Price controls pondered to tame pharmacy costs
July 1, 1999 2 minutes read
Price controls pondered to tame pharmacy costs
Pharmacy capitation proves difficult
Should Congress regulate the pricing of drugs to protect elderly patients? Or is regulation too much interference with natural market processes?
This is a major debate lawmakers are now conducting in response to growing complaints about the drug industry’s competitive approach to pricing — different prices for different groups of people.
It’s a critical business issue for physicians as well. That’s because many physician groups are tackling "pharmacy capitation" — risk contracts that include not only medical services but also all drug benefits for enrollees. These contracts pay one lump sum (the per member per month, or PMPM) to cover drugs as well as other patient care.
Drug prices vary widely
Pharmacy capitation contracts are popular, marketable programs for patients, but they have proven incredibly difficult to manage financially because of the highly variable nature of drug pricing. As physicians in pharmacy-cap contracts are well aware, certain drug customers get low prices while others pay more. Recently, the "more favored" were large HMOs with a sturdy base of beneficiaries. HMO officials negotiated deep discounts in exchange for delivering high volumes of patients. That left the higher prices to Medicare, some lawmakers contend. Overall, it’s hard to know the "true price" because there is so much variation, physicians say.
A bill recently introduced in the House of Representatives, the Prescription Drugs for Seniors Fairness Act, proposes to eliminate the drug industry’s practice of charging different prices to different purchasers.
In a report prepared for Rep. Tom Udall (D-NM) in March, staffers found that seniors were paying an average of 112% more than favored customers for five top brand-name drugs. Favored customers included groups such as HMOs, large insurance companies, and certain federal government purchasers.
In a May seminar sponsored by the American Enterprise Institute, a business-oriented research group in Washington, DC, several economists warned that the staff report was based on too small a sample to be valid. In addition, discounts for groups with negotiating power are a natural process of the competitive market place, they argued. To tamper with that would hurt all consumers down the road by reducing industry’s ability to invest in cutting-edge research. (For more details, see the American Enterprise Institute’s Web page at http://www.aei.org.)
One solution Congress is considering is providing a drug benefit for seniors, but lawmakers expect that to cost $20 to $40 billion. In the meantime, they might try prohibiting the practice of variable discounting.
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