The Fair Accountability and Innovative Research Act was introduced in March 2021. The FAIR Drug Pricing Act imposes a requirement on pharmaceutical companies to notify the U.S. Department of Health and Human Services (HHS) and furnish a transparency and justification report at least 30 days before implementing any price increase on drugs priced at $100 or more. This notification is necessary if the price hike surpasses 10% within one year or 25% within a three-year period. Additionally, for drugs with a list price exceeding the median family income, which stood at $70,784 in 2021, manufacturers are obligated to submit a transparency and justification report as well.
This act was brought on by public concern over drug affordability. According to a poll by KFF, six in ten adults are taking at least one prescription medicine, while a quarter of adults are taking 4 or more. This is a problem because those who need more medicine may be unable to access them due to the high cost. The FAIR Drug Pricing Act aims to curb drug prices by limiting unnecessary price hikes; however, some question the effectiveness of the act.
Arguments in Favor of the FAIR Drug Pricing Act
- Easier to control prices: Drug pricing transparency allows citizens to learn about price hikes in advance, as well as the justification for price hikes. Policymakers believe this may give citizens the ability to organize and protest price increases, and raise the cost for pharmaceutical companies who may currently feel they can raise prices with impunity.
- Control healthcare expenditures: Drug spending in the U.S. increases every year, beyond inflation. In 2021, overall pharmaceutical expenditures in the U.S. grew 7.7% compared to 2020, for a total of $576.9 billion. Utilization (a 4.8% increase), price (a 1.9% increase) and new drugs (a 1.1% increase) drove this increase. Drug transparency can contribute to overall healthcare cost savings, as it allows policymakers to identify and address instances of excessive pricing or price increases.
- People will become more educated in terms of choosing drugs for health: This transparency encourages consumers by giving them insight into the reasoning behind price changes, helping them make more informed decisions about their medication options. For example, if a drug has a history of price hikes, a consumer might more heavily consider purchasing an alternative treatment or discussing other options with their healthcare provider.
Arguments Against the FAIR Drug Pricing Act
- Hinder companies’ ability to invest in future drug development: When pharmaceutical companies’ research and development costs are made public, policymakers and patient advocates may use this information to pressure companies into lowering drug prices. While this may benefit patients in the short term, it could hinder companies’ ability to invest in future drug development.
The collective push for lower drug prices, while addressing the present needs of patients, introduces an intricate dilemma. The revenue streams that sustain pharmaceutical companies’ ambitious research and development projects might experience a pinch as pricing adjustments ripple through the industry. The risk of eroded profitability looms, potentially hampering the companies’ ability to reinvest a significant portion of their earnings into the high-risk, high-reward realm of future drug development.
Additionally, when drug production information becomes available for everyone, competitors may strategize to develop a similar drug at a lower cost, eroding the profitability of the original. This type of intense competition may drive down companies’ incentives to develop new drugs.
- Shortages in generic medications: A generic drug is a medication created to be the same as an already marketed brand-name drug in dosage form, safety, strength, route of administration, quality, performance characteristics, and intended use. Generic drugs tend to cost less than their brand-name counterparts because generic drug applicants do not have to repeat animal and clinical (human) studies that were required of the brand-name medicines to demonstrate safety and effectiveness. However, if generic drug manufacturing costs are made public, repercussions of this include lowering the price of drugs and less revenue being generated in the medicine market, resulting in the reluctance of companies to enter the drug market, fearing that they cannot compete on price and still maintain profitability. In the long run, transparency would lead to shortages of essential generic medications.
The reports are economical and scientific: Transparency might not be beneficial if citizens aren’t able to comprehend the intricacies of the justification report. Particularly in medicine, these reports often include complex chemical and intricate biological terminology. In tandem with scientific terms, transparency reports are also likely to include detailed economic models that aren’t in the norm for most American citizens. The challenge of decoding both the scientific and economic dimensions can result in significant hurdles for citizens looking to glean insights from these reports. As citizens strive to make informed decisions about their healthcare choices and understand the rationale behind drug pricing, the opacity of complex scientific and economic jargon can often lead to a lack of clarity and transparency, ironically defeating the purpose of the transparency initiative.