On this episode of the podcast, Terry and Bob discuss what goes into a drug price. They pull the curtain to reveal the group of middlemen between drugmakers and the patient that drives up the drug prices patients pay. They highlight the bizarre system of drug rebates, which is the money that pharmaceutical companies pay back to pharmacy benefit managers (PBMs) to get a drug listed on a formulary.
For instance, drugmakers may rebate back $50 million of a $100 million medicine order. The real price of that drug, then, is the total that PBMs paid for it. I.e., $50 million, not $100 million. Though you won’t hear it from the media, net drug prices (list prices minus rebates) have actually fallen or stayed flat in recent years. Due to health benefit designs that charge patients off the list price, patients don’t notice these savings.
Terry interviews Dr. Robert Popovian, VP of Government Relations at Pfizer, to discuss how benefit design and rebates impact medicines’ cost. Dr. Popovian notes that it’s not only PBMs that are driving up the prices of drugs but also pharmacists, wholesalers, brokers, and insurers. Yet PBMs are the main culprit. He explains the rebate system’s perverse consequence: higher-priced drugs are actually preferred to lower-priced ones because they will generate a bigger rebate. As a result, higher-priced medicines end up on benefit design formularies. This means higher costs for ordinary patients.
The difference between the list price and the net price after rebates — the so-called gross-to-net bubble — has been increasing in recent years as rebates continue to grow. Rebates now make up nearly 50 percent of a drug’s list price — about $175 billion out of $450 billion of total drug spending each year.
The net price of insulin has been flat or has fallen in recent years, but insulin rebates have increased driving the list price up. Since deductibles and coinsurance are based on the list price, patients feel like the insulin price is increasing. This Kabuki theater system frustrates patients, patient advocates, and drug price reformers.
Due to market distortions, roughly one-quarter of prescriptions cost more with an insurance card than paying cash. Dr. Popovian also highlights the problem of spread pricing, where PBMs charge payers a far higher price than what they reimburse pharmacists and pocket the difference. He notes that Ohio has lost $200 million annually from spread pricing in its Medicaid program.
Patient correspondent Kate Pecora interviews Jackie Price, who has cystic fibrosis and had a double lung transplant. Jackie explains her quality of life improvements since receiving her transplant and encourages everyone to become organ donors. You don’t need to go to the DMV to become a donor, she explains, you can just go to DonateLife.net.