Blog | Monday, January 18, 2016

Drug prices and costs


Drug pricing has become a hot topic. Maybe I have become sensitized to it, but it seems like there is something about the cost of pharmaceuticals everywhere I turn in medical journals, online discussion groups and mainstream news outlets. Just this past week, the front page story in the business section of the New York Times ran a long profile of a pharmaceutical executive that centered on his company's controversial pricing practices. The article mentioned that pricing is now generating lawsuits and potential Congressional action.

Why all the attention? I am guessing (really, just guessing) that there are a few reasons.

First, despite the overall modest growth in health expenditures in the U.S., pharmaceutical spending is rising more rapidly. In fairness, other costs may be slowing precisely because the wider use of more effective and more expensive medications is preventing the need for other treatments. Think, for example, of an anti-TNF monoclonal antibody “biologic” that reduces the need for hospitalizations and GI surgery for patients with Crohn's disease. It is much easier to “see” and quantify the drug expenditure than the downstream “savings.”

Second, more and more people have high deductible health insurance plans and narrow benefits packages, so that it is increasingly common for patients to face pharmaceutical costs. This is exacerbated in many cases by coincident facility fees for infusion therapies, which are already among the most expensive agents. More patients facing higher costs leads to greater public awareness.

Finally, everybody loves an outrageous anecdote, so drug company moves like the “repricing” of a drug from $13.50 per pill to $750 per pill, as detailed in the Times story, become irresistible evidence of just how insane U.S. health care financing really is.

Despite all the attention, there's at least 1 issue that is not getting much play. I haven't seen a lot written about the difference between drug prices and drug costs. In fact, the terms often get used more or less interchangeably because we are used to normal commercial exchanges where the seller's price is equal to the buyer's cost. In the anything-but-normal world of pharmaceutical pricing, variable pharmacy benefits, negotiated coverage, deductibles, co-pays and the like, it is worth pointing out that patients are all facing different costs, and the only constant is the manufacturer's price. Just to make things a little more complicated, that price is generally quite arbitrary and disconnected from the actual costs of production, leading to a different kind of cost/price discordance.

The bottom line is that we might be able to make more sense of this if we are a little more careful in our choice of words. I think we should explicitly call out the drug makers for their crazy prices, which only become our costs if we are willing to pay the bill.

What do you think?

Ira S. Nash, MD, FACP, is the senior vice president and executive director of the North Shore-LIJ Medical Group, and a professor of Cardiology and Population Health at Hofstra North Shore-LIJ School of Medicine. He is Board Certified in Internal Medicine and Cardiovascular Diseases and was in the private practice of cardiology before joining the full-time faculty of Massachusetts General Hospital. He then held a number of senior positions at Mount Sinai Medical Center prior to joining North Shore-LIJ. He is married with two daughters and enjoys cars, reading biographies and histories, and following his favorite baseball team, the New York Yankees, when not practicing medicine. This post originally appeared at his blog, Ausculation.