The Need for Government Intervention in Negotiating Drug Prices

There have been adverse reactions from various beneficiaries in regards to the pharmaceutical industry. This industry have suffered in the hands of the government and other healthcare stakeholders who believe that they have been exploiting the citizens of millions of dollars for the acquisition of pharmaceutical drugs that are charged at extremely exorbitant prices. Most government officials including the presidency has concurred that the pharmaceutical industry is charging too much and easily getting away with it because of the monopoly they enjoy (DeAngelis, 2016). As such, the healthcare stakeholders including the government feel that the pharmaceutical industries must do the best they can to fairly adjust their pricing. The pharmaceutical industries need to comply with the legislative acts that govern fair pricing and distribution of drugs for the benefit of its citizens (Pearson, 2011).

The back and forth war witnessed between the government-sponsored entities, and the pharmaceutical industry is currently attributed largely to the powers vested on the politicians and public officials. These officials ensure that there is very little bidding on drugs despite being part of majority consumers of these drugs. Alternatively, according to Duggan and Morton (2010), the legislations and federal laws governing Part D of the Medicare Plan on drug pricing strongly forbids the government from participating in negotiations with the drug companies in reducing the prices of drugs especially for citizens using government sponsored health insurance agencies. The government in its capacity has often wished to be engaged in the negotiation processes, but the constraint created by drug pricing laws in Medicare prevents such direct involvement. As a result, there have been demands by the government to end such restrictive policies when dealing with the pharmaceutical industries. Such strong and deliberate intent from the government to be involved in drug pricing negotiations only serves to underscore the impact of pharmaceutical and biotech companies in the delivery of quality healthcare to those who need it the most (Ewen, 2010).

The growing public outcry on the ever increasing cost of essential drugs especially for the management of oncological diseases has led to the pharmaceutical industries to admit that there indeed exists an inherent need to curb the deplorable state of affairs (Pearson, 2011). Harnessing the drug industry to revise and formulate regulatory policies on the pricing of essential drugs is considered the solution to the crisis. Heather Bresch, the chief executive officer of Mylan Pharmaceuticals, can best exemplify the same. At a recent healthcare forum, Heather alluded to the fact that her company had been under scrutiny for unethical pricing and was responsible for irregularly charging exorbitant prices than usual on the lifesaving allergy drug aptly called EpiPen. Also, cancer drugs such as Celebrex manufactured by Mylan Pharmaceutical Company were very expensive and hence could not be afforded by the ordinary citizens whose health insurance cover did not guarantee them such expensive drugs (Flannery et al.,

2017). In the prevailing revelations of these salient facts, Heather Bresch advised pharmaceutical companies to adopt a differential pricing model. This pricing model would ensure that different customers from various socioeconomic backgrounds, both low and middle class, afford access to medicine. Such strategy of change in pricing model will prevent the exponential increment, which borders towards ethical breach. The adjustment in pricing by the pharmaceutical industries will lay grounds for direct government involvement in negotiating the prices of pharmaceutical commodities on behalf of the consumers who bear the burden of pricing injustices when seeking health care services (Biehl, 2006).

1.1 Research Questions

This research study aims to answer the following questions:

• What is the monthly cost of the major cancer drugs from different pharmaceutical companies?
• What factors determines the differences in the pricing of these drugs
• What are the effects of markup on drug pricing?
• How can the government intervene in negotiating the exorbitant drug pricing?

2.0 Literature Review

Most research studies have often focused on the high prescription drug prices, but very few have categorically highlighted the need for the government-sponsored health insurance companies to negotiate the same prices on behalf of the consumers. In most instances, the literature review focus on the actions of the pharmaceutical industries and how they influence pricing. However, the significant point of consideration that emanates from the exorbitant pricing are the practices in marketing that is frequently used in the industry by players in pharmaceutics in selling their products to physicians and the public including those medical practitioners familiar with drug prescription. (Hillner & Smith, 2009).

Government's attempt at resolving the pricing quagmire dates back to almost five decades ago when the US national government started investing in healthcare with more specific considerations to the prescription prices. The efforts were overlooked and had little bearing to the healthcare until 1965 when the government implemented the Social Security Act that gave birth to Medicare and Medicaid. Invariably the two programs would prove very critical in easing the burden of healthcare costs for every citizen with Medicaid tailored to cover prescriptions and Medicare covering pharmaceuticals in special cases (Duggan & Morton, 2010).

