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Holistic Drug Price Reform Deemed Vital to Avert Cost Inequities

April 16, 2021, 9:50 AM

Lawmakers seeking to lower drug costs should take a comprehensive approach rather than focus solely on manufacturers’ pricing practices—a strategy that has only spurred disparities in the marketplace, policy analysts say.

Drug price legislation will come back to the forefront of policy discussions in the coming months as Covid-19 vaccines become more readily available and lawmakers turn to other issues. But many of the roughly two dozen bills floating around Congress primarily address the prices drugmakers set and ignore other aspects of the supply chain, such as the pharmacy middlemen that control how insurance pays for medications.

It’s a warning sign that lawmakers might not have a full grasp of the bigger picture and what needs to change to make drugs more affordable.

“We have often said let’s just get better rebates for Medicaid” or just do more drug discount programs, Antonio Ciaccia, CEO of the drug price research group 46brooklyn Research, said.

“The real problem is that creates a horrible system of inequity in the market,” he said. “If Medicaid gets the best deal, who gets the worst deal? Small employers and patients who pay out of pocket are the ones who pay the price.”

Most Americans agree they pay too much for their medications, but what each person ends up paying can vary drastically depending on discounts or their insurance coverage.

Medicare enrollees may pay just $35 for a 30-day supply of insulin. For those with insurance that isn’t Medicare or Medicaid, out-of-pocket costs for insulin typically vary from 0% to 20% of the total cost of their prescription, according to research by the Commonwealth Fund. People without insurance typically have to pay the full retail price of their insulin, some of which can be more than $1,000 per vial, according to drug price comparison website GoodRx.

That variance is because larger insurance groups have the financial leverage to demand better rebates for drugs. The government is the largest purchaser of drugs in the country, which is one reason Medicare and Medicaid plans can demand the best discounts.

To be effective and create an even playing field for all Americans, lawmakers have to dismantle a system that allows one person to pay nothing for a drug, and someone else to pay hundreds of dollars, Ciaccia said.

Pharmacy Middlemen

What people pay is increasingly no longer dependent on the initial price drugmakers set on their products. It’s instead based on what discounts other entities in the supply chain negotiate. Those entities include pharmacy benefit managers, which help decide how a drug will be covered by insurance.

Drug companies say the current system forces them to keep prices high because pharmacy middlemen demand high discounts to give products preferential treatment.

Congress is considering a slew of bills that focus on boosting access to affordable Covid-19 drugs and rare disease medications. Other bills would enable the government to directly negotiate prices for federally sponsored health insurance plans.

Many of those measures focus primarily on drugmakers’ actions by making it harder for them to claim marketing exclusivity, or by allowing the government to negotiate with the companies directly. Marketing exclusivity allows one company to block cheaper options from coming to the market.

Still, one bill, S. 298 by Sen. Marsha Blackburn (R-Tenn.), would require the Government Accountability Office to study the role pharmacy benefit managers play in the drug supply chain and provide Congress with policy recommendations.

That bill was introduced in February and has yet to see action.

The Balloon Can Shrink

It’s unclear whether measures letting the government directly negotiate drug prices would lead to disparities in costs based on people’s insurance, Stacie Dusetzina, an associate professor and drug price researcher at Vanderbilt University.

It would depend on how the bill is written, she said.

Dusetzina said that better discounts for people in Medicare or Medicaid don’t necessarily mean a worse outcome for those in private plans.

“The squeezed balloon assumes we have to manage this amount of profit the industry wants,” she said, referring to a common phrase in the drug policy world that describes costs shifting from one group to another. “The balloon can get smaller.”

A bill that the House passed in 2019 would have addressed that issue by allowing private plans access to whatever price federal officials negotiate. Democrats are considering including some aspects of that bill in the infrastructure package President Joe Biden is negotiating, but the final language is still in the works.

Price negotiation bills introduced so far in this Congress don’t include language allowing private plans access to federally negotiated prices.

A Shift in Thinking

The last four years of drug policy discussions haven’t resulted in substantial changes to drug prices, but they have brought niche elements of the drug supply chain into public discussions.

Those elements include how patents work and marketing exclusivity rights for rare disease drugs.

One bill that cleared both chambers in the last two months, S. 415 by Sen. Bill Cassidy (R-La.), would modify which drugs qualify—based on their chemical makeup—for five-year marketing exclusivity under the Federal Food, Drug, and Cosmetic Act. That measure now goes to President Joe Biden for his signature.

Too many exclusivity loopholes for drugs are among the biggest factors that lead to “runaway prices,” according to Robin Feldman, a drug price researcher and professor at the University of California’s Hastings College of the Law.

But the other driving factor is the pharmacy benefit manager system that allows costs to fluctuate so much for patients depending on their insurance coverage, she said.

Feldman isn’t convinced Congress will have the consensus among lawmakers to pass something comprehensive though.

“The arrival of the pandemic had the effect of hitting the pause button on drug pricing conversations,” she said. “But we’re about to hit play again, and the question is are we back at the same place or someplace different?”

To contact the reporter on this story: Jacquie Lee in Washington at jlee1@bloomberglaw.com

To contact the editors responsible for this story: Fawn Johnson at fjohnson@bloombergindustry.com; Alexis Kramer at akramer@bloomberglaw.com

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