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We need a labeling system for pharmaceutical prices

Making drug prices transparent would help doctors know what to prescribe and ensure patients take their medications

Because of patent laws, insurers’ policies and other factors, doctors often don’t know what prescription drugs will cost their patients, and patients may discover the out-of-pocket price only when they check out at the pharmacy. (Elise Amendola/AP)
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A doctor prescribes one 450 mg pill of the antidepressant Wellbutrin once a day for a patient. The patient returns a month later, having not taken the medication and now more depressed. When the doctor asks why, the patient replies that is it not covered by insurance. The doctor writes another prescription for this patient, this time trying three 150 mg pills a day. That prescription is fully covered. But for another patient, the reverse may be true.

As we explained in the Annals of Internal Medicine earlier this year, prescription drug purchases rarely mirror reasonable expectations, partly because the information gaps are extraordinary. With many patients, there is just no way to know up front what will be covered by that patient’s insurance and what the cost will be. In most industries, consumers make informed choices that include cost considerations. With prescription drugs, the doctor doesn’t know the cost to the patient, and the patient may discover the out-of-pocket cost only upon checking out at the pharmacy.

We propose, however, a simple solution: a standardized pricing guide, akin to the nutritional information panel on most food products, that generates definite information about the costs for a given drug to a given patient with a given insurance plan.

As prices for prescription drugs continue to rise, clear information about out-of-pocket costs for patients matters. A 2019 study published in JAMA Network Open that examined private insurance claims, for example, found that for 78 percent of the most popular brand-name drugs available since 2012, insurer and out-of-pocket costs increased more than than 50 percent. Another study found that older adults in the United States were six times more likely to say they didn’t use their medications because of cost, compared with older adults in Britain.

Why prescription drug prices have skyrocketed

The roots of irrational drug pricing are complex and varied. They include rebate deals and incentives in the patent and regulatory systems that encourage marginal changes in a drug’s dosage or delivery system to extend intellectual property protection. These and other factors subvert normal pricing expectations. Under some health plans, for example, the generic may be more expensive than the brand-name drug.

The opacity and illogic of prescription drug prices find few parallels in other industries. Imagine if the military operated this way: Need to order a tank? We’ll tell you the cost when we deliver it. Want to compare the prices of different models or shop around? Sorry, that’s not possible. Or imagine if, at a restaurant, the waiter lets you know the price of a dish only after the food arrives. Even when the lobster has “Market Price” where a dollar amount would normally appear on the menu, buyers generally have a good idea of the cost before placing their order.

The federal government has stepped in to facilitate simple, readable consumer information in the past. Consider the “Nutrition Facts” panel on food packaging. Although shoppers today can easily compare the nutritional content of different foods, such information was not always available. For much of the 20th century, with Americans preparing most meals at home from fresh ingredients, demand for detailed nutrition information was limited. As processed foods became commonplace, however, consumers became more interested in the contents of their food.

The case for nutrition labeling strengthened as scientific research in the 1970s and 1980s uncovered stronger connections between diet and health. Understanding the harms caused by excess sodium, saturated fat and cholesterol encouraged the publication of their respective amounts in various foods. At the same time, food companies sought to promote the positive health effects associated with other nutrients in their products. As questionable health claims began to appear on packaging, pressure mounted for regulators to deliver on food labeling reform. With policymaking gusto, Congress and the Food and Drug Administration, led by David Kessler, simultaneously crafted nutritional labeling policies in a race to regulate. These efforts culminated when President George H.W. Bush signed the Nutrition Labeling and Education Act in 1990.

Acting on this law, the FDA debuted the Nutrition Facts panel in 1993, a consistent tabulation of nutrients and their amounts that is displayed regardless of the food or beverage. This standardized format lets shoppers easily compare different products, helping inform their buying decisions.

Prescription medicine needs its own version of Nutrition Facts — a simple summary of specific information accessible by everyone in the decision chain, from physicians to pharmacists.

As a starting point, such a guide should include a patient’s out-of-pocket cost for the medication under that patient’s insurance, the cash price without insurance, whether a generic or biosimilar version is available, the generic or biosimilar cost under the patient’s insurance, and whether the insurance imposes any restriction such as prior authorization. Ideally, the guide would also display alternative dosage or delivery versions or other similar drug options, sorted by cost. In theory, this information could be incorporated in existing electronic health record systems, which are accessed by patients and their doctors.

The federal government is best positioned to bring about the creation of a patient price guide. Health information is complex, and a standardized system that looks the same for everyone would have the best chance of providing useful information while reducing the incentives for the strategic games that drug companies play to obscure pricing information. A market solution, moreover, is unlikely to emerge without a governmental nudge. Current reimbursement systems contain perverse incentives — for pharmaceutical companies, insurers and the middle players that negotiate drug prices between them — to drive patients toward higher-priced medications in certain circumstances. Companies are unlikely to voluntarily provide information against their own interests.

Letting the government negotiate drug prices won’t hurt innovation

Much of this patient-specific price information already exists electronically. Pharmacy systems contain much of the relevant, patient-specific information for that pharmacy, including the patient’s insurance plan and whether the patient has met the plan’s deductible requirements. And although prices do vary from pharmacy to pharmacy, many physician-facing electronic systems contain the patient’s choice of pharmacy.

Given all of this, the FDA could push things ahead and require electronic publication of standardized, patient-specific information. Physicians would be able to see this information when writing a prescription, pharmacists could read the information when the patient is at the pharmacy counter, and patients could access it alongside these medical professionals or on their own.

Physicians and pharmacists strive mightily to recommend the best medication regimen for their patients in light of many variables, including the patient’s budget. And modern medicine has labored so that patients can be active and informed participants in their own care. A price guide for prescription medicine would go a long way toward injecting a dose of sanity into the process.