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Setting the Costs of Medicines: Government Price Arbitration Is Dicey Policy

Public Policy

Setting the Costs of Medicines: Government Price Arbitration Is Dicey Policy

We are all concerned about the cost of medications.  As the leading health advocacy and education
non-profit for advancing the comprehensive health of boys and men in America, Men’s
Health Network (MHN) focuses on policy issues and strategies to help enhance
the health of boys and men. Medications are one of the most cost-effective ways
to manage illness; that is why over 70
percent of medical visits result in a prescription
.  Physicians and other health care providers see
great value in our prescription medication supply, and men and their families
must have access to highly effective and advanced medications; therefore, ensuring
reasonable costs for these technologies is of paramount importance. 

Over the past several years there have been innumerable legislative proposals
and private plans floated and implemented to help ensure that out-of-pocket
costs for health care to Americans and the costs to benefit plans (including
public and private plans) reflect an appropriate value proposition. 

One floated proposal to which is intended to manage the
price of prescription medications is being called government arbitration.  But this is a bit of a characterization of
how these proposals would work.  Ok, we
get it, lawmakers are by and large lawyers and business executives, and lawyers
and business executives like arbitration as a potential remedy to any dispute.  As Americans, we are used to this terminology
being applied to many agreements and aspects of our lives; however, using this
terminology to describe what is being proposed in relation to drug pricing
policy is a bit of a red herring. 

Arbitration refers to a deliberate, refereed process to settle
a contract dispute that could not otherwise be resolved.  So, unless you believe that government
purchasers, and presumably other purchasers, have the right a priori to dispute prices set by
private companies in our free-market society and hence force a resolution of
their own making – a rather astonishing position – then arbitration is a misleading
term to make a heavy handed approach seem more palatable.

The legislative iterations of “arbitration” proposed thus
far are more akin to mandated government price setting than engaging in a true
arbitration process. In fact, the whole suggested price setting process raises
some very troubling questions, not the least of which include:

  • Who appoints the arbitrator/price setter, and is
    it an individual or a group of people?
  • Is there one arbitration/price setting system or
    a set criterion that will be applied across all medications from allergy
    remedies to chemotherapy to cures for rare diseases?
  • Just how would an arbiter determine reasonableness
    of profit (assuming that there is a consideration of profit in this process)?
  • And finally, if the federal government
    implemented a price setting process, would the process flow through to states
    and then to private for profit third party payers?  If for private companies in health insurance
    markets feel this system applies to them – and many industry observers feel
    that this is a likely position – it would give even more power and precedent for
    unilateral price setting for insurance companies and Pharmacy Benefit
    Management (PBM) companies, who are increasingly two sides of the same coin, to
    do the same? 

Mandatory pricing in the public or private sectors, regardless of its structure, should not be adopted.  Instead, purchasing contract negotiation is the appropriate approach, and negotiations should follow the principles of free-markets and open competition as the basic ways of obtaining favorable prices and concessions. These negotiations should also be transparent and open to review in order to maintain consumer trust and system integrity. Allowing market forces and consumer demand to work will ultimately lead to the best medications and ensure patient access to cutting edge treatments.

Image by succo from Pixabay

Author: Dr. Salvatore Giorgianni

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