Transparency Isn't a One-Way Proposition

April 13, 2016 Peter J. Pitts


Transparency in medicine isn't a one-way street.

The transparent truth is that the prices patients actually pay aren't set by drug manufacturers — they're determined by pharmacy benefit managers, insurers, hospitals and pharmacies.

A majority of Americans believe increased health care transparency should be a top national priority. It's easy to understand why. Rising health care costs, coupled with high-profile stories of price-gouging at some small pharmaceutical companies, have left consumers feeling ripped off, especially when it comes to drug prices.

But most drug companies aren't whimsically increasing prices. In fact, if the health care industry was really transparent, people could see the truth: drug companies often aren't the culprits behind high costs. In fact, they're the best hope for dramatically lowering health care spending.

The transparent truth is that the prices patients actually pay aren't set by drug manufacturers — they're determined by pharmacy benefit managers, insurers, hospitals and pharmacies.

And these third parties frequently engage in … price-gouging.

Consider the "prescription price shell game" uncovered in Minneapolis, where a local CVS jacked up the price of a kidney medication to more than $6 per pill from 87 cents. Or the Levine Cancer Institute in North Carolina, which collected nearly $4,500 for a colon cancer drug that hospitals typically buy for $60.

Unfortunately, the media largely ignores such abuses, preferring to concentrate just on alleged misbehavior or greed by pharmaceutical companies. When one drug maker released a breakthrough Hepatitis C cure, headline after headline blasted the company for the drug's initial $84,000 price tag.

Few follow-up stories have noted that, because of competition from other drug makers, the manufacturer granted such big discounts — often in excess of 50 percent — that the medicine now costs less in the United States than in price-controlled Europe.

Even fewer stories put America's health care spending in perspective. Name-brand drugs accounted for just 7 percent of $100 billion increase in health care spending from 2013 to 2014.

That 7 percent accounts for some of the most promising advances in treatment in decades. By addressing once-untreatable symptoms and complications, these advances help patients avoid expensive surgeries and lengthy hospital stays — which account for a far larger share of health care spending than pharmaceuticals do.

Journalists crying page one crocodile tears over high drug costs aren't just ignoring hospitals' and insurers' roles in jacking up retail prices. They're ignoring the fact that massive decreases in health care spending will only come about due to pharmaceutical cures. Better MRI machines are not going to end the scourge of cancer. New drugs could — and do.

Of course, medicines aren't cheap to create. The average cost of developing an FDA-approved prescription medication is $2.6 billion, according to the Tufts Center for the Study of Drug Development. That represents a 145 percent increase over the past decade.

For every successful new compound, hundreds of others once deemed promising end up abandoned. Research chemists at pharmaceutical companies may spend an entire career in the lab without working on a single drug that gets to market.

Understandably, pharmaceutical companies don't love to publicize their frequent failures. As a result, everyday Americans only see the successful, profitable drugs — and the high price tags that stem from the cost of research plus the markups tacked on by third parties.

Consumers are justifiably mad about health care costs. But their anger is misdirected. If the health care industry was truly transparent, Americans would see who's really to blame for rising prices. With rare exception, it's not the companies creating lifesaving medicines.

Reposted with permission from

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Peter J. Pitts  is an authority on global regulatory policy issues and an Executive Partner at YourEncore. He is a former FDA Associate Commissioner, the Chief Regulatory Officer for Adherent Health Strategies, and the President of the Center for Medicine in the Public Interest, a policy institute he founded in 2004.

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