Require pharmaceutical companies to justify their price hikes

The level of profiteering and price gouging in the pharmaceutical industry can be downright scandalous, as former drug company CEO Martin Shkreli infamously illustrated last year. When he jacked up the price of one crucial medicine by more than 5,500%, the public outcry was enormous and fierce.

Sharing that public outrage, policymakers in nearly a dozen states as well as the Obama Administration are trying a new tactic. They’re proposing to require pharmaceutical companies to disclose their rationales for extravagant drug prices—justifications which drug makers currently keep secret while incessantly complaining about (also undisclosed) high research and development costs. As Stateline explains, the goals are manifold:

“The sponsors of the measures say they have a variety of goals: to educate policymakers and consumers about the reason for high prescription drug prices; to shame pharmaceutical companies into moderating their prices; and, in some states, including Massachusetts, to actually place a ceiling on prices that are determined to be unjustified.”

That initiative for greater transparency won the day in Vermont, which as STAT News reported just enacted a new law that obligates price-hiking drug manufacturers to submit “information concerning all factors that contributed to the price increases, including detailed cost breakdowns” to the state attorney general. The resulting report would then be publicly posted, albeit with the identities of the companies and the specific drugs redacted.

pharma-drug-waste-moneyTo be clear, the measure is just one modest step forward. The factors driving unreasonably high drug prices in America are complex and numerous, including flawed patent policies and the fact that the United States is one of the few advanced nations where drug companies enjoy no legal constraints on what they can charge. That said, a step forward is a step forward—that also helps lay the groundwork for more to come.

For more information, see “High Drug Prices Prompt Demands for Transparency,” Stateline (2016) and “Vermont becomes first state to require drug makers to justify price hikes,” STAT (2016). For related resources, also see “Shining Light on Health Care Prices,” Center for American Progress (2014) and “States Fail To Make Health Care Prices Transparent To Consumers,” Forbes (2014).