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New moves to shine more light into an opaque drug pricing system

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The broad array of medicines available, from the newest innovation to the most tried-and-true generic, saves and improves the lives of patients everywhere, providing tremendous value. But the ecosystem in the United States that results in innovative medications being discovered and ultimately dispensed to patients at the pharmacy counter is hampered by an opaque pricing system of fees, formularies and rebates that frustrates pharmacists and, more importantly, hurts patients.

John O'Brien

John O’Brien

We are seeing a growing movement to shed more light on this system. Most recently, the Federal Trade Commission (FTC) has entered the conversation by asking for public input about pharmacy benefit manager (PBM) policies and practices. The information, the FTC said, will help the agency to study what PBMs do and “help inform the agency’s policy and enforcement work.” This effort was supported by U.S. Sen. Charles Grassley, R-Iowa, a frequent critic of all parts of the health care system, who pressed the FTC to look closely at the role of PBMs.

The FTC’s action raises the prospect of greater transparency in the PBM-led rebate system, a system that is chock-full of perverse incentives that lead to roadblocks for patients and frustrations for pharmacists.

Among other topics, the FTC is seeking information about the impact of PBM rebates and fees on net drug prices, as well as on drug formularies and patient access. They also are looking into whether patients are being forced to substitute prescriptions so rebates and fees can be maximized, whether patients are being steered toward PBM-affiliated specialty, mail-order or retail pharmacies, and PBM policies and practices related to specialty drugs and pharmacies.

In what will be familiar to many pharmacists, information already sent to the FTC highlighted worrisome PBM practices that include contract terms restricting access to patients, clawbacks via Direct and Indirect Remuneration (DIR) and Generic Effective Rate fees, steering patients away from community pharmacies, and punitive audit practices, among others.

The National Pharmaceutical Council (NPC) is working to shine a spotlight on the areas of this opaque system that need to serve patients better. This effort includes submitting a comment letter to the FTC on this issue to share our research.

That’s because we recognize that everyone wants to see patients benefit by getting the best medicine for them at the lowest price possible. Ensuring patients have access to the best medicine requires the entire ecosystem to work together.

Unfortunately, our drug pricing system doesn’t always do that. The PBM-led rebate system currently creates an incentive for PBMs and payers to inflate prices higher so the PBMs can pocket bigger rebates, without the savings being passed on to the patient at the pharmacy counter. It is an encouraging sign that the arm of the federal government specifically charged with fostering competition is looking into these issues.

The FTC’s move aligns with what employers are looking for, according to NPC research. Our study, Toward Better Value, showed that employers want to understand the clinical, financial and economic impacts for the PBM-and-insurer driven system of formularies and rebates. But 50% of employers surveyed think PBMs lack transparency about the basis for these decisions.

Beyond the harm to patients, the perverse incentives in the current system hurt everyone – including taxpayers. In fact, a report sponsored by the American Pharmacists Association showed that Medicare Part D could save more than $18 billion yearly through reduced DIR fees and a narrower gap between gross and net prices.

According to IQVIA, the markups on drugs increased total U.S. payer drug costs by 19% or $135 billion in 2020. Even more critically, IQVIA data showed that 33% of drug spending in 2020 went to someone other than the manufacturer of the medicine. It’s clear that the money did not go to pharmacists, and even more critically, it did not go to patients.

Beyond rebates, another area where greater transparency would significantly aid the development of thoughtful solutions is the federal government’s 340B program, created so hospitals and health centers that serve low-income patients could keep costs as low as possible in part by purchasing medications at significant discounts. The program, to date, has been a black box. We do not have the data to show whether the drugs being provided by pharmaceutical companies for next to no cost are actually being dispensed to the intended beneficiaries of the program, and some pharmacies are keeping the full-price payments from other patients for the drugs.

The 340B program’s original design is well-intentioned, but policymakers desperately need better data and more transparency to make sure the program can be sustainable long-term.

As policymakers consider potential decisions about the drug pricing system, it’s vital for them to understand how all parts of our health care system currently work together. That’s why NPC is working to provide data-driven research to help decision-makers understand how proposed solutions may help – or hurt – patient access. More transparency about the drug reimbursement ecosystem will help policymakers arrive at more effective and efficient solutions to help patients than policies like drug price controls that are targeted at just one actor in that system.

Too often, proposals ignore the reality that even with rebate-laden incentives that try to push list prices up, the growth in list prices has been steadily going down. Net prices have grown less than inflation the last four years and actually declined last year.

Furthermore, drug price controls aren’t likely to help patients: NPC research revealed that only 1 in 4 of the health plan decision-makers surveyed would pass along savings from lower-priced drugs to patients via lower copays or a reduced coinsurance rate.

It may be too much to hope for that we can simplify the system, but at least we can join together to call for greater transparency. This may not be an easy task during an election year, but we at NPC are determined to engage in it because better data, better evidence and more transparency can only benefit the people the health care system is supposed to help: patients.

John O’Brien is president and chief executive officer of the National Pharmaceutical Council. He can be reached at [email protected].


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