Should Pharmaceutical Prices Be Left to the Marketplace?

Among the several reports I receive as CEO of The Well•Spring Group is a monthly summary detailing our organization’s expenditures for staff members’ health care costs. This report breaks down expenditures between payments to providers of direct care and pharmaceutical/prescription drug payments.

As I regularly monitor this report, I am taken aback by an emerging trend. Our pharmaceutical costs are now equal to – or in excess of – payments we make to providers each month. I suspect readers of this blog can relate through their personal experience in purchasing prescribed medication.

Clearly, pharmaceutical pricing is out of control.

There are, perhaps, many, legitimate reasons that pharmaceutical companies charge what they do for the medications many of us need. But let’s not kid ourselves – most major pharmaceutical companies are publicly traded, stockholder-owned companies with earning expectations from both analysts and shareholders. The pressure to produce results (profit) is high, and the temptation to take advantage of the laws of supply and demand is immense.

But must it be this way? Should pharmaceutical prices be left largely to the marketplace?

I’m not here to debate the merits of governmental price controls, as I truly believe in the free market. Yet shouldn’t the largest payor (the federal government) be demanding better pricing from its suppliers (pharmaceutical companies)?  That’s the way the free market works, I believe.

Just ask some of my friends who manufacture socks in Mount Airy, N.C.  When Walmart or another retail giant with like clout comes to order socks for their retail and online stores, they don’t simply accept the price the manufacturer quotes them. No, quite the opposite. These retailers tell the manufacturer at what price they will buy their socks. These retail giants essentially “set the market” on socks because they are buying in such massive quantities.

So why can’t the federal government do this with pharmaceuticals? Some call it price controls.  The way I see it, it’s the new “free market.” Scale matters, and there is no bigger scale than what state and federal governments pay pharmaceutical companies.

Recently this idea has been receiving lip service in Washington. Let’s hope it is more than speeches and intents and instead plays out as actions that will lower the cost of medications for Americans. Disproportionately, the frail citizens of this country bear the burden of these costs. For their sake and for our collective sakes, let’s hope that the free market takes hold and that the largest consumer/payor wakes up and decides enough is enough!