Drug company CEOs recently ventured to Capitol Hill to testify before the influential Senate Finance Committee.
The executives got an earful from lawmakers, who are rightly concerned about rising drug spending. Senators from both parties are under heavy pressure from voters, 80 percent of whom say “taking action to lower prescription drug prices” should be one of Congress’s priorities this year.
To this end, the Trump administration recently proposed a rule that could save patients tens of billions at the pharmacy. The rule would make it easier for Americans, especially those suffering from chronic diseases, to afford needed medications. The reform could even drive down national health care spending.
The rule targets pharmacy benefit managers, or PBMs. Insurance companies hire these middlemen to administer prescription insurance plans and negotiate with drug companies for bulk discounts. Pharmaceutical manufacturers offer discounts in exchange for PBMs agreeing to include the manufacturers’ drugs on “formularies,” the lists of medications that insurance plans cover.
The discounts secured by PBMs are quite substantial — and they’re getting bigger every year. Total discounts and rebates offered by drug companies ballooned from $67 billion in 2013 to more than $150 billion in 2017. On average, these discounts amount to roughly one-third of a drug’s nominal, or list, price.
This begs the question: If drug companies are offering ever-larger discounts, why do medicines seem to be getting ever more expensive for patients? Put simply, it’s because insurers and PBMs keep these discounts to reduce overall premiums.
The lower premiums are nice, of course. But they provide minimal help to those who actually rely on medications and thus face high out-of-pocket costs.
For instance, a drug might have a nominal list price of $300, but the insurer might acquire it for just $150 after accounting for rebates and discounts.
However, insurers don’t calculate co-insurance based on the lower, negotiated price. So if patients face a 20 percent co-insurance requirement, they’ll have to pay $60 every time they refill their prescriptions. If patients could pay co-insurance based on the discounted price, they’d pay over just $30.
That $30 difference adds up to serious money for patients who take multiple drugs all year long to manage their chronic diseases.
The administration’s proposed rule, if implemented, would end this. It would generally prohibit PBMs from collecting rebates or discounts for medicines sold through Medicaid managed plans or Medicare Part D, the federal government’s prescription drug benefit for seniors and people with disabilities. Such discounts and rebates would only be permitted if they were passed on to patients at the pharmacy.
The reform would make it easier for many of America’s sickest patients to afford their medications. That could help drive down overall health care spending.
Here’s why. Patients often struggle to follow their prescribed treatment regimens when they face high out-of-pocket drug costs. According to one analysis, when drug co-pays double, rates of prescription adherence fall by as much as 45 percent.
That non-adherence is a factor in 10 percent of all hospitalizations. All told, non-adherence costs our health care system between $100 billion and $289 billion each year.
Reducing out-of-pocket costs would improve medication adherence, thereby helping prevent needless human suffering while saving our country billions of dollars in medical spending.
Right now, the sickest patients pay a disproportionately high share of drug costs. The administration’s proposal would reduce out-of-pocket spending, helping more Americans afford the prescriptions they need to stay healthy.