Addressing the Drug Cost Problem is a Thorny Issue

Addressing the Drug Cost Problem is a Thorny Issue

Our Thinking / Healthcare /

Addressing the Drug Cost Problem is a Thorny Issue
Calendar25 July 2018

The United States has 5% of the world’s population but is projected to account for 41% of the world’s pharmacy spend (in dollars) by 2020. In no other country does the cost of drugs present such a thorny financial issue, with such serious consequences for global competitiveness. For the past several years the problem of high pharmacy costs has featured prominently in the press and in political campaigns, yet there has been little concrete action taken to improve the current state.

That may be changing. The Trump Administration has developed a blueprint for an approach to address the many issues associated with drug pricing, access and transparency. They requested comments and suggestions on a host of issues and concerns from the public to help shape their thinking. Mercer provided a formal comment letter. Given the work we do both for private sector employers and for a broad cross-section of Medicaid plans and other public sector employers, we were uniquely qualified to do so.

The Administration’s proposal includes actions or suggestions aimed at many of the dysfunctional aspects of the current delivery structure. Understandably, the bulk of their proposals deal with public sector programs like Medicare and Medicaid, as the government has more influence over these programs than over private sector plans. The Administration’s Request for Information asked for feedback on the possible cost shift to the private sector resulting from actions in the public sector. In our response, we explained that there is already significant cost shifting today and that some of the actions proposed could worsen it. Although we agreed that a move away from rebates as a key form of cost control is warranted, we stressed that both private and public sector entities’ budgets are partially constructed by the rebate stream. In our view, a phased approach, over three or more years, would allow for a more thoughtful and organized transition to a post-rebate world. Other entities, such as PhRMA, the trade group for pharmaceutical manufacturers, agree.

Our comments in the RFI were grounded in our overall approach to addressing the drug cost problem, which is based on three simple pillars: Collaboration among key stakeholders in drug development and distribution; transparency of true underlying costs to buyers; and alignment of objectives of suppliers and buyers. There are many stakeholders in the current distribution channel who understandably focus on their own activities, and not necessarily in the best interest of the employers and patients who pay the bills. The issues with our current distribution system will not be resolved overnight, but focusing on giving patients and employers more visibility into overall costs and changing from a consumption model to a value model, as we outline in our comment letter, will drive to a better-aligned and more-efficient system.

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