At a point when there was one company controlling the patent, the cost for two injection devices skyrocketed. Currently, the cost is more than $600. This is for a drug that may save a child’s life from a peanut allergy reaction and has to be purchased again if the expiration date has passed. Now there are different delivery systems that cost “only” $400. If purchased with a GoodRx card they may cost “only” $150.

Of course, there is nothing that precludes Drug Company A, which makes a brand name product, from buying Drug Company B, which makes the generic equivalent of the same medication, so that they can increase the price of the generic from $$ to $$$$ compared to brand-name cost $$$$$$.

That has happened. Colchicine is a medication that has been around for decades, and used to cost less than 30 cents per pill. A drug company did less than a month of research, applied for FDA approval, and received a new patent for what had been generic for years, and the price was increased to more than $4 a pill. Competing manufacturers were no longer allowed to make the drug because of the new patent.

Some years ago, drug companies were required to change the propellant in their inhalers. This allowed them all to market under a new patent, and prices rose tremendously. The medications were the same, just the propellant had to change. A price of more than $300 a month for one inhaler is not rare. Imagine needing more than one. Fortunately, now generics are available again.

Here’s a bonus example: A drug company combines two blood pressure medications together in one tablet and patents this medication and sells it for a new high price. The medications have been prescribed together for decades. The new combo tablet is marketed to patients and providers, and gets a market share at a price far higher than the two older generics that have been around for ages. Shame on us for being suckered into this.

Why does a commentary like Mr. Coulter’s get me to rave on so? Because I was a primary care physician for 35 years and saw plenty of elderly ladies who could not afford an inhaler so they could breath a little better, plenty of diabetics who rationed or simply skipped taking their insulin because of the cost, plenty of people with hypertension whose lives were shortened because they could not afford their medication.

Am I in favor of the federal government having power to negotiate drug prices? You bet I am. I’m not trusting the pharmaceutical companies, insurance companies and pharmacy benefit managers to cooperate in a way that lowers medication prices out of the goodness of their hearts. They believe in a free-market policy. They believe in charging what the market will bear.

Nell Loftin, M.D., worked as a primary care physician for 35 years. She lives in Anchorage.

The views expressed here are the writer’s and are not necessarily endorsed by the Anchorage Daily News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)adn.com. Send submissions shorter than 200 words to letters@adn.com or click here to submit via any web browser. Read our full guidelines for letters and commentaries here.