Accelerating Generic Entry: A Proven Solution to the Problem of Prescription Drug Pricing

High prescription drug prices and their impact on costs borne by the government in Medicaid, Medicare Part D and other federal programs, is a front burner topic in Washington. The President has committed to reducing the price of prescription drugs, and pressured drug companies to hold the line. The Department of Health and Human Services (HHS) has proposed two regulatory initiatives—price disclosure in drug advertising and foreclosing rebates from manufacturers to pharmacy benefits managers (PBMs)—aimed at pushing prices down. Some Democrats have urged more sweeping actions, such as having the government negotiate Medicare drug pricing as a single buyer or regulating drug prices by reference to an international index based on government-negotiated drug prices abroad. These proposals cannot solve the drug pricing problem. The Administration’s proposals merely tweak the status quo and put no effective restraint on new drug prices. Jawboning by the Executive has had a minimal impact. Disclosure of manufacturers’ list prices, unless accompanied by numerous and inherently confusing caveats highlighting the difference between those prices and the co-pay an insured consumer must bear at retail, is potentially misleading and, in any event, has no direct impact on prices. Eliminating rebates, as HHS’s rulemaking acknowledged, will inevitably raise health insurance costs now partly paid for by rebates while manufacturers’ pricing power remains unabated. The Democrats’ call for government power buying or price regulation would impact drug prices but also require politically sensitive government determinations about the “worth” of prescription drugs to patients—a significant step on the road to government-allocated

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