University examines drug pricing

Wednesday, Sept. 6, 2000 | 11:22 a.m.

CARSON CITY -- Prices of brand-name prescription drugs could be significantly reduced by enacting a new purchasing policy, a health-reform study says.

Prices could drop from between 37.2 percent to 42 percent, saving Nevadans about $186 million a year, the study authored by Alan Sager and Deborah Socolar of the Health Reform Program at Boston University concluded.

The reduced prices would not hurt the drug companies, the study says, because the quantity of drug purchases would increase.

The study examined drug pricing in six Southwest states and was released today at a New Mexico legislative committee hearing.

Sager, a professor of health services, said the discounted prices could be achieved if the states were allowed to buy brand-name drugs at the price charged the federal government for the Veterans Administration.

Keith Macdonald, executive director of the Nevada State Board of Pharmacy, said the findings are true. He added, however, that federally purchased drugs are limited to certain programs.

But Macdonald said Mississippi has asked the federal government to allow it to buy the drugs at the high discounts. And he is considering asking Gov. Kenny Guinn to look into such a program. He called this a "real good" approach.

The report estimated 30 percent of Nevadans lack insurance coverage for drugs. And Nevadans spend an estimated $500 million on drugs annually.

Purchasing the drugs at the federal supply price would mean a $4.3 billion savings in the six states studied.

The six states, Arizona, California, New Mexico, Colorado, Nevada and Utah, "can win much lower prescription drug prices and make all needed medications affordable for all citizens without harming drug makers' research -- or even their profits -- and without spending more money," the study says.

"(Drug manufacturers) are the source of high prices because they garner roughly three-fourth of each dollar paid for medications and because the retail sector has already been squeezed by existing price-cutting efforts. The drug makers simply don't need more money. They may want it, but they absolutely don't need it."

The study's authors found the prices paid by the Veterans Administration reflect an average 42 percent discount from the drug makers' factory prices.

"Drug makers claim that government actions that interfere with either their prices or their profits will cause destruction and devastation. They are wrong," the authors said. "The sky will not fall. Instead, controlling drug prices, in order to make medications affordable for all Americans, offer the best possible durable protection for drug makers' research and revenue."

The study shows potential savings in Nevada of $40 million for those who pay in cash, $107 million for insurance companies, $7 million for Medicaid and $21 million for nonretail purchasers.

Patients paying cash for their drugs would realize a discount of about 42 percent.

Medicaid discounts would receive the smallest percentage savings because they enjoy the greatest rebates now, averaging 19.2 percent across the six states.

"Some hope that voluntary purchase of private health insurance, perhaps with public subsidies, will render it unnecessary to cut drug prices," the study says. "The insurance industry does not want to write those policies, because they fear that sicker people will be more likely to buy policies. Such adverse selection will drive up average costs and premiums and embarrass all involved.

"Voluntary prescription drug insurance purchase is doomed. Even if it worked -- even if adverse selection magically did not operate -- soaring drug prices would quickly make it unaffordable."

Nevada's Human Resources Department is now studying bids from private insurance companies for a voluntary drug prescription program for low-income senior citizens.

Gov. Kenny Guinn has fashioned a program to provide a subsidy up to $40 a month for an insurance policy for those over 62 and who earn less than $21,000 a year. An estimated 12,000 to 14,000 Nevadans would be eligible.

The department hopes to make a decision Friday on which company will receive the contract. Human Resources Director Charlotte Crawford wants the benefits to be started in either January or February.

In another development, Sen. Mark Amodei, R-Carson City, has asked for a bill to help consumers when drug companies try to change the list of drugs they will cover.

Amodei said the request for the legislation came from a group of physicians who are worried about patients who are put on one prescription drug that is covered by insurance. But insurance companies then change the list to eliminate that drug.