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

Dr. Salvatore Giorgianni

View posts by Dr. Salvatore Giorgianni
Dr. Giorgianni is an expert in men's health, is Senior Science Advisor to Men's Health Network, and is a registered pharmacist. He is a recognized expert in drug regulatory and US pharmaceutical policy as well as in organizational reputation management and strategic alliance development. He has authored, co-authored or presented some 200 works in health care, industry regulation and business. He is an advisor and board member to several health advocacy associations including: Men's Health Network; American Osteopathic Medical Foundation; Kappa Psi Scholarship Foundation; Nurse Practitioner Health Care Foundation and the National Association for Continence. He is a founding member of the Dialogue on Men's Health, a presenter at the White House conference on Men's Health, and a contributor to the SAGE publication, American Journal of Men's Health. Dr. Giorgianni had a 26 year career with Pfizer Inc, where he held positions in the medical, regulatory, training, public policy, business planning, sales and marketing groups. Most recently he served as Pfizer's Director, External Relations. He also directed several publications, including the Pfizer Careers In Health Care series and The Pfizer Journal: Perspectives in Health Care and Biomedical Research.

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