With recent uproar over drug price hikes by Valeant (VRX), Mylan (MYL) and Martin Shkreli, healthcare experts have reached a consensus: The system as we know it is officially broken.
“We have broke the social contract—historically in healthcare, providers did not gouge,” Steve Miller, CMO for pharmacy benefit manager Express Scripts (ESRX), said at Fortune’s inaugural Brainstorm Health conference in San Diego on Wednesday. “The system is not sustainable.”
To illustrate the issue, over the past 20 years, the cost of a new drug per year of a patient’s life has risen from $50,000 to $250,000 after adjusting for inflation, according to Peter Bach, director of the Center for Health Policy and Outcomes at Memorial Sloan Kettering, who also spoke at the conference.
Much of the problem, Miller explained, is that Americans are already shouldering more than their fair share of pharmaceutical companies’ costs: While the U.S, accounts for only 4.6% of the total world population, it makes up about 40% of the world’s drug spending, and the bulk of pharma companies’ profits, he said. “We fund all innovation for the world,” Miller said. “The Canadians, the Japanese, the Europeans, the Australians are all getting a free ride based on U.S. consumers.”
That reality would seem to suggest that the U.S. should adopt a system similar to those in other countries, which more tightly regulate drug prices and where the government largely subsidizes health care costs (as opposed to employers largely doing so in the U.S.) through what’s known as a single-payer system. Indeed, presidential candidate Hillary Clinton has proposed a move in this direction, building on Obamacare with what she calls a public option for health insurance.
But Miller does not agree with that solution. “It’s a bad idea right now,” he said. Such a single-payer system would be similar to Medicare, which is currently struggling with high drug costs because it allows reimbursement for”every single drug,” so there’s no incentive for pharmaceutical companies to offer a discount in order to get on the list of covered drugs, or formulary as it’s called.
By comparison, the Veterans Affairs departments gets much lower prices on drugs because it has narrowed the list of medications it insures, for example covering only one brand of beta blocker for those with heart problems, Miller said—forcing pharmaceutical makers to compete with lower prices in order to get on that list. But that, too, comes with caveats. “The bigger problem is, do they want a narrow formulary and take away choice? And will people want that?” Miller said. “That’s a big tradeoff.”
A more leftist system of greater drug price regulation could come with other negative side-effects, Miller continued. In order for international governments to cover their citizens’ health care costs, “they’ve put a value price tag on a life,” he said, which Americans may not be prepared to do in the U.S. “The trouble is that we have to a make a decision in the United States: Do we want a single-payer market with the threat that it may decrease innovation, or do we want to actually continue with what we call our free market, but then you have no control over affordability?”
He wasn’t sure what the right answer to that question was, but suggested that shifting more of the burden to other countries would be a start; rather than Americans paying too much, perhaps people in other Western countries are paying too little. “I think if you had 600 million people funding development instead of 300 million Americans, you would see much more reasonable prices around the world,” he said.
