As the rising cost of health care continues to draw political attention, Colorado has yet to address the high cost of prescription drugs – one of the biggest cost drivers in health care. Coloradans see the impact of drug price increases in the form of higher insurance premiums (25% of monthly insurance premiums go toward prescription drugs) as well as higher out-of-pocket costs, which places an enormous burden on many Colorado families. In 2019, over half of Coloradans reported being worried or very worried about prescription drug costs. Their concerns are valid: people in the U.S. spend around $350 billion on prescription drugs. That’s about three times more than people in Sweden spend and about twice what people in Canada spend. In Colorado, one in three adults have skipped doses or cut pills in half because of the cost. For example, the drug Naloxone, which can reverse opioid overdoses, cost $1 in 2008 and now costs between $150 and $4,500 (depending on the type of administration), an outrageous increase well beyond the rate of inflation. Further, the epinephrine autoinjector EpiPen, which treats allergic reactions, costs $300 in the U.S. and only $38 in the U.K. Clearly, something about the prescription drug system in the U.S. permits this type of price increase that is not happening elsewhere.
So why are drug costs skyrocketing? A 2018 report by the Community Catalyst points to four main systemic drivers of cost: monopoly power, lack of transparency, marketing tactics, and cost shifting.
- Monopoly power gives pharmaceutical manufacturers full control over drug pricing. This monopoly is partly established through legislation. Federal patent laws, which are intended to encourage innovation by giving a manufacturer market exclusivity, eliminate competition and allow manufacturers to set drug prices for a certain number of years. However, the lack of competition and the power to set and increase prices during that period gives pharmaceutical manufacturers a significant financial incentive to produce new drugs, abandon the creation of generic versions, and pay to delay the introduction of alternatives into the market.
- Lack of transparency in the pharmaceutical supply chain allows different players in the system to pocket discounts they receive rather than passing them along to consumers. Insurance companies, for example, could purchase a drug at a discount yet charge consumers in high-deductible plans the full wholesale price. Various players along the supply chain – manufacturers, wholesalers, pharmacies, and the insurance companies and pharmacy benefit managers (PBMs) – are all able to influence prices without having to justify or disclose any price increases or negotiated discounts, which often leads to consumers unnecessarily paying more.
- Marketing tactics are often manipulative and more expensive than the research and development costs that manufacturers claim drive their prices. One study concluded that for every dollar spent on research, prescription drug corporations spent $19 on marketing and promotion. These promotions, which target physicians with expensive gifts and patients with direct-to-consumer advertising, attempt to push consumers toward the manufacturer’s most expensive drugs even when cheaper, sometimes generic, alternatives are available.
- Cost shifting from insurers to consumers allows insurers to avoid covering the full price of the drug, often through high deductibles, copayments, or coinsurance. Another common strategy is adverse tiering, a tactic used to discourage patients who need high-cost drugs from enrolling in a plan. Insurance companies often set up discriminatory formulary designs, where most or all of the drugs that treat certain complex conditions are placed in the highest cost sharing tier, or the “specialty” tier. The result is that a consumer with that condition, regardless of whether they take generic drugs, has high out of pocket costs. One study found that consumers living with HIV paid, on average, around $5,000 for drugs in discriminatory plans, compared to around $1,600 for people in other plans.
The system is no different in Colorado. Coloradans are footing the bill for systemic issues in the prescription drug industry that must be addressed. Other states have passed legislation targeting each of these issues and can serve as models for providing relief in Colorado. California, Oregon, Connecticut, and Maryland have all passed transparency bills that require companies to disclose pricing information and justify any price increase above a set amount. Transparency laws are generally aimed at identifying problems within the system that can later be addressed through targeted policy change. CCHI has advocated for legislation to achieve this in Colorado, but overwhelming lobbying by drug corporations has hindered those efforts. Other states (Delaware, Louisiana, Maryland, and California) set limits to the copays insurers can charge for drugs. Vermont prohibits pharmaceutical companies from offering gifts to physicians. Many states, including California, Louisiana, and Florida, recently passed bills to regulate PBMs, restricting their ability to make consumers pay more than the cash price when using their insurance. Other potential solutions include disincentivizing price increases, creating purchasing pools so that large groups are negotiating drug prices and thus have more clout, creating rate review commissions, and educating physicians about the efficacy of different drugs and how they compare in functionality and cost.
We believe the policy window has opened for Colorado to follow the lead of these other states. Lowering prescription drug costs has overwhelming bipartisan support: a majority of Coloradans across all political affiliations think that lowering health care costs, specifically prescription drug costs, should be a political priority. Colorado should take advantage of this opportunity to meaningfully address prescription drug costs and continue its progress towards lowering the cost of health care for Colorado consumers.