Delaware State News: The culprits behind high prescription drug prices

James Maravelias, President of the Delaware AFL-CIO and Co-Chair of We Work for Health Delaware, authored the following op-ed for Delaware News Journal.

May 14, 2018

View article on the Delaware News Journal website.

Out-of-pocket health care costs rose by 3.9 percent in 2016, according to a new report by Health Affairs. That was the fastest rate of growth in nine years. And in 2016, national health care costs hit a new record — consuming about 18 percent of the GDP.

Everyday consumers are struggling to keep up. Two in three Americans believe that lowering out-of-pocket costs should be a “top priority” for lawmakers. Almost as many believe that lowering the price of prescription drugs should be a “top priority.”

These concerns are valid. The out-of-pocket costs of prescription drugs, especially, are beginning to take a toll on patients — and there’s much that lawmakers can do. They should begin by looking at the behind-the-scenes role played by little-known middlemen called Pharmacy Benefit Managers, or PBMs.

At the most basic level, PBMs negotiate with drug makers over the price insurers will pay to have a drug included in their formulary. Because PBMs process most prescriptions, they can demand steep discounts or rebates from manufacturers who might otherwise be shut out from access to insurer formularies.

In theory, that’s supposed to lower prices for patients. And so it would, if the PBMs passed those reduced costs from drug makers on to patients.

Let’s say a patient in Wilmington, Delaware has a prescription filled for a brand-name cholesterol medication. The PBM has negotiated a price with the manufacturer, but that price also includes a rebate paid to the insurer weeks if not months after our patient picks up the medication at the drugstore.

For example, the list price on a medication is $100. The pharmacy first collects the patient’s co-pay of, say, $40 and then collects $60 from the insurance company.

Here’s where the funny business comes in: The PBM retains part of the rebate for itself and then gives part of it to the insurer. It doesn’t give any to the patient, who still pays the $40 copay, regardless of the rebate. In the end, the patient ends up paying more than the insurer did. And the PBM makes a profit.

If this scenario sounds like the middleman is making a killing, then you understand perfectly.

Fortunately, regulators in Washington have started to understand this system’s potential for abuse. The whole idea behind discounted prices for medications is to make them cheaper for patients — not to allow middlemen to escape with a hefty percentage of the discount.

The Department of Health and Human Services recently proposed a new rule that requests information on how HHS could share more rebates with seniors enrolled in Medicare Part D, the prescription drug benefit program. This new information could go a long way toward helping seniors in the Part D program lower their out-of-pocket costs.

Lawmakers in statehouses across the country are also considering measures to ensure patients benefit from the fierce negotiations.

This is important work. Managing one’s health is tough enough. Patients need relief at the pharmacy counter. By passing along discounts and rebates on drugs, PBMs can provide this relief.