Opinion

Growing Body of Data on Important Drug Cost Questions

By Robert Popovian
July 14, 2020 at 5:00 am ET

Since the beginning of 2019, researchers and states continue to release important data that helps explain how the world of drug pricing, spending and affordability really works. The findings address key policy and economic considerations that have occupied the debate among policymakers for the past decade. The following are 5 key questions and answers that they address.

1. Does rebate contracting impact the price of medicines in the United States?

According to a paper published by the Schaeffer Institute, on average, a $1 increase in rebates is associated with a $1.17 increase in list price. The authors conclude that “…rebates play a role in increasing drug prices and (that) reducing or eliminating rebates could result in lower list prices and reduced out-of-pocket expenditures for some patients.” 

2. Are out-of-pocket costs for the prescription drugs a problem for Medicare enrollees?

While per capita out-of-pocket spending for pharmaceuticals has dropped, the averages are deceiving. Some seniors find themselves faced with the burden of unsustainable drug spending. The Progressive Policy Institute found that 2.9 percent of Americans ages 65 and over have more than $2,000 in out-of-pocket expenditures on prescription drugs. In a second paper, PPI concluded that increasing out-of-pocket spending for seniors is more of a function of increased utilization due to age and ailment rather than rising prices. PPI recommended that the best way to protect seniors is to institute an out-of-pocket cap on their pharmaceutical spend. Medicare Part D does not provide such a benefit for its members, although various pieces of legislation currently being debated in Congress support this policy.

3. Do pharmacy benefit managers share concessions with patients and plan sponsors?

Yes, PBMs do share concessions that they negotiate with biopharmaceutical companies with patients and plan sponsors. However, the percentage they pass through is not what they proclaim publicly. Last month the Texas Department of Insurance released its initial transparency report through legislative mandate, House Bill 2536, which passed in 2019. The TDI report captured the aggregated rebates, fees, price protection payments, and any other payments collected from pharmaceutical drug manufacturers as reported by PBMs from 2016-2019. In the 2019 plan year, PBMs passed on less than 80 percent of all concessions to plan sponsors and less than 2 percent to patients while collecting over $850 million in concessions from the biopharmaceutical industry.

4. Is there evidence that rebate contracting creates misalignment in the formulary design?

The lack of biosimilar coverage by health insurers, especially those medicines that are used to treat chronic illnesses and are heavily rebated, is a prime example of how lower-priced medicines are neglected coverage compared to higher-priced branded biologics. A study published in the Journal of American Medical Association in May by researchers from the Tufts Medical Center Specialty Drug Evidence and Coverage found that 17 of the largest health plans covered biosimilars as preferred in only 14 percent of formulary decisions. In 33 percent of cases, biosimilars were designated as “non-preferred” by the insurer. Regarding small molecules, in a study published in JAMA last year, researchers investigated the placement of branded drugs in the Medicare Prescription Drug Plan formularies when a generic equivalent was available. In the study, researchers found that “…72% of Part D formularies had a lower cost-sharing tier and 30% of Part D formularies had fewer utilization controls on branded drugs for at least one multisource drug.” In both cases, PBMs and insurers preferred costlier alternatives over lower-priced medicines due to higher rebates, leaving patients and the health care system to absorb the cost.

5. What is the impact of biopharmaceutical spending on health care premiums?

For the second year in a row, the California Department of Managed Healthcare calibrated the impact of prescription drug spending on health plan premiums as required by Senate Bill 17, which passed in 2018. For the plan year 2018, prescription drugs accounted for less than 13 percent of total health plan premiums. After rebates were taken out, the net prescription expenses accounted for 11.2 percent of total health plan premiums in 2018. The results were very similar to those released by DMHC in 2017. 

As we embark on another round of discussions on how to best address health care costs and patient affordability, policymakers should focus on all relevant data, research and evidence that is available to them, rather than catchy one-line axioms put forth by uninformed parties. 

Robert Popovian is the vice president of Pfizer U.S. Government Relations.

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