Friday, March 16, 2018

Profits and Drugs

The market price of popular insulin products has skyrocketed in recent years. Some people with diabetes go broke paying for their medicine. Others have died while attempting to ration dosages.

Three of the largest insulin manufacturers have refused to seek a settlement in a class action lawsuit filed against them on behalf of diabetes patients. The drug makers Eli Lilly, Novo Nordisk and Sanofi-Aventis asked a federal judge in New Jersey to dismiss the case and suggested that the plaintiffs turn their attention to insurance companies instead.

Food and Drug Administration (FDA) Commissioner Scott Gottlieb has also put insurers on notice. In a speech before an insurance industry conference last Wednesday, Gottlieb said that current pharmaceutical pricing agreements between insurers and drug manufacturers have saddled people living with serious or long-term illnesses (such as diabetes) with the cost of keeping premiums lower for everyone else.
"But sick people aren't supposed to be subsidizing the healthy," Gottlieb said. "That's exactly the opposite of what most people thought they were buying when they bought into the notion of having insurance."
Gottlieb was referring to the system of "rebates" that currently controls the price of pharmaceuticals. Under this system, drug makers pay billions of dollars to insurance companies in order to sell drugs to people enrolled in health plans. It's a system that benefits people who can afford expensive insurance coverage, but for many working people, this system is a total failure. 
High drug prices are usually blamed entirely on pharmaceutical companies because they make the drugs and set the prices. However, these manufacturers do not set prices in a vacuum: They say they shape prices around the costs of rebate payments they're required to make to insurance companies in exchange for selling prescription drugs to their members. These rebating agreements are at the center of the drug pricing system that a growing chorus of advocates and policy makers say must change. Insurance companies are making secret deals with drug manufactures, and that's why people with health coverage don't pay full price for drugs at the pharmacy. These "kickbacks," as advocates call them, raise an important question: Are insurance companies giving customers what they pay for?
 How the system works
 Pharmacy benefit managers (PBMs) work with insurers to decide which drugs will be covered by their health plans. This provides PBMs with considerable leverage over drug makers. In 2017, the three largest PBMs -- Express Scripts, OptimaRx and CVS/Caremark -- controlled access to about 72 percent of the drug market, according to the Drug Channels Institute. This explains why individual insurance plans cover certain types or brands of medicines and not others.
Using this leverage, PBMs make secret agreements with manufacturers like Novo Nordisk and Eli Lilly to place their drugs on health plans in exchange for large discounts and rebate payments. The PBM keeps a percentage of the rebate, and the insurance company takes the rest.
This gives drug companies access to millions of customers in exchange for billions of dollars in discounts and rebates that can significantly lower costs for people with health coverage, depending on how insurance companies share the savings. The Drug Channels Institute estimates that drug companies spent $127 billion on rebates, discounts and price concessions in 2016 alone. PhRMA, the industry group representing major drug makers, estimates that one third of the original price of all brand name drugs is rebated back to insurers and other members of the supply chain. 
Some drugs are more heavily rebated than others. Insulin, for example, secures rebates for insurers at rates of up to 75 percent of the original market price of the drug, or "list price," according to diabetes advocates. Patient advocates say this system creates perverse incentives that push the price of drugs like insulin through the roof. Insurers can use hefty rebates from commonly used drugs to lower premiums and attract new customers, and the demand for steeper rebates pushes manufacturers to set their list prices higher and higher. As result, many pharmacy benefit plans operate like "reverse insurance," according to Drug Channel Institute CEO Adam Fein.
"The sickest people taking medicines for chronic illnesses generate the majority of manufacturer rebate payments," Fein wrote, "Today, these funds are used to subsidize the premiums for healthier plan members."
People who can afford robust insurance plans may not notice the price increases, but those buying medicine with cheaper plans do. Insurance companies often calculate coinsurance and deductibles with the original list price of a drug, not the after-rebate "net price" they actually pay. That means cheaper health plans with high out-of-pocket costs require patients to pay all or part of the inflated list price until deductibles are paid off. In the case of insulin, that list price could be hundreds of dollars higher than what the insurer pays after rebates.
High out-of-pocket costs are a leading reason why patients don't take their medication, which can lead to medical problems that increase the cost of health care for everyone, according to Steven Knievel, an access to medicines advocate at Public Citizen.
"The practice of raising the list price to increase the size of rebates benefits the drug companies and the PBMs. Both come out winners," Knievel said. "But the consumer is the loser."
Meanwhile, insurers and PBMs tend to include higher-priced drugs that bring bigger rebates on the list of drugs they cover, rather than including cheaper generics and biosimilars.  Major PBMs are increasingly merging with insurance companies, a sign that their interests have long been aligned.
 "Patients shouldn't be penalized by their biology if they need a drug that isn't on formulary," Gottlieb said, referring to a health plan's list of covered drugs. "Patients shouldn't face exorbitant out-of-pocket costs and pay money where the primary purpose is to help subsidize rebates paid to a long list of supply chain intermediaries, or is used to buy down the premium costs for everyone else."
"The manufacturers point the finger at the PBMs and say, 'The rebates that you are demanding are so large that we have to raise our prices to maintain a reasonable rate of returns,'" said Patricia Danzon, a professor of health care management at the University of Pennsylvania, in an interview. "The PBMs say the drug companies are the ones that set the prices, and we are only trying to get the best prices for our customers."
 For example, manufacturers claim to be unfairly singled out by a growing number of state-level drug-pricing transparency laws, and they are eagerly promoting research suggesting that insurers are not passing savings from drug rebates on to their customers.
The result is an opaque blend of public relations messaging and raw economics. There are profiteers standing on all sides of the drug pricing equation. Consumers are stuck in the middle, shelling out monthly premiums along with rising out-of-pocket costs at the pharmacy. It's a system of profit built on the backs of sick people. 

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