NCPA - National Center for Policy Analysis

Unnecessary Regulations that Increase Prescription Drug Costs

March 7, 2013

Drug therapy is arguably the most efficient method to treat many illnesses and frequently staves off more expensive hospital and surgical therapies. While they are less expensive than some alternatives, prescription costs can still be expensive. With drug coverage expected to increase as a result of expanded health insurance and Medicaid coverage under the Affordable Care Act, unnecessary regulations are increasing prescription drug costs, says Devon Herrick, a Senior Fellow at the National Center for Policy Analysis.

  • Americans filled an estimated 3.8 billion retail prescriptions in 2011.
  • Sixty percent of all Americans take a prescription drug in any given year, and nearly all seniors do.
  • As drug coverage expands, there are increased calls for additional regulatory scrutiny to prevent drug plan managers from excessive mark-ups for drugs at the expense of patients and health plans.

There are many barriers, regulations and practices that restrict competitive bidding among drug plan stakeholders.

  • Some state laws restrict the ability of drug plans to develop limited pharmacy networks that lower drug prices through bargaining with specific drug dispensers, instead requiring that any pharmacy can fill enrollees' prescriptions. The Federal Trade Commission says this raises drug prices and premiums to consumers by reducing drug plans' bargaining power.
  • While some drug plans incentivize use of mail-order pharmacies through lower copayments or refill limits, some states are enacting laws that restrict drug plans from offering lower prices for mail-order prescriptions to benefit local community pharmacies.
  • Some drug plan sponsors use formularies to determine which drug therapies are appropriate and often discourage certain drugs or encourage generics.
  • Dispensing fees -- counting tablets, filling bottles and administrative tasks -- are much higher for state-managed plans, resulting in higher compensation to pharmacies.

In addition, the health care system is filled with fraudulent claims, many of which are hard to detect despite advanced algorithms that detect suspicious patterns. Medicare drug plan administrators are required to pay claims in 14 days, which makes it difficult to catch fraudulent prescription claims.

Prices, profitability and services will continue to suffer unless open competition removes many of these barriers that raise prescription costs.

Source: Devon Herrick, "Unnecessary Regulations that Increase Prescription Drug Costs," National Center for Policy Analysis, March 2013.


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