Drug company CEOs recently ventured to Capitol Hill to testify before the Senate Finance Committee.
The executives got an earful from lawmakers, who are rightly concerned about drug spending. Senators are under pressure from voters, 80 percent of whom say “taking action to lower prescription drug prices” should be one of Congress’s top priorities this year.
To this end, the Trump administration recently proposed a rule that could save patients billions at the pharmacy. The rule would make it easier for Americans suffering from chronic diseases to afford needed medications. The reform could even drive down national healthcare spending.
The rule targets pharmacy benefit managers. Insurance companies hire these middlemen to administer prescription plans and negotiate with drug companies for discounts. Manufacturers offer discounts in exchange for PBMs agreeing to include drugs on “formularies,” the lists of medications that insurance plans cover.
The discounts secured by PBMs are substantial. Total discounts and rebates offered by drug companies ballooned to $150 billion in 2017. These discounts amount to roughly one-third of a drug’s list price.
If drug companies are offering ever-larger discounts, why do medicines seem to be getting more expensive for patients? It’s because insurers and PBMs keep these discounts to reduce premiums.
The lower premiums are nice, of course. But they provide minimal help to those who rely on medications and face high out-of-pocket costs.
For instance, a drug might have a list price of $300, but the insurer might acquire it for just $150 after rebates.
However, insurers don’t calculate coinsurance based on the negotiated price. If patients face 20-percent coinsurance, they’ll have to pay $60 every time they refill their prescriptions. If patients could pay coinsurance based on the discounted price, they’d pay just $30.
That $30 difference adds up for patients who take multiple drugs to manage their chronic diseases.
The Trump administration’s proposed rule would end this. It would prohibit PBMs from collecting rebates or discounts for medicines sold through Medicaid or Medicare Part D. Discounts and rebates would only be permitted if they were passed to patients at the pharmacy.
The reform would make it easier for America’s sickest patients to afford their medications. That could drive down overall healthcare spending.
Here’s why. Patients struggle to follow their treatment regimens when they face high out-of-pocket costs. When drug copays double, adherence falls by as much as 45 percent.
Non-adherence, a factor in 10 percent of all hospitalizations, costs our healthcare system between $100 billion and $289 billion each year.
Reducing out-of-pocket costs would improve medication adherence, thereby helping prevent needless suffering while saving our country billions.
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.
By Kenneth E. Thorpe, professor of health policy at Emory University and chairman of the Partnership to Fight Chronic Disease.
