A primer on prescription drug prices, pharmacy benefit managers, government action, and why physicians need to be heard.
The soaring price of prescription drugs is a huge thorn in the side of the U.S. health care system. Not only has the cost of new drugs risen more than 10% year-over-year on average for the last 13 years, but nearly 50% are now priced at $150,000 or more annually, up from just 9% in 2008-2013.
These drastic increases are having an overwhelmingly negative effect on patients, prescribers, and plan sponsors. In fact, 85% of consumers don’t know the price of a drug before going to checkout, 44% of Americans say they haven’t purchased at least one prescription due to unaffordable costs, and about 125,000 people in the U.S. die per year because they don’t take their medications.
If patients aren’t getting the vital medicine they need to manage chronic conditions, it’s nearly impossible for physicians to accurately treat patients and achieve the outcomes and quality care metrics needed for value-based care initiatives. Between the high cost of drugs and the additive expenses caused by the negative health consequences of nonadherence, payers are then forced to raise premiums. This in turn drives up costs for plan sponsors and ultimately comes full circle to further harm patients in the long run.
In fact, aside from big pharma shareholders, only one player in the health care ecosystem benefits from the soaring cost of drugs: pharmacy benefit managers (PBMs). For years, these middlemen have been siphoning value out of the prescription drug system and driving up the cost of drugs with questionable business practices that leave pharmacies, prescribers, patients, and plan sponsors holding the bag.
Fortunately, the Federal Trade Commission (FTC) is finally taking action, opening an investigation into the business practices of PBMs and, hopefully, releasing the stranglehold these companies have on prescription drug pricing. Simply by shedding light on PBM profiteering through opaque and self-serving strategies, the FTC investigation could expose the outsized influence PBMs have on access to and the affordability of drugs.
The PBM paradigm
The stated purpose of PBMs is to alleviate some of the administrative burden related to processing prescription drug claims and optimizing drug utilization to help manage costs for plan sponsors. Unfortunately, most PBMs have evolved to become vertically integrated pharmacies and adopt opaque business practices that mostly benefit no one but themselves.
For example, pharmaceutical rebates have become a cash cow for PBMs. Paid out by drug manufacturers, these rebates are designed to help lower the price burden of new drugs by reimbursing plan sponsors a portion of the cost each time they’re filled at the pharmacy. The problem is, PBMs are under no obligation to pay the full rebate back to the plan sponsor, and many PBMs pocket a large portion, if not all, of these rebates, often with plan sponsors completely unaware.
Of course, since PBMs are also responsible for establishing a health plan’s drug formularies – the list of approved drugs allowed by the plan – it’s only natural they often favor drugs with the highest rebates, lining their pockets at the expense of patients and plan sponsors.
On the other side of the transaction, PBMs also engage in a practice called spread pricing, a scheme in which, unbeknownst to the plan sponsor, they gradually reduce the amount paid to independent pharmacies for drugs dispensed but continue to bill the plan sponsors a higher price. This not only squeezes pharmacies that are already running on slim margins, but it also keeps drug prices high for patients and plan sponsors, while the PBM pockets the difference between the low price paid to the pharmacy and the higher price billed to the plan sponsor.
Drug pricing transparency: the Rx for better care and improved outcomes
The FTC’s investigation is certainly good news for patients, prescribers and plan sponsors, but it’s not the only solution. There are already commercial programs available to empower patients with direct access to prescription drug pricing data to help them make better decisions. Mobile apps can make it easy for consumers to search for prescribed drugs, discover their out-of-pocket cost instantly, and find the nearest pharmacy with the best price.
For prescribers, getting this data in the hands of consumers can directly improve the quality and efficiency of care and patient outcomes. When patients have the tools to look up prescription drug pricing on demand, they can do so during the initial prescriber encounter, and 73% say they’d be more likely to talk to their doctor about lower-cost alternatives if they knew the price in advance. Giving patients this insight at the point of care not only helps prescribers choose drugs with the right combination of efficacy and affordability, but also helps them decide which pharmacy to send prescriptions to help their patients get the best price. This real-time conversation can drastically reduce prescription abandonment, increase medication adherence, and ultimately improve patient outcomes and overall health, helping providers achieve value-based care metrics.
At the same time, the ability to have this real-time conversation can drastically reduce administrative burden for prescribers. As a matter of fact, 90% of consumers would appreciate knowing the price of a medication before they arrive at the pharmacy and arming them with this data would eliminate the frequent call backs that force administrative staff to serve as personal shoppers, calling around to both the PBM and various pharmacies to help find the best price.
Make your voice heard
Given the impact high drug costs have on the move toward value-based care, physicians must speak up for themselves and for their patients. It’s imperative that prescribers advocate for prescription drug transparency, either in support of the FTC’s investigation by reaching out to your elected representatives, or by making it a priority topic at professional conferences and networking events.
By bringing transparency to drug pricing and reducing the influence PBMs have on driving up prescription costs, prescribers, plan sponsors, and patients can take a more active and informed role in making critical decisions to improve the patient experience and overall population health.
About the Author: Tony Little, ND is vice president of solutions architecture for Prescryptive, a technology company that focuses on prescription drugs and is devoted to drug price transparency. Prescryptive’s mission is to empower patients as health care consumers with information and choice that inspires them to take control of their health.