Reframing the Debate: Why Drug Spending Can Lower Costs

Peter Pitts is president of the Center for Medicine in the Public Interest.
Peter Pitts is president of the Center for Medicine in the Public Interest.

A majority of Americans believe increased healthcare transparency should be a top national priority.

It's easy to understand why. Rising healthcare costs, coupled with high-profile stories of price gouging at some small pharmaceutical companies, have left consumers feeling ripped off. 

But most drug companies aren't whimsically increasing prices. In fact, if the healthcare industry was really transparent, people could see the truth: drug companies often aren't the culprits behind high costs. In fact, they're the best hope for dramatically lowering healthcare spending. The transparent truth is that drug manufacturers don't set the prices patients actually pay — pharmacy benefit managers, insurers, hospitals, and pharmacies determine them.

See also: Finding a Better Strategy for Pricing Drugs

Brand-name drugs accounted for just 7% of the $100 billion increase in healthcare spending from 2013 to 2014. That 7% accounts for some of the most promising advances in treatment in decades. By addressing once-untreatable symptoms and complications, these advances help patients avoid expensive surgeries and lengthy hospital stays, which account for a far larger share of healthcare spending than pharmaceuticals do.

Journalists and politicians somehow never bother to mention that, factoring in rebates and discounts negotiated by insurers and pharmacy benefit managers, actual net drug spending has only increased 5.5%. That's right in line with overall health care spending growth.

Congress' inquisition of the pharmaceutical industry is meant to grease the skids on the slippery slope to government restrictions on drug pricing. If facts still matter, free-market competition will be exonerated and upheld as the best way to contain healthcare spending while delivering quality care. If they don't matter, and legislators insist on imposing innovation-killing price controls, future healthcare savings will go up in smoke.

Peter Pitts is president of the Center for Medicine in the Public Interest.