Prescription drug spending grew even after rebates
While retail pharmacy prices rose 9.1% from 2007 to 2020, negotiated prices grew by only 4.3% annually.
Photo: Josel Luis Pelaez/Getty Images
Speaking to a lack of transparency in pharmaceutical pricing, a new Health Affairs study has found that, over time, out-of-pocket drug prices for consumers have grown more quickly than those encountered by insurers.
Examining the role that rebates negotiated by pharmacy benefit managers play in drug pricing, researchers at the Bureau of Economics compared rebate estimates with claims data over a 13-year period from 2007 to 2020.
They found that while retail pharmacy prices rose 9.1% each year, negotiated prices grew by only 4.3% annually, though consumer out-of-pocket spending grew by 5.8% over that period.
WHAT'S THE IMPACT?
Rebates for drug prices, which are effectively discounts, are negotiated by pharmacy benefit managers, not insurers. These PBMs, authors said, are incentivized to steer patients toward formulary drugs, in turn helping them score manufacturer discounts.
According to the researchers, the privacy of these contracts thwarts price transparency, and the key measures of pharmaceutical prices used to inform policymakers and the public may not accurately reflect the final cost of the drugs.
Out-of-pocket and negotiated prices tracked closely with one another until about 2016, the study found, when negotiated and insurer prices began declining. Based on an analysis of 2020 drug dale volumes, the deviation was attributed to greater increases in deductible payments, copays and coinsurance.
This, authors said, implies that "consumers experience a heterogeneous cost burden, depending on their drug plan's formulary structure. Although consumers with high deductibles or coinsurance may experience high out-of-pocket spending growth, consumers with a low deductible or capped copays appear to be shielded from steep pharmacy price increases."
These rising costs will likely affect low-income patients disproportionately, particularly those who pick high-deductible plans for the lower premium without taking unexpectedly high costs into account.
THE LARGER TREND
According to Nephron research released by PhRMA last year, PBMs are driving up profits and drug prices through fees, demanding double the amount of fees today than they did five years ago.
PhRMA held a report briefing in which Robby Zirkelbach, executive vice president of Public Affairs and Strategic Initiatives for PhRMA, said PBMs are siphoning money out of the system. Three PBMs control 80% of the market, he said. These are CVS Caremark, OptumRx and Express Scripts, which is owned by Cigna. PBMs use their size and scale to negotiate and decide what patients pay out-of-pocket and which medicines they can get, he said.
A report released in January by the Commonwealth Fund determined Americans pay more for brand-name prescription medications than do residents of most other countries. Per capita spending on pharmaceuticals is nearly three times the average of other member nations of the Organisation for Economic Co-operation and Development (OECD), according to the report.
In June, the Department of Health and Human Services, through the Centers for Medicare and Medicaid Services, announced that some Medicare enrollees will pay less for 64 drugs available through Medicare Part B. Under the Inflation Reduction Act and Medicare Rebate Program, some people with Medicare will pay less for some Part B drugs if the drug's price increased faster than the rate of inflation.
Jeff Lagasse is editor of Healthcare Finance News.
Email: jlagasse@himss.org
Healthcare Finance News is a HIMSS Media publication.
