Thursday, January 18, 2018

Do Consumers Deserve Rx Savings?

Guest Blog By: Marcus J. Hopkins, Blogger

In 2017, President Trump became infamous for proclaiming, “Nobody knew healthcare could be so complicated.” In reality, every legislator and policy wonk in America knew healthcare was complicated; but, for everyday Americans, healthcare is often no more complicated than going to a physician and being treated. When you get into the weeds of how the whole system (in America…) works, it becomes needlessly complex with so many working parts, it’s no wonder a stable genius can make neither heads, nor tales of it.

Photo of President Donald J. Trump
Photo Source:

This is the case with drug pricing. For people living with HIV/AIDS (PLWHAs) and other chronic illnesses that require “specialty” pharmaceutical products (read: drugs), what happens between our prescriptions being written and the price we pay for purchase is often so nebulous that trying to decipher the process as a layman is nigh impossible.

High drug prices have long been fodder for impassioned debates between manufacturers who insist that they only price drugs at “what the market will bear,” patient advocates who insist that out-of-pocket costs are too high, and government officials who wring their hands about drug prices, but do little to actually control or lower them. Are these higher brand name drug prices justified? Is it ethical for companies to exponentially increase the price of medicines? What is the purpose of having a Wholesale Acquisition Cost (WAC – which is the list price set by manufacturers) if no one is going to pay it after rebates, discounts, coupons, and pricing agreements? None of these questions ever REALLY get answered, because doing so would send shockwaves through the pharmaceutical industry – and frankly, that’s not such a bad idea.

All these price negotiations and rebates are done behind the scenes, all of which are protected by existing trade secrets laws that prevent the final cost of drugs from being publicly listed, meaning that consumers rarely ever know or realize that the end price they pay when they pick up their prescriptions reflects a price that could be lower if insurance plans changed where those rebates are discounted. Furthermore, as healthcare costs continue to increase by large margins while real wages have stagnated, U.S. consumers end up paying considerably more for medications than any other nation in the industrialized world.

As the cost of health insurance continues to increase, the number of consumers saddled with High-Deductible Health Plans (HDHPs) continues to burgeon, meaning that, during the deductible phase of the policy, patients who have not yet met their deductible are accountable for the full cost of their medications. In most existing payor landscape, if the payor (the insurance company/plan) has negotiated a rebate with the manufacturer, the patient assumes the full burden of the drug cost up front and the payor later receives the rebate on the back end. Payors argue that this practice allows them to “keep member benefit costs – deductibles, co-pays, and premiums – lower.” What ends up happening, however, is that consumers end up paying more, while payors are able to pocket more of the money and lower their share of cost.

Another model, however, exists, where manufacturer rebates are applied at the Point of Sale (POS), lowering the cost to consumers. This requires the payor to assume a greater share of the costs, but those can be offset by minute increases in premiums, allowing the consumer to pay less overall.

If all of this seems mind-numbingly wonky, that’s because it is. The whole landscape of pricing, payors, 340B, ADAP, Medicaid, Medicare, and consumers is such a snarled web of negotiations, rebates, discounts, coupons, and double-dipping, it’s virtually impossible to walk away with an operational understanding of the system in a single blog post. It would likely take an entire year of blog posts just to demystify every aspect of what goes into this mess, and even then, a lot is still protected by trade secrets laws.

If the Centers for Medicare and Medicaid Services (CMS) under this Administration is so determined to save consumers money on drug prices, what really needs to be done is for manufacturers to just lower drug prices. But, that doesn’t serve their primary goal of making more money. The pharmaceutical industry has established a web of systems wherein each individual entity (e.g. – pharmacies, insurers, Medicaid, ADAP) has to individually negotiate with them for a private gross price (“gross,” in this instance not meaning disgusting…but, only just) for the purchase of their products. On top of that, the manufacturers offer them rebates for each purchase, which drives the cost to the payor even lower (and they keep the difference between the gross and rebated prices).

Rx pill bottle with money and pills inside
Photo Source: Piper Report

Because those negotiated prices can’t be revealed publicly, it allows the manufacturers the ability to charge different entities higher or lower prices, thereby increasing or decreasing their profit margins. This kind of pricing structure is virtually unheard of in other parts of the world, because those governments were smart enough to adopt a universal healthcare model, rather than this patchwork quilt system we have in America. Instead, we get stuck with this Frankenstein’s Monster that allows these companies to amass record profits, all while pretending that the cost of research and development justifies the outlandish prices they charge for their products (much of which has already been paid for using taxpayer dollars, meaning they’re essentially selling these products BACK to us).

While it’s great that the pharmaceutical industry claims it wants to help consumers by moving rebate discounts to the front end, their efforts do nothing to mitigate the rising cost of healthcare.

Disclaimer: Guest blogs do not necessarily reflect the views of the ADAP Advocacy Association, but rather they provide a neutral platform whereby the author serves to promote open, honest discussion about public health-related issues and updates. 

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