U.S. consumers are overpaying billions for generic drugs due to the cost being driven up by middlemen in the pharmaceutical industry, according to a report from the University of Southern California (USC).
According to the white paper from USC’s Schaeffer Center for Health Policy and Economics, business practices carried out by pharmacy benefit managers (PBMs) have “inflated” the cost of generic medications.
The report cited the rise of generic medications as an American success story, as they allowed more people to access medicines and also enabled the U.S. health care system to save money. According to the most recent estimates cited by USC, generic medications are dispensed 97 percent of the time when they are available.
However, as insurance companies began covering more medicines, sellers began raising the prices, as most consumers did not know the actual cost of their prescriptions, only what they paid at the counter, the report said.
The role that PBMs play in the rising cost of medications has been noted for some time. One way in which PBMs profit off of prescriptions is through a practice called “spread pricing,” which is when they reimburse a pharmacy for one price while also charging health insurance providers a higher price and keeping the difference, or the “spread.”
“Commercial tactics such as spread pricing, copay clawbacks and formularies that advantage branded drugs over less expensive generics have funneled the savings from low-cost generics into intermediaries’ pockets, rather than the pockets of patients,” the report said.
In one example, the report cited how Medicare Part D standalone drug plans paid $2.6 billion more for 184 generic drugs when compared the the prices that Costco members paid in cash for the same medicines.
As the report noted, the three largest PBMs in the U.S. — CVS Caremark, Express Scripts and OptumRx — process almost 80 percent of all retail prescription claims.
“Researchers found that direct out-of-pocket payments by insured consumers to pharmacies for generic prescription drugs declined by about 50% during that time, while the total price—out-of-pocket consumer payment plus the price paid to the pharmacy by the insurer—fell by nearly 80% during the same period,” the report said.
Congressional lawmakers introduced legislation as recently as last month aimed at addressing the issue of rising prescription drug costs and the lack of transparency.
Sens. Chuck Grassley (R-Iowa) and Maria Cantwell (D-Wash.) introduced a bill in May that would hold PBMs accountable for “unfair and deceptive practices that drive up the costs of prescription drugs at the expense of consumers.”
In order to counteract this trend, the USC report suggested policies that would require transparent reporting from PBMs so that regulators could see where the money goes in generic drug transactions. The paper also suggested requiring PBMs to use fixed fees in their transactions so that they are not incentivized to go for higher-cost drugs.