The passing of the Medicare Catastrophic Act in 1988 must have been the genesis of the entire escalating pricing quagmire currently witnessed in the medical field as it brought along the onset of prescription coverage subject to very high deductibles. Almost forty years down the line and the situations has more than worsened entirely because of drug costs almost three times the total cost of the ordinary health insurance cover of individuals with chronic cancer conditions and related ailments. Prescription drugs, especially for cancer, have continued to be very high with the legislation being amended to ease the costs for prescription drug coverage by the health insurance companies. The signing of the Medicare Prescription Drug Improvement and Modernization Act into law is considered the most fundamental step taken by the government to subsidize the cost of prescription drugs when the Medicare part D was created to cater for older beneficiaries constantly faced with extreme financial burdens when purchasing over the counter drugs (Frank & Newhouse, 2008).

Kantarjian and Patel (2017) suggests that the government, through legislation and advocacy, need to continue fighting for the consumers and users of the government-sponsored health insurance companies to negotiate drug prices with the existing and operational pharmaceutical companies. More attention of negotiation ought to be directed towards cancer drugs since they are the most unaffordable drugs for majority of consumers yet cancer remains the biggest plague in the society. There could never be any better reason for the government-sponsored insurance companies not to negotiate drug prices with the Big Pharm industries. This is because the developments of such health insurance companies surrounding pricing would need these Big Pharm industries to adjust their drug prices. Some companies like Allergen and Novo Nordisk have picked up sentiments about tax reforms which results in the increase of taxes to support the reduction of drug prices, but their implementation is yet to be seen within the industry. According to Allergen's CEO, Brent Saunders, reduction of taxes paid by the Big Pharmaceutical companies would expedite the implementation pricing reforms aimed at lowing and ensuring affordability of drugs. Despite such moves, public agitation towards drug prices will continue to remain a point of vulnerability (Claxton, Sculpher & Carroll, 2011). The only deterrent that prevents the government's direct involvement, therefore, is the need to avoid direct government intervention, which will invariably inconvenience the pharmaceutical industry (Claxon et al, 2011).

Alternatively, such a bold move would be interpreted as having far-reaching ramifications on the potential investors from healthcare field because the investors who often focus on investing in drug production could pause their venture capital investments for the long term thereby hurting the growth and development of the industry in terms of scientific breakthroughs through innovations (Kantarjian & Patel, 2017). Therefore, the notion of accepting to use Medicare, a health insurance company sponsored by the state to promote the negotiation of pricing could greatly help in curbing the current healthcare quagmire witnessed between the eventual consumers and the Big Pharm companies. Negotiations on Medicare prescription, drug benefit, and drug spending could be rendered redundant unless prices are set or by the exclusion of drugs from coverage which in such a case, would advertently affect the quality of healthcare provision to the clients (Pearson, 2011).

The unfair pricing by the pharmaceutical industry gives a startling reality of the unusual manner in which it is structured. There is a total lack of standard conformity with hierarchical procedures when it comes to ranking the pharmaceutical industries. The manufacturers are often seen topping the hierarchy structure followed by wholesalers and retailers respectively with a number of endless third party payers who contribute to the hierarchy but are often outside the hierarchical structure. The third party payers often include organizations that focus on insurance, pharmacy benefit and health maintenance officers who directly influence these prices (Kyle, 2007). The proceeding Figure 1 below best highlights the current structure of the industry.

From the figure 1 above, it can be safely deduced that it is not a foregone conclusion where third payers and wholesalers fit in. Within the industry, it has become more than apparent that wholesale players remain shrouded in a cloak of uncertainty hence the confusion of who buys from whom for how much. In the same measure, one can clearly establish that players acting as third party directly purchase drugs and are supplied by the manufacturers of these drugs. Pharmaceutical companies also equally buys directly from the manufacturers. However, the pharmacies have the ability to buy directly from the manufacturers under some given circumstances. In the open market where this research was conducted, it emerged that wholesale prices, which is the cost of sale the wholesaler charges the pharmaceutical companies, and the retail prices (prices charged by the retailers in the consumers of the drugs) also played a critical role in establishing the markup prices. This research, therefore, focused on some three of the major pharmaceutical companies in the United States, which included Bayer AG, Eli Lilly, and Amgen. The pricing from these three reputable companies was considered through a sampling of the three different categories of pharmacies in the US, which included the national discount department, the large chain pharmaceutics, and the independent pharmacies. The most noticeable thing was that some cancer drugs cost a lot across the three manufacturing giants. For instance, the cancer drug, Xofigo manufactured by Bayer AG cost an estimated $12,657 monthly per patient. Cyramza, another cancer drug manufactured by Eli Lilly pharmaceuticals costs $13,256 and Blincyto, which is manufactured by Amgen, costs a staggering $64, 260 per patient in a month (Bach, Saltz, & Wittes, 2012). The figures are so high, and it would only be imperative if an appropriate intervention is implemented to ensure that even those who are least capable of affording treatment gets covered by the insurance companies (Pearson, 2011).

