One vial of insulin costs between $3 to $6 to manufacture. There are more than 200,000 diabetics in Virginia alone who rely on the medication to stay alive. But around a quarter of those people skip doses they can’t afford. Although the nearly century-old drug is relatively simple and inexpensive to produce, patients are charged more than $300 a vial.
Gary Dougherty, the director of state government affairs at the American Diabetes Association, said a lack of transparency around prescription drug pricing is the root problem.
On Monday morning, members of the Virginia House of Delegates Drug Pricing Workgroup assembled via Zoom to discuss potential solutions.
The Problem is PBMs
Several experts on the prescription drug supply chain joined the workgroup meeting, and all drew essentially the same conclusion. The main contributor to out-of-control costs is an utter lack of transparency, particularly with regard to pharmacy benefit managers. Pharmacy benefit managers, or PBMs, are companies that manage prescription drug programs for health plans and insurers. PBMs negotiate with drug manufacturers on costs, as well as determine which drugs will be included on a health plan’s “formulary.” The formulary is a list of specific drugs that will be covered by an insurance plan.
Dr. Madelaine Feldman, a New Orleans-based rheumatologist and advocate for transparency who joined the workgroup meeting Monday, said this relationship creates a set of “perverse incentives” that lead to higher costs.
Basically, PBMs make money for each prescription filled at a pharmacy. To convince PBMs to include their drugs on a given formulary, manufacturers will offer rebates on the drug as well. Feldman explained a hypothetical formula that determines PBM profit: the manufacturer’s listed price for a drug x the percentage rebate offered to the PBM x the number of prescriptions filled. The manufacturer has little control over the third variable, but is incentivized to increase both the list price and the rebate percentage to convince PBMs to put drugs on the formulary.
Rather than drugs that are the most efficacious, for instance, being offered to patients, often the ones on the formulary are simply the most expensive. To further complicate matters, these contracts between drug-makers and PBMs are considered proprietary, which means no one knows exactly how much money is exchanging hands or what is reflected in drug prices.. Oftentimes, the only way to get the data, Feldman said, is to sue.
The language PBMs use to market their services further obfuscates the issue, Feldman said.