President Barack Obama welcomes, from left, Anthony Sadler, U.S. Army Specialist Alek Skarlatos and U.S. Air Force Airman 1st Class Spencer Stone to the Oval Office while handing them each a Presidential Challenge Coin, Sept. 17, 2015. The President expressed his gratitude to the three Americans for their selfless actions and extraordinary bravery on Aug. 21, 2015, while subduing a gunman on a train traveling from Amsterdam to Paris. (Official White House Photo by Pete Souza)

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By CAP Action War Room

New CAP Report Outlines How To Stop Prescription Drug Prices From Skyrocketing

Almost half of all Americans, and 90 percent of all seniors, take a prescribed drug every month. Meanwhile, U.S. spending on prescription drugs increased 13 percent last year to a record $374 billion. Prescription drugs save lives and can sometimes prevent costlier, more invasive treatments. But a drug can only be lifesaving if patients can afford it, and skyrocketing prescription drug prices are putting a strain on families, businesses, and state and federal budgets.

But a new report from the Center for American Progress outlines several reforms that could control the rapidly rising prices, bring transparency to the pharmaceutical industry, and encourage innovation. Within the report’s proposed package are six major policy recommendations that focus on consumer education and paying for value. Here’s a brief look at those six ideas:

• Commission an independent organization to evaluate new drugs. The FDA only tests whether a drug is safe and works better than a placebo, not whether it’s better than other drugs. Yet pharmaceutical companies often claim new drugs are “innovative” and charge ever-higher prices even if the drug is no more effective than existing treatments. Much like the National Highway Traffic Safety Administration’s 5-star safety rating system, the report recommends establishing an independent organization to provide consumer-friendly ratings of drugs to tell patients whether a drug provides minor, significant, or no added benefits when compared to medications already on the market.
• Provide more transparency on research and development costs. The amount of money pharmaceutical companies spend on research and development pales in comparison to average marketing budgets, and drug companies have the highest profits in the entire health sector. Requiring companies to disclose how much they spend on research and development and forcing those who do not meet the required budget threshold to pay into a fund to support the National Institute of Health, which conducts much of the research that leads to new drugs, would help incentivize companies to invest more in the development of better medications.
• Protect consumers by capping cost-sharing. CAP’s report recommends setting monthly limits on out-of-pocket spending on prescription medication and capping cost sharing–the share of costs that individuals pay themselves—for drugs at $3,250 annually. The proposals would also give insurers greater flexibility in designing their official lists of medications.
• Incentivize drug companies to set fair prices. Over the next 10 years, more than $1.1 trillion in taxpayer dollars will go to pharmaceutical companies for name-brand drugs – in addition to federal tax credits and funding for research and development. The amount of taxpayer dollars going to new drugs is straining state and federal budgets. Under CAP’s recommendation, an independent organization would set voluntary price ranges based on a drug’s added benefit to patients. Drug companies would be forced to publicly justify setting a price outside the designated range, and if the drug’s patent came from federally funded research, competitors will be allowed to create generic versions of the medication.
• Change Medicare’s payment policy for physician-administered drugs. Under Medicare’s current system, physicians get an added administrative fee of 6 percent of a drug’s price, which incentivizes them to over-prescribe costly treatments. Changing that system to a flat fee that would cover overhead costs would change their incentive structure and cut costs. CAP recommends that Medicare test several alternatives, including a flat fee, and then expand the most successful to the full Medicare program.
• Adapt Medicaid drug rebates based on the comparative effectiveness of drugs. The Medicaid Drug Rebate Program requires manufacturers to pay a minimum rebate to states and the federal government as a condition for Medicaid covering their drugs. Instead of setting a default rebate amount, rebates should vary based on a drug’s comparative effectiveness.

BOTTOM LINE: The current rate of prescription drug spending growth is unsustainable. But by enacting these reforms and shifting the focus to consumer education and the value of medication, lawmakers can control the skyrocketing cost of prescription drugs and ease the strain on families, businesses, state and federal budgets.