Health care prices are always on the minds of consumers. This is no surprise since Americans now spend more of their disposable income on health care than at any other point in U.S. history. Scandals like the surge in EpiPen prices add fuel to a perpetual fire over rising health care prices in the United States, including the cost of prescription drugs.
However, during the Independent Voter Project’s annual Business and Leadership Policy Conference, professionals in the biotech industry explained that patients are often denied the right information about the cost of their prescription drugs, including who all controls these prices.
Biotech professionals are often labeled as the bad guy, because the myth is that pharmaceutical companies solely control the prices that patients pay at the pharmacy. But the system is far more complex and complicated than that.
If the list price goes up on a pharmaceutical drug, that will have an effect on the price patients end up paying at the pharmacy. However, according to industry experts present at the panel, what patients pay at the pharmacy has less to do with the list price and more to do with the price insurance companies agree to pay.
This leads to a scenario where the pharmaceutical companies will point the finger at health insurance companies in the event of raised prices and the insurance companies will point the finger right back at them.
However, when it comes down to it, many people just don’t understand the process, which goes something like this:
A list price is first set by drug manufacturers. In over three-quarters of the market, these companies then enter into negotiations with pharmacy benefit managers (PBMs). Never heard of a PBM? Most patients haven’t.
According to the American Pharmacists Association:
“PBMs are primarily responsible for developing and maintaining the formulary, contracting with pharmacies and negotiating discounts and rebates and drug manufacturers, and processing and paying prescription drug claims. For the most part, they work with self-insured companies and government programs striving to maintain or reduce the pharmacy expenditures of the plan while concurrently trying to improve health care outcomes.”
PBMs act as middlemen between the pharmaceutical companies and pharmacies -- along with the insurance companies. When they negotiate a rebate, they can then decide what percentage of that rebate they will keep before passing the cost down.
At the end of the day, what patients end up paying is based on what their employer or insurance company agrees to pay for the drug, which can be around 20% of that price. Complicated? Yes. Is it hard for the average person to understand? Absolutely. And understandably so.
But most of the time people assume it is just the pharmaceutical companies that control how much patients pay when they go to the pharmacy because of what they read or hear in the news.
In the case of the EpiPen scandal, the situation is rare because EpiPen has a monopoly over the epinephrine dispersal market. It is actually one of the few instances where such a monopoly exists in the prescription drug and biotech industries. One of the key factors that keep drug prices low is competition, often generated when generic or alternative forms of a medication are manufactured.
When it comes to the dispersal of epinephrine, which can save the lives of those suffering an anaphylactic allergic reaction, there is no competition to ensure prices stay low. In fact, since Mylan, the manufacturer of EpiPen, owns a patent on its auto-injector design through 2025, the bureaucratic red tape at the FDA makes it impossible for competition to emerge.
To understand the importance of competition, consider for a moment that according to Devon M. Herrick at the National Center for Policy Analysis, while the average cost of a name-brand prescription was $268 5 years ago, it was only about $33 for generic drugs. Generic drug makers, in theory, should face unlimited competition which keeps prices down and in check.
However, if anything gets in the way of competition emerging, it can be volatile to the market. In 2014, for instance, the price of approximately a quarter of generic drugs rose 10 percent to 100 percent in price.
“Due to industry consolidation — and an FDA that is slow to approve new entrants into the field — there are many generic drugs for which there are only two or three competing manufacturers,” Herrick writes.
At the end of the day, what policy experts and industry professionals can agree is that the system is far more complicated than patients and consumers are led to believe by coverage of things like the EpiPen scandal.
The low hanging fruit is to paint with a broad brush everyone in the biotech industry, when most got into the field with good intentions and the actions of a couple bad actors have put a scarlet letter on all their chests. Most people have no idea exactly all the players who control the price of prescription medication.
They also agree that competition is key to keeping drug prices down. Whether that means not discouraging more drug manufacturers from entering the market (on both the private and public sides) or making regulatory processes more efficient and beneficial to both the industry and patients who need specific and customized treatment.