Promoting freedom, innovation, and growth

Connect with IPI

Receive news, research, and updates

November 7, 2018

Seeking Clarity on Drug Pricing

  Washington Times

Health and Human Services Secretary Alex Azar wants to make prescription drug pricing more transparent. We agree, but his well-intentioned plan will only confuse and mislead consumers. What’s the good of listing drug prices in advertising if almost no one pays that “list price?” When patients say, “My drugs are too expensive,” they’re not talking about the list price — they’re talking about their co-pays at the pharmacy.

While pharmaceutical companies determine a drug’s list price, known as the wholesale acquisition cost (WAC), health insurers and pharmacy benefit managers (PBMs) determine what patients will actually pay for those drugs. These “payers” negotiate discounts and rebates from drug companies that can reach 40 percent or 50 percent off the WAC price. Unfortunately, these health care middlemen keep much of those savings and pass only a paltry portion of the discounts on to consumers.

Even more troubling is that unlike other health care sectors, patients’ co-pays and co-insurance are often based on the higher list price rather than the significantly discounted payer cost. According to a 2017 study by Amundsen Consulting, more than 50 percent of commercially insured patients’ out-of-pocket spending for brand name biopharmaceuticals was based on full list price, with no discounts included.

Yes, there needs to be pricing transparency throughout the health care ecosystem. But why start with prescription drugs? According to HHS, prescription drugs account for only 10 percent of our total health care spending (14 percent if you include hospital-delivered drugs), while hospitals represent a whopping 32 percent. Do patients know how much their hospital bill will be when they go in for surgery? How much the anesthesiologist will cost? What about diagnostic and lab tests? Since it’s a much larger slice of the pie, why isn’t Mr. Azar starting with hospital pricing transparency?

At least with prescription drugs patients can ask a pharmacist how much the drug will cost and comparison shop between pharmacies. Try comparison shopping the price of a hip replacement or figuring out how much your insurer will be paying for your hospital stay.

Mr. Azar says, “Since 1958, car companies have been required to post their sticker prices. People still get discounts when they go to purchase a car, but sticker prices are considered an important piece of consumer information. There is no reason it should be any different for drugs.” Actually, there’s a very good reason: Consumers pay for cars out of their own pockets, so the price is very important to them. That’s not true for health care.

When patients walk into a hospital, doctor’s office or pharmacy, the vast majority receive either private or public health insurance that pays most of the bill. As a result, there has been little consumer demand for pricing information. That’s an important fact that makes health care different from virtually every other sector of the economy.

When patients complain about the high cost of drugs it’s because their co-pays have grown significantly. Today many insurers require a co-insurance payment of 20 percent to 40 percent of the cost for innovative drugs for serious and life-threatening conditions, such as Multiple Sclerosis and rheumatoid arthritis.

Over the last five years, pharmaceutical spending has increased by 38 percent while the average individual health insurance premium has increased by 107 percent — and that excludes rising deductibles and larger co-pays. During the same period, rebates, discounts and fees paid by the biopharmaceutical industry to insurers and PBMs have risen from $74 billion to $153 billion.

Fortunately, President Donald Trump and Congress have taken some steps in the right direction. The president recently signed legislation outlawing PBM-imposed “gag clauses,” which prohibited many pharmacists from voluntarily informing customers that paying for a drug out of pocket was less expensive than their copay.

And Food and Drug Commissioner Scott Gottlieb is working to increase competition between brand name companies and generics.

A key problem with Mr. Azar’s transparency effort is that it doesn’t provide consumers with any context or insights into the complexity of the drug-pricing ecosystem. Nor does it change the convoluted incentives that leave most of the negotiated savings with middlemen instead of patients.

What’s the solution? Real, complete, honest consumer-friendly pricing transparency that gives patients the ways and means to become smarter, savvier value-conscious shoppers in the healthcare marketplace by giving them clear, understandable and relevant pricing information.

Rather than opting for the cheap, politically expedient trick of “blaming Big Pharma,” our national leadership should insist that all members of the health care ecosystem create expert-vetted, user-friendly education programs so that patients (aka “citizens and voters”) know the real costs of what they’re buying, where the profits are going and, most importantly, how they can use this knowledge to become savvier consumers.

Peter J. Pitts, a former FDA associate commissioner, is president of the Center for Medicine in the Public Interest. Merrill Matthews is a resident scholar with the Institute for Policy Innovation.


 

  • TaxBytes-New

Copyright Institute for Policy Innovation 2018. All Rights Reserved Privacy Policy Contact IPI.

e-resources e-resources