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The Biden administration recently introduced another leg in the stool of its plan to lower prescription drug costs, while the Department of Health and Human Services recently announced timelines for the government to begin negotiating drug costs on consumers’ behalf. According to the new administrative guidance, HHS will start talking with "high-cost" manufacturers in September and setting prices on what it deems to be problem drugs the following year. This news follows President Biden’s signing of the Inflation Reduction Act, which states that Medicare can negotiate the price of certain drugs that don’t face generic competition.
Biden is right — the cost of drugs in America is far too high; in fact, they are over 2.5 times the cost of those seen in 32 other nations. And the president’s commitment to addressing this crisis is commendable. However, giving the government more power won’t solve this problem when the concentration of power in the hands of too few is what triggered this crisis in the first place.
While it may be easy to point fingers at "big, greedy drugmakers" that don’t face generic competition as the answer to America’s healthcare affordability woes, the problem is far more complicated than that, and muscling through a big-government solution that pretends it is will make things worse, not better.
It’s true that bringing generics to market is helpful to a certain extent, and the Federal Drug Administration’s slow approval of said drugs (which can often take years) is one of the many reasons that over 500 brand-name drugs don't face any competition. That’s certainly not helpful for Americans’ pocketbooks, and regulators should address this. But the unfortunate truth is that, in many respects, generic drugmakers are also very much part of the problem.
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Three drug wholesalers, three of the wealthiest fifteen companies in the country, distribute over 90 percent of the country’s drugs. All three of these companies have paid multi-million-dollar payments to the government to resolve allegations of bad business behavior.
Some are already aware that these three wholesalers own most the pharmacy services administrative organizations (PSAOs), the companies that pharmacies use to negotiate pharmacy network contracts, which gives them nearly unfettered ability to keep drug costs drugs high. But here’s the kicker: while many see generic manufacturers as a solution to the wholesalers’ market dominance, healthcare and judicial experts also believe they make sweetheart deals with these drug distributors to increase their costs.
Nearly every state in the country is investigating this clear antitrust concern, which some state officials have called the largest price-fixing cartel in the history of the United States because it involves more than 300 drugs sold by nearly all the nations’ generic drug manufacturers.
The states argue that the wholesalers benefit when generic drug prices remain higher. As noted in the states’ complaint, their 10-K filings to the Securities and Exchange Commission seem to corroborate that, but so do the hundred-million-dollar settlements some of them have already paid to resolve accusations of price-fixing conspiracies with generic drug manufacturers. And to think that the generics wouldn’t benefit from any deals they may be making with these drug distributors would be naïve at best.
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A doctor writes a refill prescription ((Photo by Camerique/ClassicStock/Getty Images))
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Yet the Biden administration is still governing as if the generic drug industry represents the magic elixir to America’s drug affordability problems. It’s not and pretending as if it does represents the equivalent of trusting The Penguin to defeat The Joker.
Rather than picking winners and losers in the healthcare industry, the White House should direct the attorney general and the courts to investigate the collusion and marketplace concentration problems plaguing the healthcare industry. Facts and legal enforcement are the only things big, objective, and powerful enough to fix this systemic issue. Politics and gut feelings cannot be the solution; they are the very things that got America into this mess.
Now is not the time to concentrate more power into the hands of even fewer; now is the time to let the judicial system break up this unchecked power. It’s the only solution that hasn’t yet to be tried — and it’s the only way the American people will receive true relief.
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