Virginia: The Latest (Failed) Attempt at Mandating Drug Pricing Transparency
Virginia has joined the list of states with failed attempts at drug price transparency legislation in various states, as they were the most recent state to attempt forcing drug makers into revealing their costs. Legislatures in states like New York, Massachusetts, Minnesota, and California had previously tried, and failed, to pass such legislation. Virginia has now been added to that list of states with failed drug transparency legislation, thanks to a Virginia General Assembly Senate panel that voted to delay consideration of the proposed bill until next year.
Virginia had a pair of companion bills (one in the House, and one in the Senate), which would have required drug makers to provide detailed financial information for each medicine sold with a wholesale cost of $10,000 or more for a single course of treatment. The $10,000 cost minimum would include costs for R&D, manufacturing and marketing, price changes, profits, and financial assistance for consumers. The disclosed data would have appeared on a public website.
The pharmaceutical industry pushed back against the bill, saying that it unfairly singled out the pharmaceutical industry for the rising healthcare costs and that such a restrictive law would inhibit Virginia’s efforts at growing its biotech industry. Pharmaceutical companies have argued that health plans disproportionately contribute to the rising drug costs because while they are offered rebates and discounts on pharmaceuticals, they have been raising deductibles and out-of-pocked costs to consumers.
Even some people who are concerned about rising healthcare costs and drug pricing understand that the cost to develop a particular drug has little to do with that drugs price and that knowing how much R&D costs will not help to keep prices down. Len Nichols, a healthcare economist, stated, “the past R&D cost is really kind of a red herring. The current revenue doesn’t pay for past R&D, it pays for current R&D.” Essentially, Mr. Nichols is, in part, saying that if R&D and other costs that go into creating drugs are said to be “too high” for particular therapies, and public outcry demands the lowering of their prices, our healthcare system would not be able to progress forward with new therapies and new solutions to old problems.
Lori Reilly of the Pharmaceutical Research and Manufacturers of America (PhRMA), also raised the idea that it is misleading to look only at the cost of developing a particular drug, because doing so would ignore the money that was spent on the drugs that failed development. Very few drugs tested actually reach the market and make any money, approximately twelve percent. That means that eighty-eight percent of drugs tested, researched, and developed will never see costs recouped because they never make it to market. Each new drug venture a pharmaceutical company embarks on is a risk, and the money brought in by drugs that do make it to market are how pharmaceutical companies can continue to take risks and attempt to develop new therapies and treatments.
Not only are these attempts at drug pricing transparency chasing the wrong means to an end, but publicly traded drug companies already disclose their research and development costs, as well as other financial information. By focusing solely on costs, the value of drugs are ignored. Some expensive (or even inexpensive) drugs can keep patients out of hospitals, which lowers costs for the healthcare system overall.
With the bill being stalled in the Senate, the Virginia battle is not over, but instead, is simply delayed. Drug companies and health insurers have been, and will likely continue to, engage in a high cost battle over expensive specialty drugs. The companion bill in the House has not yet had a hearing, but will likely meet the same fate.