In States' Fight for Price Transparency, Drugmakers Are Winning

Struggling to afford new lifesaving drugs for low-income patients, states are trying to force manufacturers to reveal their costs and profits.
by | May 5, 2015

California Assemblyman David Chiu started the hearing for his bill on drug prices with a list of bad news: The United States increased its spending on prescription drugs last year more than it has in over a decade, the average price of the most popular medicines is seven times more expensive than it was in 2010, and California anticipates spending $300 million on about 3,000 patients with hepatitis C in the next budget cycle.

His bill -- like four others across the country -- would require drug manufacturers to file annual reports for their most expensive products that reveal all their costs, from research to development to marketing, as well as profits and price increases. The other bills -- in Massachusetts, North Carolina, Oregon and Pennsylvania -- vary in some ways, but they all express the same frustration: How can drugs cost tens of thousands of dollars per patient for a standard treatment?

Sovaldi, for example, costs $84,000 for a 12-week treatment or $1,000 per pill to treat hepatitis C, which disproportionately plagues poor people on Medicaid. Nearly 70 percent of new drugs approved by the U.S. Food and Drug Administration in 2013 were specialty drugs like Sovaldi that can have extremely high upfront costs. As a result, nearly every state has limited Medicaid patients' access to Sovaldi to only the sickest. States have asked Congress to address the issue, but so far federal lawmakers have done nothing, leading state lawmakers to take initiative.

“If the public gets to know how much profit these drug companies are making," said state Rep. Tony DeLuca of Pennsylvania. "I think they’re going to be hard pressed to continue keeping pharmaceutical prices that high. If the public doesn’t know anything, public opinion doesn’t sway anything.”

Despite their efforts, though, no state has passed a bill.

In California, Democrats and Republicans said they recognize there’s a problem, but they’re not sure Chiu’s bill is the best way to begin solving it. Health insurers, consumer advocates, labor unions, chambers of commerce and local government representatives all supported Chiu’s bill, but the drug trade group PhRMA and bioscience firms argued the new requirements would be onerous and could discourage investment without providing any truly actionable information. Chiu eventually pulled his bill from consideration, but his staff said he plans to reintroduce it next year.

Oregon's bill met a similar fate, while those in Massachusetts, North Carolina and Pennsylvania still await hearings in legislative committees.

MORE: This appears in the Health e-newsletter. Subscribe here.

The episode in California underscores the tensions in the debate over drug prices: Some lawmakers don’t want to appear too punitive toward companies that are producing new lifesaving breakthroughs, while others argue the only way to begin a serious debate about drug prices is to  understand the costs. There are also some advocates for price transparency bills, like DeLuca, who argue disclosure could pressure manufacturers into controlling prices more.

The trade group PhRMA feels it’s being unfairly targeted because, currently, about 10 percent of all health spending goes to pharmaceuticals, and by 2023, the rate of growth in spending on prescription drugs is expected to be lower than overall health spending growth. Other industry groups have argued what we’re seeing now is nothing new. The market, they say, often experiences bursts of innovation, but competitive forces eventually bring prices down.

“Cardiovascular disease has gone through several phases of dramatic innovation when the more expensive treatments were introduced,” wrote the Oregon Bioscience Association in its criticism of Oregon's bill. “Though initially more expensive than alternative treatments of the time, market forces forced a reduction in the cost of existing drugs while spurring innovation leading to much better health outcomes. Today, it is estimated that $1 spent on treating cardiovascular disease returns $7 worth of gain.”

People protest the exorbitant price of Sovaldi, which costs $1,000 a pill. (FlickrCC/Nick St. Charles)

Others, like Ryan Dunlap, the chief financial officer for Oregon-based Galena Biopharma, support price transparency but argue that isolating all the costs for a single treatment simply doesn’t align with how research works and that these bills don’t actually provide a framework for reporting.

“There’s just no way with that bill they were going to achieve any kind of consistency, and without consistency in this context, the info would have been useless,” Dunlap said. “I’m not arguing against transparency. I’m arguing a two-and-a-half-page bill isn’t a meaningful way to get there.

Some companies and industry representatives have gone as far to say they wouldn’t sell in some states with price transparency laws like California and Oregon proposed because compliance costs wouldn’t be worth it. Others worry providing detailed cost information could allow competitors to copy their work, but proponents of price transparency call that argument a smokescreen. “If you tell me it cost you $5 billion to develop a drug, how is that proprietary?” said DeLuca of Pennsylvania. “How does that tell me how you manufacture it?”