Why drug pricing is in the news now and what can be done about it?
From Turing Pharmaceuticals to Mylan, there has been no shortage of news coverage on the high cost of prescription drugs. While politicians and drug companies have fought the issue in the media, millions of Americans have felt the impact of their medication prices at their local pharmacy whether picking up their child’s EpiPen or their own life-saving cancer medication. While some plans have been proposed, any potential fix requires consideration of the complex system of how drugs are priced and reimbursed in this country.
Many factors have led to drug pricing’s place at the top of newsfeeds, though two primary issues have caused this: the increasing visibility of prescription prices to consumers and changes to the business of biopharmaceuticals.
Drug pricing has become more visible to patients
For many people, the curtain shielding individuals from the true cost of prescription drugs has been lifted. In the U.S., most people take prescription drugs: research by the Mayo Clinic and Olmsted Medical Center found that 70% of Americans take at least one prescription drug. Historically, Americans have been insulated from the true cost of these prescription medications as health plans have typically featured flat-rate copayments for drugs. However, over the last few years, the out-of-pocket costs for pharmaceuticals has risen on average by 25%. Recent studies show the average consumer pays 20% of their medicine costs out-of-pocket, whereas they only pay 5% of their doctor or hospital visit costs out-of-pocket.
An increasing number of consumers face the full retail price of their medications due to the rise of “high-deductible health plans” where individuals must spend a sufficient amount in healthcare expenses (typically $1,000+) before the insurance benefit kicks in. Notably, about 24% of employees enrolled in employer-sponsored plans have a high deductible as reported by the Kaiser Family Foundation, and Health Affairs reports that 90% of enrollees in an Affordable Care Act (ACA) marketplace plan have a high deductible. As a result, a mother picking up her child’s EpiPen may see something close to the $600 list price, instead of a much smaller copay.
Changes in biopharmaceutical business have pushed prices higher
Changes to the business of researching, developing and selling prescription drugs has also contributed to high prices. Between the drug’s manufacturer and the patient sit pharmacy benefits managers (PBMs), such as Express Scripts and CVS/Caremark. Among other duties, PBMs negotiate discounts for themselves in the form of rebates from drug manufacturers. In recent years, PBMs have demanded increasingly larger rebates, particularly for drugs in competitive therapeutic areas. The result is that manufacturers have increased list prices to offset these higher rebates, leading to a higher headline price, but a more stable net price – the amount the manufacturer actually pockets. Unfortunately, high-deductible patients do not receive these same rebates when forced to pay the list price for their medications. The diabetes market is a good example of this where insulin list prices have more than doubled since 2011, yet net prices have stayed the same or fallen during this same period.
Biopharmaceutical companies have attempted to address pricing concerns
In the face of increasing focus on their prices, biopharma companies and industry groups have attempted to highlight the role others play in the complex healthcare pricing system. In particular, efforts have been made to shine a light on the role of PBMs in drug pricing and the high cost of other healthcare services, such as PhRMA’s new ‘Go Boldly’ campaign.
In a different approach, several biopharma leaders, including CEOs of AbbVie and Allergan, have joined a pledge to keep annual price increases below 10%. Some companies, including Janssen, have started to produce pricing transparency reports.
State and federal governments have discussed ways to curb drug prices
Governments have discussed legislation to reduce the high prices of prescription drugs. One tactic in the news is re-importation of drugs from countries with cheaper prices. Here, the plan is to lower prices by allowing Americans to buy drugs from countries with lower prices, like Canada. In fact, an amendment in the Senate that would do exactly that was recently defeated by a narrow 52-46 vote. Drug re-importation is not without its challenges, however. Re-importation may result in lower quality product reaching American patients, some claim.
Another measure under consideration is to allow the federal government to negotiate drug prices for the Medicare Part D program, a practice currently forbidden. Currently, each payer that offers a Medicare Part D plan must individually negotiate discounts with manufacturers. However, some believe that the negotiating power of the federal government could deepen discounts. Compared to other options, this measure is harder to dispute. Allowing the federal government to negotiate discounts may result in better deals than individual plans and PBMs can currently procure.
State governments have also begun drafting, and even passing, legislation to tackle drug prices. Vermont passed a law that requires the makers of certain drugs with large price increases to justify them. Many other states are either discussing or have already proposed comparable legislation. While well-intentioned, price transparency laws do not address the real issue with drug prices, given that justifying prices is a difficult and subjective process.
The current healthcare reimbursement system is complex, and drug prices are no different. While patients are rightly concerned over increased cost-sharing obligations and price increases, biopharma companies and governments have been working to solve the issue. However, a solution that truly addresses the needs of both patients and the healthcare system as a whole requires a joint effort. As we begin a new year and a new presidential administration, let us hope that we see the key stakeholders come together rather move further apart.