Both President Donald Trump and Congress have laudably prioritized reducing the cost of prescription drugs. Increasing access to and the affordability of life saving medicines is an incredibly important goal. And one Lilly supports and is constantly working towards.
But trying to accomplish this by distorting the free market will make medicines more expensive. It will also stifle innovation and investment in research and development crucial to solving public health emergencies such as opioid addiction.
We need reforms to America’s overly complicated drug pricing system. But one particular proposal on the table isn’t the answer.
The policy in question is H.R. 107, a bill that proposes to lift the cap in the Medicaid Drug Rebate Program. This requires drug manufacturers to pay a rebate on all drugs distributed to the program’s enrollees.
This rebate is designed to match and offer the government the best price available of the drug in the private market. That price, however, is capped so the rebate cannot exceed 100% of the manufacturer’s actual price.
The proposed legislation would remove that cap in pursuit of supposed savings. The result will be rebates in excess of 100%. In other words, drug makers will have to give discounts greater than 100% off – an economically illogical discount that no seller would ever offer and no other customer would ever normally receive.
America’s drug pricing system is already opaque and convoluted. This would make it only more so, demanding drug companies pay to have their products consumed.
The real problem here would be the one facing patients. To offset the cost of paying the government, drug makers will be forced to recoup costs elsewhere.
This means raising the prices of other products or in other segments. It will also force companies to reduce their investment in new life saving medicines, including ones targeted for the conditions faced by those enrolled in Medicaid. There will simply no longer be any incentive.
Less research and fewer discoveries hurt patients. We can do better.
Any savings realized by lifting the rebate cap will be small: In fiscal year 2016, drug costs accounted for only 1.5% of total Medicaid spending while growth in annual prescription drug spending has remained relatively low, reaching 5.5% in the same year.
Congress is currently mulling over a version of this bill. They should table it and instead pursue policies that lower patients’ out of pocket costs.
There is no denying that too many patients struggle to cover the cost of their medications. Lilly has worked to address this gap, creating programs, for example, that give discounts to those in high-deductible plans that cap the cost of insulin at the pharmacy counter at $95 a month.
We are determined to continue collaborating with policymakers to find solutions that help patients afford the medicines they need. But lifting the Medicaid rebate cap will not advance this goal and does nothing to help patients.
Real and much needed drug pricing reform won’t come by defying the free market, or by requiring manufacturers pay so patients use their products. Eliminating the Medicaid rebate cap will take an existing problem and make it worse.