Why drugs cost so much
Anew crop of specialty drugs holds great promise for treating or even curing some devastating diseases, but their high cost challenges health insurers and taxpayer-funded health programs. In California, Gov. Jerry Brown has asked for $300 million in the coming fiscal year’s budget just for specialty hepatitis C medications such as Sovaldi, which can cost Medi-Cal or the state prison system more than $80,000 for a course of treatment. Before policymakers can figure out how to cope with the costs over the long term, they need to know more about why these drugs are priced as high as they are. That’s where a new proposal by Assemblyman David Chiu (D-San Francisco) comes in.
Chiu’s bill would require the manufacturer of any drug with a wholesale cost of $10,000 or more per course of treatment to file an annual report with the state on how much it cost the company to produce it. Included would be information on the cost of materials, research, testing, compliance and marketing, the drug’s average price in previous years, and the profits attributable to it.
Predictably, pharmaceutical companies do not like the proposal. The Biotechnology Industry Assn., for example, complained in a letter to the Assembly Health Committee that the measure would mandate the disclosure of internal company information “without regard to the relevance and context for the data nor the ability for a company to actually generate the detailed data required.” Research and testing costs are particularly hard to quantify, and drug makers typically include some of the development cost of failed drugs in the price of successful ones.
Just because it’s hard to shine a light on every aspect of drug pricing, however, doesn’t mean pharmaceutical companies should keep the state completely in the dark. The lack of transparency about pricing is a problem throughout the healthcare industry, and Congress is doing little about it. That leaves it to state lawmakers to pry open the healthcare black box, which they’re trying to do in various ways across the country. These include proposals that the California Senate Health Committee advanced last week to create a comprehensive state database recording what insurers, employers and residents pay for healthcare and to collect considerably more information from large-group insurance plans about their costs and benefits.
Pharmaceutical companies have some legitimate concerns about Chiu’s bill and what the state might do with the information. Nevertheless, lawmakers can’t hope to get a handle on rising healthcare costs without significantly more information about what’s driving them. That’s why they need to negotiate a workable version of AB 463. Chiu’s bill wouldn’t dictate where the state ultimately goes on prescription drug spending, but it would help policymakers make better choices.