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Can transparency drive down drug prices?

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Two bills moving through the state legislature would require more transparency around prescription drug costs.

One bill, SB 1010, would obligate drug manufacturers to notify health plans if they were going to increase the wholesale cost of a drug by at least 10 percent during any 12-month period and justify those increases.

Another bill, AB 2463, would require insurance plans to inform consumers how much they will pay for a drug and how much their health plan paid for the drug.

The bills come at a time when one in four Americans has trouble affording prescription medications, according to the Kaiser Family Foundation. This begs the question: Can sharing this information help lead to lower drug costs for consumers?

I got three perspectives on whether price transparency could make a dent in what people pay for their drugs.

Transparency a 'first step'

Consumer groups see these types of transparency initiatives as a "first step" towards reining in the high cost of prescription drugs, says Anthony Wright, executive director of Health Access California, which is sponsoring AB 2463.

"Transparency by itself is not going to bring down the cost of prescription drugs," Wright concedes.

But, he says, this type of information can be a useful tool for large purchasers of drugs, like health insurers and state agencies, when they're negotiating drug prices.

And, he says, it could have a "social effect" on consumers.

Making this pricing information public, he says, could "have some impact on how drug companies set their prices if they're aware a price that's too high might result in a public backlash."

'Marketplace' drives prices down

It's impossible to predict how drug companies would respond to legislation requiring greater transparency about their prices, says Priscilla VanderVeer, spokeswoman for the Pharmaceutical Research and Manufacturers of America.

"What we do know that drives costs down, from the pharmaceutical side anyway, is the unique competitive marketplace in which we operate here in the U.S.," she says.

As an example, she points to the new Hepatitis C drugs that have become infamous for both their effectiveness and their high price.

"As competitors came on the market, as the pharmacy benefit managers and the insurance companies were able to negotiate between competitors, that drove those costs down significantly," VanderVeer says.

"That is how you drive prices down and that’s the way the market is working," she adds.

'Feel good legislation?'

The price transparency bills are "in the realm of 'feel good legislation,'" says Dana Goldman, director of the USC Schaeffer Center for Health Policy and Economics. "It feels like we're doing something, but in actuality it's moving policy in the wrong direction."

What will really have an impact on drug costs, he says, is "better pricing models, where we reward drugs based on how well they work for people."

Rather than requiring drug companies to justify big increases in prices, "really what we want is a world where prices move up and down depending on the evidence that emerges about the clinical utility of some of these drugs," Goldman says.

Pharmaceutical Research and Manufacturers of America cautions that the concept of value is deeply personal and highly individualized, based on patients' conditions, genetics, treatment goals and quality of life preferences.

When considering so-called value-based pricing, "it is essential to ensure that these policies do not impede patient access to beneficial treatment options or interfere with physician-patient decision-making," spokeswoman Holly Campbell said in a statement last September.

Goldman makes one caveat regarding the utility of transparency: It could benefit patients when it comes to the generic drug market.

In that market, he says, prices sometimes drop so low that manufacturers stop making a drug. That can leave just one player, allowing that manufacturer to jack up the price of the drug. That's what happened a few months ago with the drug Daraprim, says Goldman.

In those situations "there's more of an argument for saying we should track and monitor these prices, because we're not worried about innovation," he says.