The national government in conjunction with the federal governments continue to monitor the high cost of pharmaceutical drugs and have expedited the processes to combat the ever increasing costs of the drugs. The government, since it cannot be seen as directly getting involved, which could scare investors, is therefore negotiating with the respective manufacturing companies to reduce the prices of their drug commodities to a standardized level for the continued sustainability of healthcare programs that rely heavily on the pharmaceutical industries (Hillner & Smith, 2009). Another noticeable method used by the government is the price-pooling concept where the government buys in bulk the prescription drugs from the wholesalers and the manufacturers in an attempt to achieve what is considered a significantly lower price for those covered. The government initiative meant that it had to buy drugs for Medicaid programs in every state (Hillner & Smith, 2009).

Other than the multistate bulk purchasing of drugs, there are numerous other measures that the government have attempted to employ in providing pharmaceutical assistance programs to patients especially with programs that target Medicaid and Medicare recipients in their payment of the costly pharmaceutical drugs depending on the state since each state has its unique policies governing their role in Medicaid and Medicare. Through the government-sponsored entities that are the insurance companies, it has become more apparent that some states offer drugs at a more reduced discount to exclusive members of Medicaid and Medicare programs and only if they meet the required criteria based on the stipulated guidelines on eligibility. Some states have also opted to offer subsidies for the low income earned and the senior patients and in most instances utilize state funds. The same is best epitomized by Alaska, which uses its subsidies programs to offer cash incentives to members who do not exceed 65 years. In most cases, these subsidies are based on the income limitations. Another similar case is given of California. This state utilizes its subsidies in the service of people who are disabled genetically. Other states like Massachusetts and New York not only focus on bulk purchasing or discounting but also implement other feasible strategies to help in easing the burden of high-cost drugs amidst major health reforms that required residents to obtain health insurance while also providing low-cost health insurance policies for low-income earners (Pfister, 2013).

There have been several investigations to unearth the under dealings of the pharmaceutical industries and how they formulate their exorbitant prices. Health stakeholders have continued to earnestly pursue the truth behind the exorbitant prices and the rationale used to overcharge the cancer drugs in particular. Physicians and consumers alike have tried in the past to figure out the pricing strategies in pharmaceutical industry to establish gray areas that could be the source and or causes of exorbitant pricing. The most common revelations always follow the same script of promotion to the public and medical experts and off-label drug use (Kantarjian, Fojo, Mathisen, & Zwelling, 2013).

Based on previous research studies, it has become apparent that the last two decades have been the busiest for the pharmaceutical industries as they employ technology, research and innovativeness to come up with breakthrough drugs for cancer and other forms of chronic illnesses. The link between pricing, manufacturing, and distribution of pharmaceuticals can be traced to the industry chain of operations. Research on the pharmaceutical price data revealed that what influences prices such as the health maintenance organizations received large discounts from the manufacturers (Pearson, 2011). Since the same information on massive discounts is barely revealed to the public, it had become apparent that several discussions on the influences of the price of the drugs were often left out hence leading to the high prices being reported. Alternatively, researchers were able to discover that despite everything else playing a role in influencing the prices, the prices still tended to fluctuate from one wholesale retailer to another on the same drug under consideration. Prices of drugs from the upstate varied by more than 50% from different drug stores. This difference however had no coherence and lacked a comprehensive explanation. There is another strong indication why the government needs to get involved in combating the skyrocketing prices of the pharmaceutical products. Monopoly enjoyed by the manufacturers also tended to shoot the prices beyond the roof. Monopolistic tendencies also made manufacturers the sole negotiators of the pricing of their products (Hillner, 2009).

The economics of pricing on a closer look embodies a political approach. The demand for the pharmaceutical products has also been confirmed as one of the most influential factors of pricing. Demand is however no as important to the prescription drugs because of the role played by the healthcare providers to stimulate demand by determining how much and how often a drug is ought to be used by a client (Pfister, 2013). According to theory of microeconomics, demand plays a primarily significant role in pricing and influences the subsequent drug quantities and pricing.. Inherently, the theory of pricing lays out one basic rule which suggests that people will often not need to buy less of the drug commodity when prices are high but more when the prices fall. The demand curve often represents this situation which often tends to have a negative slope because of the higher the prices, the lesser the consumer and vice versa. The price of other related products, the income of buyer and preference often dictate demand of the drugs. Therefore, demand works as the primary influencer of prices. In a pharmaceutical setting, the consumer will purchase the desired medical products with few restrictions whoever the same do not apply to the expensive prescription drugs that must be prescribed by a medical practitioner hence in such a scenario, the healthcare provider is seen as influencing the demand for drugs and often it is demanded (Hillner, 2009).

