MOLLY RUTHERFORD Inside Sources
In his State of the Union address on Tuesday evening, President Joe Biden defended his drug pricing plans, which would allow the government to set certain drug prices and penalize pharmaceutical manufacturers for rising costs. . He specifically mentioned the high price of insulin that plagues so many diabetics. While the president is right to say that these drug bills are a significant hurdle for many American patients, he’s wrong to blame the drugmakers for their high costs.
On closer inspection, much of the blame for the rising prices of drugs like insulin lies with the convoluted prescription drug supply chain. Policy makers who are genuinely interested in solving this problem – rather than just looking to leverage a popular issue to score political points – should broaden their scope to include solving the supply chain problem.
Here’s what they would find: The drug market is being held hostage by intermediaries known as Pharmacy Benefit Managers (PBMs). These PBMs are owned or affiliated with health insurers. They force drugmakers to pay massive kickbacks, called “rebates,” in exchange for access to insurers’ list of covered drugs. Drugs must be on these lists, called formularies, to become players in the consumer market.
People also read…
These huge reimbursement costs are passed on to patients in the form of higher drug prices. For example, if a manufacturer sells a drug for $100, but PBM requires a $75 rebate to access the insurer’s formulary, the list price of the drug increases to $175. In total, these discounts represent nearly 50% of list prices, artificially raising drug prices by nearly $200 billion a year.
When you remove these unnecessary discounts, drug prices, including insulin, have actually come down in recent years. According to a recent study by the Journal of the American Medical Association, list prices for insulin have increased by 40% since 2014, but net prices, in the absence of discounts, have fallen by more than 30%.
The rebate system “is a legal extortion,” said Rod Regalado, the father of a teenager with type 1 diabetes, of the opaque insulin pricing system. Like many Americans, he had no idea the paid supply chain was to blame until he explored the underground world.
Last year, a Senate Finance Committee report revealed the role of PBMs in driving up insulin costs. He pointed out how the discounts accounted for 80% – $339 off the list price of $429 – of the cost of a standard box of insulin pens. He also revealed that between 2013 and 2018, the insulin discounts charged by a PBM increased from 2% to 56% of the list price. Think of the annual savings for the average diabetic if these unnecessary discounts were removed.
Perhaps the most pernicious aspect of the Soviet-style drug reimbursement system is its role in deterring the adoption of cheaper drugs. Because cheaper drugs are eligible for lower discounts, PBMs resist including them in formularies. As a result, cheap alternatives like insulin glargine, which costs a third of the price of its brand name counterpart, cannot gain a foothold in the market. As a result, insulin glargine languishes on the fringes of the market, while high-discount, high-list-priced alternatives dominate.
Patients can circumvent this cartel and benefit from significant savings on prescription drugs by contracting directly with their treating physician or an independent pharmacy. Direct primary care physicians like me save our patients hundreds of dollars each year by circumventing the inflationary PBM reimbursement system.
Decreasing prescription drug prices do not sit squarely with the fair talking points that pass for political discussions today. Only by taking a holistic approach to the issue, looking at the entire drug market, from research and development to a patient’s medicine cabinet, can policy makers hope to resolve this problem. If they take this approach, they will soon see that PBM middlemen are the culprits behind the rising drug prices that plague ordinary Americans.
Dr. Molly Rutherford, MD, is an independent physician practicing in Kentucky and a member of the Job Creators Network. She wrote this for InsideSources.com.
A Senate report last year found PBM discounts accounted for 80% – $339 off the list price of $429 – of the cost of a standard box of insulin pens.