The Pain of Prescription Drugs
According to National Health Expenditure data, Americans spent $333 billion on prescription drugs in 2017, far more than any other industrialized nation. This is an increase of almost 40% from 2007.
In roughly the same ten year span, data provided by the Drug Accountability Office shows that prescription pharmaceutical sales increased from $500 billion per year to $700 billion. Yet research and development of new medications accounts for only a small percentage of that increased cost.
A January 17, 2019, article published by Alison Kodjak of National Public Radio stated that, "While some new drugs entering the market are driving up prices for consumers, drug companies are also hiking prices on older drugs... the skyrocketing cost of many prescription drugs in the U.S. can be blamed primarily on price increases, not expensive new therapies or improvements in existing medications as drug companies frequently claim."
A recent USNews report cited a new study, published in Health Affairs in January, 2019, that examined the list prices of drugs (both brand name and generic) in a large pharmacy database from 2005 to 2016. Researchers found that older brand-name drugs had the largest price increases. In fact, older brand-name drugs continually increased around 9 percent per year.
"The main takeaway of our study should be that increases in prices of brand-name drugs were largely driven by year-over-year price increases of drugs that were already in the market," said Inmaculada Hernandez, an assistant professor of pharmacy at the University of Pittsburgh, and the lead author of the study.
Drug companies continue to raise the prices of basic and even generic medications that have been on the market for years, if not decades. These continuous price increases force millions of patients to forego medication, putting their lives at risk.
As an example, the USNews report also noted that "insulin, which is needed by Type 1 diabetics for survival, has nearly quadrupled in price, leaving many patients with difficult choices. The price of Lantus, a brand-name insulin that's a mainstay of treatment as a long-acting drug that helps diabetics stay under good control, saw a 54 percent price increase in 2014 alone, even though it's been on the market for decades."
In May of 2019, the Attorney General of Minnesota filed a federal lawsuit against the makers of Insulin – Eli Lilly, Sanofi and Novo Nordisk – after the death of a young man with diabetes who was rationing his insulin due to rising costs.
Drug prices are skyrocketing, yet government oversight and regulation of drug prices is limited. Medicare, by far the largest insurer for Americans over the age of 65, is currently barred from negotiating directly with pharmaceutical companies to lower prescription drug prices for their insured.
In a Letter To The Editor published in the Blade-Empire on August 30, 2019, pharmacist Robb Rosenbaum of Funk Pharmacy stated, "Pharmacy Benefit Managers (PBMs) are the main reason drug costs are increasing. PBMs negotiate discounts with drug makers and don't pass the savings on to the patients."
What, exactly, is a PBM? In a very broad sense, it is a third-party administrator - a middleman - of prescription drug programs for commercial and self-insured health plans, including Medicare Part D plans. But the convoluted role they play in setting the price, and escalating the cost, for the vast majority of prescription drugs is much more complicated.
An article written by Jessica Wapner in the March 17, 2017, edition of Newsweek magazine stated that, "PBMs quietly became an integral part of the path a drug takes from the manufacturing facility to a bathroom medicine cabinet... in recent years, PBMs have become a cause for alarm because they drive up drug prices and interfere with patients' access to medications."
The article goes on to state that, "But even as drug prices and access have become increasingly at the mercy of PBMs, how PBMs operate has remained mostly hidden."
Community Oncology Alliance Executive Director Ted Okon released a startling report exposing how PBMs work and the damage they are causing. "Three firms - CVS Caremark, OptumRx, and Express Scripts - control an estimated 80 to 85 percent of the market, possibly even more," Okon said.
Despite federal anti-trust laws, three PBMs monopolize the prescription drug market and have earned billions in profits while driving up the cost of prescription drugs to consumers.
How does a PBM work? It's convoluted and complicated. Intentionally.
"Let's say a manufacturer assigns a list price of $10 to a given drug," Okon said. "The PBM then tells the company that it will not list the drug on its formulary unless it receives a discount. The pharmaceutical company offers the PBM a discounted price of $8. If the PBM does not accept that price, then the company may offer a rebate of an additional $2 if sales of the drug reach some designated amount. The more powerful a PBM is, the greater discount they can demand... the fact that three PBMs control the vast majority of the market makes these three companies very powerful."
If PBMs are acquiring the drugs at a discounted price, why are consumers paying hyper-inflated prices?
"(PBMs) charge fees to pharmacies... PBMs make more money from paying closer to the list price and receiving a rebate rather than an upfront discount. The higher the price of the drug, the higher the PBM fee at the pharmacy... They are taking fees based on the list price, but the net price that the PBM is paying for the drug is much lower than that because of rebates. As a result, they set list prices higher so that the eventual negotiated price will be as high as possible."
In the Newsweek article, Okon then added, "... In terms of cost, patients are now paying copays to their insurers for medications, and they are paying, directly or indirectly, the PBM fee. And all these fees are based on the list price, which is not really what the PBM is paying... The more patients on Medicare pay for prescription drugs, the faster they enter the so-called "doughnut hole," when they are responsible for all their health care costs. And the faster they enter the doughnut hole, the faster they leave it, which increases taxpayer-funded Medicare costs.
"I think we have come to a point where not only are PBMs not doing anything good, they are actually doing the opposite," Okon concluded. "Delays, problems with access and higher prices are all resulting from how PBMs are operating. They are pushing drug prices higher and placing extreme pressure on pharmacies because they want to steer that business toward themselves. PBMs used to be the sheriff. But they've become sheriff, jury, judge and executioner, all wrapped into one."
While PBMs exert a tremendous influence on the overall pricing of drugs, pharmaceutical companies have initiated their own measures to increase profits and protect their product. Patents protect many brand-name medications from generic competitors, but sometimes it's a matter of lawyers and lobbyists flouting vague legal guidelines and ineffective federal policy. In the case of insulin, the three brand-name makers actually filed a lawsuit to halt the development of generic bioequivalents, which would have greatly reduced the price.
As noted in the Kodjak article for National Public Radio, "mergers and acquisitions in the pharmaceutical industry create monopolies. When drug makers combine efforts and expand their drug portfolios, they have more bargaining power with PBMs and can set prices higher. There is no transparency to these price negotiations, and ultimately the costs are passed on to government, insurance companies, and sadly – patients.
All of these legal machinations take place under the 'watchful' eye of Congress and government regulators. Needless to say, PBM and pharmaceutical company lobbyists exert tremendous influence on Capitol Hill.
The rising cost of medication needs to become a hot-button issue for the Trump Administration. The Food and Drug Administration states that it is working toward a low-cost approval process for generic bioequivalent drugs in an effort to spur competition and the development of cheaper alternatives.
The Democrat-controlled House of Representatives has announced plans for the House Oversight and Reform committee to hold hearings to examine drug price increases, and Chairman Elijah Cummings has said that he expects pharmaceutical executives to testify before the committee.
"We need major PBM reform in order to reduce the cost of medications for all," Rosenbaum said. "We encourage everyone to reach out to your Senators and Representatives today and ask them to "Fix DIR" and hold PBMs accountable for excessive medication costs."
There seems to be no reasonable explanation why prescription drugs in the United States are, on average, almost 50% more expensive than in other industrialized nations, other than a desire for massive profit that puts the health of millions of American citizens at risk.