Oregon’s Drug Price Bill Is Hard To Swallow

President Donald Trump is not the only politician saying he is going to work to get drug prices down. Oregon lawmakers are already patting themselves on the back for tackling drug prices. Rep. Mitch Greenlick (D-Portland) says the measure, Oregon House Bill 2387, could be a model for national reform. “If we can actually get it done,” he recently explained, “it will show the country how to get those costs down.”

Let’s hope he’s wrong. The reform he’s supporting is nothing but an insurance industry giveaway. The bill forces drug firms to pay steep rebates to coverage providers on certain advanced medicines. Insurers, though, would be under no obligation to pass those savings on to consumers.

If the bill passes, Oregonians wouldn’t find it any easier to access the medicines they need. And since the legislation would dis-incentivize funding for future pharmaceutical research, it would ultimately deprive patients of medical innovation.

Introduced in February, HB 2387 requires pharmaceutical firms to reimburse insurers for any “excess costs” associated with a drug. This is a creative way of dictating what drug companies can charge for their medicines.

Indeed, the bill defines “excess costs” as the difference between the “average wholesale price” of a drug and something called the “foreign price cap” — what the drug typically sells for in other countries.

Let’s say an advanced cancer drug has an average wholesale price of $15,000 per treatment — and the foreign price cap is $4,000. In that case, the insurer gets an $11,000 rebate.

The other way the bill would calculate “excess cost” is the difference between the maximum co-pay for a drug and a health plan’s maximum out-of-pocket costs. If the co-pay on a particular medicine was $250, for instance, and the out-of-pocket maximum was $4,000, the drug company would refund $3,750 to the insurer.

Add it all up, and the law could mandate a total refund of $14,750 to the insurer on a $15,000 medicine!

Here’s the catch: None of that money goes to actual patients, even if those patients find certain drugs very expensive relative to their income. Refunds are paid directly to insurance companies — and insurers would have no obligation to pass any savings along to consumers.

This isn’t healthcare reform; it’s crony capitalism.

Worse, by banning research companies from charging a fair market price for their innovative medicines, the bill siphons money away from scientists who spend their days working on new cures. Investing in pharmaceutical research is already enormously risky. In fact, the average drug costs roughly $2.6 billion and more than a decade to bring to market. Not surprisingly, the vast majority of medicines never make back their upfront investment costs or even make it to market.

A bill like HB 2387 — which forces drug firms to, in some cases, all but give away their products to insurers — would make it even more difficult for drug companies to recoup their research costs. The result would be a significant drop-off in the development of new medicines, as investors would flee to more predictable industries or locations.

This would be disastrous, especially at a time when the potential for new medical breakthroughs has never been greater. Today there are over 7,000 drugs in the global drug pipeline, including potential treatments and cures for illnesses like cancer, Alzheimer’s, and Parkinson’s.

Finally, there’s the fact that HB 2387 isn’t needed in the first place. Despite all the headlines about a handful of high-priced drugs, pharmaceuticals continue to represent a relatively small portion of overall medical costs.

Nationwide, about 10 percent of all health spending goes toward prescription drugs, according to the Centers for Disease Control and Prevention. That’s roughly the same share as in 1960. Oregon spends just one percent of its state budget on prescription drugs for residents on Medicaid, in state employee health plans, and in prison.

What’s more, private insurers already secure discounts from drug makers that take an average of 38 percent off a drug’s list price. HB 2387 would simply add to these discounts, enriching insurance companies at the expense of drug innovation and, over the long-term, patient health.

Supporters of the bill are selling HB 2387 as a bold strategy for saving patients money at the pharmacy counter. In reality, the bill would boost insurance industry profits and hurt patients.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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