3.0 Significance of the Study

There is continually increasing cost of prescription drugs. This is mostly so in the prescription for the management and treatment of cancer. There has been much focus on the development of Medicare and Medicaid, which are the elderly federal health programs and how they are affected by high cost of drugs. The bone of contention has always been centered on how these programs are influenced by the government to help in the continued provision of services to enable more people to utilize pharmaceutical and prescription drugs with ever increasing costs (Bach, Saltz, & Wittes, 2012). Inherently, there has been the need to for these government-sponsored health insurance companies to help negotiate the cost of the prescription drugs (Pearson, 2011).

4.0 Limitations of the Study

Under the prevailing circumstances surrounding this research study, it emerged that it would not be possible to include what is perceived as a fully representative sampling of every pharmaceutical company because of their numbers with several pharmacies providing different prices for the same drugs in question. Therefore, it would be impossible to report the average pricing of the pharmaceutical drugs, which would invariably conflict with the research objective to establish the need why government sponsored health insurance companies should be allowed to negotiate drug prices. The paper, therefore, focused on exploring a smaller purposive sample to determine the variances in markup prices based on what the manufacturers, the wholesalers, and the retailers charged the customers for the drug commodities. The other limitation was founded on the refusal of some pharmacists to make known the retail prices, which inevitably led to several obstacles such as replacing the stores that refused to reveal their prices from fear of victimization with new stores.

5.0 Research Method

The research design was based on the review of existing literature on the pharmaceutical pricing. It became clearer that previous research works had primarily focused on the manufacturers and the processes associated with production and supply. However, it became more apparent that some areas had not been exhaustively exploited. From the prevailing notion, an investigative research that focused on the wholesalers and retailers as key players within the industry of pharmaceuticals was pursued. So as to generate the needed information on pricing, the study picked on the most commonly expensive cancer drugs and narrowed down on the pricing of theses chosen drugs in terms of areas of distribution and the pharmacies stocking them.

As it would soon become apparent, some pharmacies had a policy of noncompliance in research surveys, and this prompted me to pick other options of large national discount retailer pharmacies. Use of survey by mail seemed effective technique and the most convenient straightforward method, however, it would later emerge that the most convenient method was also the method with the highest non-response rates since some pharmacies decided not to respond to emails and other inquiries made by phone. Use of interviews and telephone surveys was also conducted in order to consolidate enough responses to continue with the research study. The main aim of the survey was to get the answers to the cost of three common cancer drugs from the identified pharmaceutical companies i.e Xofigo, Blincyto and Cyramza from Bayer, Eli Lilly and Amgen pharmaceutical companies respectively. Another objective of the survey was to identify the factors that determined the pricing of such cancer drugs and the effects of markups on pricing.

5.1 Selection of Manufacturers of Drugs and Medication Prescription

To achieve an exclusive purpose of the research, I selected three cancer prescription drugs from 3 reputable drug stores and compared the prices as charged to every individual on a monthly basis. The other reason for picking the drugs was because they were the top grossing prescription cancer drugs currently in the market and manufactured within the United States. The table below shows the companies, drugs, and cost per individual per month.

As previously mentioned, it became evident that direct consumer approach in getting prescription drugs was influenced by the physicians who determined when the patient would take the prescription drug, how and for what period of time. On the other hand, the demand for a certain specific type of depended on advertising and reputation of a given brand which was also determined to inflate prices based on their monopoly as life-enhancing drugs and lifesaving drugs. The prices of life-threatening diseases like cancer were found to be ten times costly compared to the life-enhancing drugs. Hence comparing the cost and prices of the lifesaving and life-enhancing drugs provided the requisite basis for comparing the price disparities.

