Senator Sanders’ Outdated Focus on List Prices of Prescription Drugs
This op-ed originally appeared in RealClear Policy on July 7, 2023
This January, Senator Bernie Sanders (I-VT) took over as chairman of the Senate Health, Education, Labor, and Pensions (HELP) Committee. His recent statements about the committee’s policy agenda for the 118th Congress indicate that drug prices will be a central focus; however, Chairman Sanders’ views are decades old—from the 1990s when drug prices and costs were indeed growing. Sen. Sanders and his advisors have not caught onto the fact that the problem for consumers and patients is no longer the list prices of prescription drugs but skyrocketing out-of-pocket costs due to health insurance benefit design.
Since he was elected to Congress in 1991, Sen. Sanders has made numerous stem-winding speeches about drug prices, many during the time when per capita drug costs were rising, from under $200 annually in 1980 to about $1,000 by 2004. Sen. Sanders’ speeches resonated with many back then, as few had ever paid $200 per month for a medicine. This drug cost trend, of course, was not simply due to rising prices but also to many new drugs entering the U.S. pharmacopeia. But this all changed in the mid-2000s.
As many of the “blockbuster” drugs invented in the 1980s and 1990s lost their patents, drug costs and average drug prices flattened. The Peterson Foundation described the changing situation: “Beginning in the mid-2000s, spending on prescription drugs began to fall. As patents on many brand-name drugs expired, generic alternatives were offered, which simultaneously reduced drug prices and increased accessibility.”
The downward pressure of patent expirations upon drug costs and drug prices continues to this day. A recent report predicts that prescription drug spending trends between 2023 and 2027 will be in the modest range of -1 percent to 2 percent, due largely to patent expirations and generic drugs entering the market. The same report predicts that brand name drugs losing their patents during this period will contribute to $140.8 billion in healthcare system savings.
Drug pricing analyst Adam Fein concluded that net drug prices have been dropping continuously for an unprecedented five years. For 2022, Fein estimates that list prices rose at a rate of 4.9 percent while net prices, the actual prices paid by customers after discounts, dropped by 0.8 percent. Moreover, if the 8 percent inflation rate for 2022 is factored in, net drug prices dropped by 8.7 percent.
Sen. Sanders is making speeches today that would have been important in 1995 but are now the speeches of a policy dinosaur who has missed an entire era of drug market changes. Nonetheless, the issue of “high” drug prices still resonates among some in popular audiences.
To understand why, we must carefully consider the data. The U.S. Food and Drug Administration (FDA) has, in recent years, approved many new drugs for “orphan” diseases, conditions with a patient population of less than 200,000. These new drugs tend to be for patients with certain genetic profiles or genetic markers seen in rare cancers or other serious conditions. These treatments also tend to be labeled as “specialty drugs” because they are infused, injected, or otherwise require special handling.
Because they have a smaller potential universe of customers, these drugs are often more expensive. This larger expense comes despite the fact that their costs are more than offset by the patent expirations of older drugs that treat millions of patients, making these specialty drugs eminently affordable for the overall healthcare system.
Only a small number of patients find themselves requiring a specialty drug. However, when they do, patients are increasingly faced with insurance benefit designs that require large out-of-pocket expenditures. Some insurers and their pharmacy benefit managers (PBMs) refuse to cover any specialty drugs at all, despite many of these therapies representing the latest and best technology, and a lack of significant growth in drug budgets. In part due to the impacts of these practices on patient access and affordability, the Federal Trade Commission (FTC) has launched an inquiry into the business practices of PBMs—which have become the for-profit enemies of patients who are struggling to pay out-of-pocket costs for their specialty medicines.
Many consumers wrongly believe that high out-of-pocket costs are driven by “skyrocketing” drug prices, which they are not. However, politicians like Bernie Sanders can continue to demagogue “high” drug prices when, in reality, “skyrocketing” drug prices are firmly in the rear-view mirror.
If Sen. Sanders wants to help his constituents, he should not fall back upon his speeches from 1995 but instead should offer solutions that address the real challenges of patients in 2023.
William S. Smith, PhD, is Senior Fellow and Director of the Life Sciences Initiative at Pioneer Institute in Boston. He is the author of a recent Pioneer Institute policy brief, Drug Pricing 101.
