With Coronavirus, Trump White House Should Revive Drug Rebate Reform
By Drew Johnson
High out of pocket costs likely won't be an issue when a treatment for the coronavirus becomes available. Based on past epidemics, it's probable the government will direct patients to receive a vaccine without having to hand over a copay to an insurance company.
Before the current pandemic, the Trump administration was quietly considering reviving a drug pricing reform it abandoned last year.
This policy, which brings transparency to the prescription drug rebate system, could save sick patients billions of dollars at the pharmacy counter. And it would also crack down on the murky middlemen that sit in between drug manufacturers and their customers.
The White House would be wise to move forward with this plan. If slashing out of pocket costs by taking out the middleman is a good policy for a potential coronavirus treatment, it's a good policy across the board.
Americans are struggling to afford their prescriptions. Thirty percent of patients say their pharmacy tabs have increased in the past year, according to a recent survey.
But here's the mystery: Drug industry profits aren't growing. Between 2015 and 2018, the annual growth in industry revenues from brand name drugs was effectively zero, rising at almost exactly the same rate as inflation.
What gives?
At the heart of this problem are bad actors in the drug distribution pipeline known as "pharmacy benefit managers." Health insurers hire PBMs to negotiate drug prices with pharmaceutical manufacturers and to design drug formularies.
Little known to the broader public, PBMs are one of the most powerful players in health care. To ensure their drugs get included on insurer health plans, manufacturers will offer massive discounts to PBMs and insurers -- $166 billion in 2018 alone. These types of discounts slash about 30 percent, on average, from a drug's list price.
The problem is that patients rarely see these savings when they fill their prescriptions. That's because PBMs and insurers don't factor in those discounts when determining how much a patient should owe at the pharmacy through copays or coinsurance fees.
Let's say a patient needs a cholesterol drug that has a list price of $300. The PBM may have negotiated a 50 percent rebate from the manufacturer, which means the insurer paid just $150. But patients are never made aware of these discounts. In most cases, insurers calculate copays based on the pre-discounted list price. So if that patient had a 20 percent copay, for instance, he would pay $60 -- not $30.
A recently released report from the Berkeley Research Group shows that the pharmacy supply chain -- including PBMs and insurers -- absorbs almost half of total spending on brand medicines.
The Trump administration properly diagnosed this problem last year. The Department of Health and Human Services proposed a rule that would require PBMs and insurers to pass along rebates to patients at the point of sale.
Patients would have saved big. Requiring PBMs to pass along those rebates would save seniors with diabetes a whopping $1,000 a year, according to one analysis.
Unfortunately, President Trump abandoned rebate reform last July in response to intense lobbying from insurers. That was a bad decision.
The American public desperately wants Washington to rein in drug prices, and rebate reform is the most effective way to make that happen. Hopefully the White House will learn from a coronavirus treatment that they can offer drug cost relief without jeopardizing research into lifesaving cures.
Drew Johnson is a columnist and government watchdog who serves as a senior fellow at the National Center for Public Policy Research.