6.0 Findings

6.1 Responses from Representatives

The representative of Bayer AG, Eli Lilly pharmaceuticals, and Amgen all responded to the formulated drug pricing questions. The research also received feedback from 2 independent pharmacies, two pharmacies that are large chain and one large national discount retailer pharmacy. The prevailing understanding from the representative of the manufacturing firms was the origins of the high pricing. All the three representatives of Bayer AG, Eli Lilly pharmaceuticals and Amgen agreed that other than external factors such as the role played by healthcare providers, the wholesalers and the retailers including the government through legislation, expensive research, innovativeness, design, and manufacture of the drugs contributed to the astronomical prices. It was also established that there existed negative markups that could have only suggested that much of the information on pricing by the wholesalers remained unpublished. However negative markups could have indicated as a positive trend to the consumers despite the undesirable consequences of negative markups that would make one wonder how the big pharmaceuticals made their profits. In instances where a positive markup between the prices was noted, the largest markup when comparing the cancer drug prices peaked at 30.8% (Pfister, 2013).

6.2 Data by the Type of Pharmacy

Data from the survey conducted by Flannery et al (2017) suggested that the markups comparison from various pharmacies compared to one another provided a startling realization, which suggested that higher markups would be experienced by independent pharmacies. Consequently, large national discount retailers were also found to have the least markups with the large chain pharmacies having their markup prices falling in between. New York was found to have the highest markup compared to other cities where the research survey was conducted. The large chain pharmacies reportedly indicated that they charged somewhat less varied prices from the prescription drug Xofigo with two other related drugs said to be having the same markup (Flannery et al., 2017).

Interestingly, the data from large chain pharmacies did not seem to fall completely in the middle as the information from larger national discount retailer pharmacies did. However, the data could not give a comprehensive overview since a large chain pharmacy in Massachusetts was not able to give response to the pricing questions asked. As would be revealed also by the finding, it became apparent that there existed circumstantial evidence to easily suggest malpractices in pricing based on the inconsistencies of retail markups for the pharmaceutical drugs. Other than providing useful answers, the research raised even further questions on why there existed several instances of negative markup in the profit making industry of pharmaceuticals. The other question raised was why the pharmacists and their respective pharmacists declined to reveal their prices, which in most instances are considered public information.

7.0 Conclusion

The questions on whether the cancer drugs are too high are quite evident from the research. As a type of prescription drugs, cancer drugs, and other related products for chronic ailments, the different types of pharmacies and even the manufacturers are doing very little to change the tide of exorbitant pricing. The ever increasing costs of care for cancerous ailments in last two decades pint to an understanding that there are several contributory factors towards the pricing quagmire which continues to hurt the patients and even the healthcare systems. The pricing for theses lifesaving drug commodities borders towards a breach of the ethical considerations and moral obligations. The need for reasonable pricing has therefore been called into question on the need for better health reforms by the government through amendments of existing legislations to change the pricing structure of the big pharmaceutical industries. The fact that many people who cannot afford the treatment therapies based on the prescribed drugs call for the government to get more actively involved in negotiating the prices of these drug commodities to avert the possible occurrence of human catastrophe. Typically, the out of pocket expenses for treatment of chronic illnesses ranges from 20% to 30% of the available financial resources with the financial burden of treatment scale between forty thousand US dollars to sixty thousand US dollars annually. These figures are beyond the United States household average income annually. It is revealed through the research that many patients estimated at 10% to 20% would consider compromising treatment or forfeit altogether because of the high prices of drugs (Zafar et al., 2013). These difficult situations possess three areas for future considerations. Firstly, are the prices too high to be afforded by the ordinary patient and the answer is in the affirmative. Secondly, are the high pricing hurting patients and the current healthcare systems? Still, the answers are definitely in the affirmative. Thirdly, questions arise on whether the government and the relevant stakeholders can do something in reversing cancer drug pricing, again the answer is a resounding yes given the negative consequences the issue of pricing has had on the patients? Medicare and Medicaid alone cannot cover all the costs through the various insurance policies they offer to the population but the initiative of the government to engage in constructive dialogue and discussions on reforms with the pharmaceutical industries and how the structure their pricing policies would go a long way in reversing the pricing mess currently witnessed. It is, therefore, imperative even for the physicians to seek better ways of maximizing care to keep patients from harm and medical injustices. If the pricing of drugs makes it almost impossible to access care due to high prices, then it becomes necessary to pursue and advocate for better health solutions.

8.0 References

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Pearson, S.L (2011). A Need for Government Intervention? Prescription Drug Prices and Retail Mark-Ups. Thesis submitted to the Faculty of the Virginia Polytechnic Institute and State University in partial fulfillment of the requirements for the degree of Masters of Arts in Political Science.

Zafar, S. Y., Peppercorn, J. M., Schrag, D., Taylor, D. H., Goetzinger, A. M., Zhong, X., & Abernethy, A. P. (2013). The financial toxicity of cancer treatment: a pilot study assessing out-of-pocket expenses and the insured cancer patient's experience. The Oncologist, 18(4), 381-390.