Addressing drug affordability and accessibility will involve tackling the interrelated problems of high prices and problematic pharmacy benefit manager practices, says Benjamin N. Rome, M.D., with Brigham and Women’s Hospital in Boston.
Making drugs affordable and accessible to patients will require making trade-offs, says Benjamin N. Rome, M.D., M.P.H., a faculty member of the Division of Pharmacoepidemiology and Pharmacoeconomics at Brigham and Women’s Hospital in Boston. Here he discusses the impact of the Inflation Reduction Act of 2022 and how PBMs contribute to high costs.
Q: What is driving high drug costs?
A: High drug prices are a real problem in the United States. There are two big main concerns. So one is that prescription drugs represent $1 of $7 spent on healthcare, and that’s a rising percentage. The other concern is that high costs get passed on to patients. Patients end up paying high out-of-pocket costs and many can’t afford their medicines.
The main driver of high drug prices in the United States is that we give brand name drugs a period of market exclusivity. Drug makers set extraordinarily high prices during that time because they don’t have competition to bring down the price. The price for a new drug coming out on the market has increased dramatically over the last few decades. In 2008, a new drug cost on average $2,000 a year. In 2021, that had increased to $180,000 a year.
Q: Do PBMs contribute to high drug prices?
A: The PBM has a lot of leverage to negotiate lower prices with the drug companies. Health plans save money by essentially outsourcing and hiring the PBMs to purchase the prescription drugs for them.
But the way that they save money on brand-name drugs is problematic. They negotiate rebates with drug manufacturers, and those rebates come back to the PBM and the health plan. They don’t go to patients. Patients might be paying based on a high price that doesn’t really reflect what the health plan and the PBM are paying for that drug. You have situations where PBMs are negotiating extraordinarily high rebates.
There needs to be more transparency on the rebates. The practice of allowing the PBM and the health plans to charge patients out-of-pocket costs that are based on the list price but set by manufacturers is wrong.
We want PBMs and health insurers to be able to direct patients and to make sure that there are safeguards on the system. We can’t have a system with the prices we have and eliminate all of those guardrails. That would result in drug companies being able to charge whatever they want.
Ideally, we need to see policies that tackle both sides at once: the high prices and PBM practices that prevent accessibility and affordability. These are both big problems and they’re definitely interrelated. If we just tackle the high prices, there is no real assurance that the health plan and the PBM will lower the out-of-pocket costs for patient.
Q: What do you think will be the impact of the Inflation Reduction Act of 2022?
A: The Inflation Reduction Act will have probably the biggest effect of any policy we’ve seen passed in the last couple of decades on drug pricing. It’s really a major achievement, and it changes a lot of things about the way the ecosystem will work. First, it’s the first time Medicare will be able to negotiate prices for certain prescription drugs. Historically, Medicare has not been able to do that.
There are two other policies that will impact pricing. One is that Medicare is going to require pharmaceutical companies to pay penalties if they raise the prices of their drugs faster than inflation. There are drugs that came out on the market two decades ago that now cost 500% more than when they first came out on the market.
Additionally, for patients who have Medicare Part D coverage, their out-of-pocket costs are going to be capped at $2,000 a year. When this program was set up, patients were asked to pay about 25% of drug costs. Once they hit what’s a catastrophic threshold of spending, they still were required to pay 5% of drug costs indefinitely with no upper limit. Drug prices were lower then. Now, some cancer therapies cost hundreds of thousands of dollars a year and even 5% is a huge amount. The $2,000 limit is a big deal.